Copper at US$9,990 a tonne lifted Congo’s export tape in April, but not the cushion the franc relies on.

By Kanisa Magazine · April 2021

Congo’s central bank closed April holding about US$0.5 billion in reserves of its own, while the headline reserve figure it publishes stood at US$6.47 billion. The distance between those two numbers is the real external-account story of the month, and a copper price near US$10,000 does not close it on its own.

The BCC weekly digest for 29 April records reserves in the broad sense at US$6,468 million on 28 April, equal to 6.13 months of imports. The strict measure, drawn only from the central bank’s own foreign-exchange position, was US$512 million, or 0.49 months.

For a business reader the second figure is the one that matters, because it is the stock of dollars that can be sold into the market on a bad week.

Two reserve lines, one buffer

Only the strict line belongs to the BCC; the broad line includes money banks hold for clients.

The digest’s own footnote explains the split. The broad series includes the foreign-currency deposits of commercial banks. The strict series, reported since December 2019, counts only the BCC’s currency position. Between 31 March and 28 April the broad line barely moved, from US$6,461.57 million to US$6,468.05 million. The strict line went from US$505.71 million to US$512.19 million.

Set against 31 December 2020, when it stood at US$708.89 million, the strict buffer was still about 28 per cent lower. Four months of a commodity upswing had not rebuilt it.

What the price tape paid for

Metals rose hard from December; what rose with them was miners’ revenue, not the BCC’s cushion.

The same digest tracks the prices. LME copper closed April at US$9,990 a tonne against US$7,803.50 at the end of December, a gain of 28 per cent. LME cobalt (99.30 per cent) was US$47,140 a tonne against US$32,000, up 47 per cent, though it had slipped from US$50,610 on 31 March. The London cathode quote was cut from US$55,629 to US$50,508 a tonne within April. Coltan reached US$70 a pound from US$51.

These are the prices at which Congolese output sells. Most of that revenue is earned and settled in dollars by mining groups, and it counts as national reserves only if it is converted into the central bank’s position.

From tonne to reserve

Dollars enter the BCC’s stock through bank sales and Treasury receipts, and leave through imports and spending.

Two doors lead in. Commercial banks sell surplus dollars into the interbank market, and the BCC can buy them. The Treasury receives dollar payments and holds them in its account. Imports and state spending lead out again. A commodity boom raises the flow through both doors only if the economy lets dollars pass through the banking system.

That is hard in a heavily dollarised economy. A report on the 16 April rate decision put about 85 per cent of bank deposits and 70 per cent of the money supply in foreign currency, with foreign-currency credit above 80 per cent of lending. It also quoted the point that the BCC controls barely a tenth of the money in circulation. Dollars that stay in tills and accounts never become reserves.

What the franc has been paying

Calm so far has been bought with a thin cushion, and the cushion is the number to watch.

The franc has held. The BCC indicative rate went from CDF 1,971.82 per dollar at the end of December to CDF 1,988.07 at the end of April, a slide of 0.8 per cent. The Kinshasa parallel rate stood at CDF 2,012 on 30 April, against CDF 2,020 in December.

On that evidence the BCC cut its policy rate from 15.5 to 10.5 per cent from 19 April, citing exchange-rate stability and an inflation projection of 4.6 per cent against a 7 per cent target, according to the same report. It put reserves at roughly US$500 million, about two weeks of imports, against a goal of US$3 billion. The Lukonde government, named on 12 April with Nicolas Kazadi at Finance, was invested on 26 April and inherits that gap.

What importers and lenders should do with it

Treat the franc’s stability as real, and treat the strict reserve line as its insurance premium.

Importers and distributors should not read a flat exchange rate as a guarantee. A US$0.5 billion cushion can absorb a quiet month of demand for dollars but not a hoarding episode. Spreading dollar purchases through the month, rather than bunching them at month-end, keeps a firm out of the queue that forms when the cushion is tested.

Lenders pricing franc loans at lower policy rates should price in the same fragility. The line to track in each weekly digest is not copper and not the broad reserve total. It is the strict reserve figure, with the US$3 billion target as the yardstick.