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War in east is eroding Congo’s budget surplus, finance minister says

Higher-than-expected mining revenue has limited the fiscal impact of fighting a rebellion, Finance Minister Nicolas Kazadi said. (Image by Mwanacongo, Wikimedia Commons.)

The high cost of fighting a rebellion in eastern Democratic Republic of Congo is weighing on the resource-rich nation’s budget, but higher-than-expected mining revenue has limited its fiscal impact, according to Finance Minister Nicolas Kazadi.

Congo’s budget for “exceptional security expenses” has increased more than 10-fold because of the conflict with the M23 rebel group, which has displaced almost 200,000 people, Kazadi said in an interview Tuesday on the sidelines of the Africa Financial Industry Summit in Lome, Togo. The government has also spent more than $400 million subsidizing high fuel costs caused by the war in Ukraine after budgeting only $80 million, he said. 

Windfall revenue from mining, which led to a current-account surplus through the first half of the year, has compensated for much of the unexpected expenses, resulting in little impact on macroeconomic stability, according to the International Monetary Fund. Congo is the world’s largest producer of the battery mineral cobalt and Africa’s biggest source of copper. 

Eastern Congo has suffered decades of conflict since the 1990s, when violence from the aftermath of Rwanda’s civil war and genocide spread across the border. Congo accuses Rwanda of supporting M23, and recent tensions between the two neighbors have raised the risk of renewed fighting in the region, which is rich in gold, tantalum and other resources. Rwanda has denied backing the rebel group.

The unrest comes as Congo prepares to hold elections on December 20, 2023, with President Felix Tshisekedi seeking to renew his mandate.

The unforeseen costs won’t affect next year’s election budget and electoral spending shouldn’t impact the exchange rate of the Congolese franc to the US dollar, said Kazadi. The franc has been stable since a 16% jump in the first months of the coronavirus pandemic in 2020, according to data compiled by Bloomberg.

A ratings upgrade by Moody’s Investors Service this month and a recent positive review by the IMF show the economy is headed in the right direction, Kazadi said.

“It’s an encouraging sign, even if the road is still long in terms of our ambitions,” he said. The government is already seeing a rise in investor interest in industries beyond mining, particularly in agriculture, he said.

Congo is also hoping that the renegotiation of a $6.2 billion minerals-for-infrastructure contract with China will soon lead to more road links connecting the east and west of a country that’s the second-largest in Africa by landmass, Kazadi said. The 2008 deal included $3 billion in infrastructure projects, only a fraction of which have been built.

“We are barely at about $1 billion in investments made under conditions that have not been deemed satisfactory by the Congolese party, both in terms of the control process and the cost,” Kazadi said. “We want to bring more transparency and efficiency to the process” of spending the $2 billion remaining on the contract. 

(Reporting by Ama Tanoh and Michael J. Kavanagh).