Sat, June 15, 2024

DRC Economic Outlook: GDP Growth of 8.5% in 2022

Africa

Quick Look:

  • Real GDP grew from 6.2% in 2021 to 8.5% in 2022, driven by a 20.8% expansion in the extractive sector.
  • Inflation rose to 9.1% in 2022, with the budget deficit widening to 2.8% of GDP due to increased government spending.
  • The DRC faces significant climate adaptation costs of $48.7 billion by 2030, against 2022 government revenues of $11.7 billion.
  • The DRC is the largest cobalt exporter, with China as the primary market, emphasizing the need for economic diversification. ​

The Democratic Republic of Congo (DRC) has experienced notable economic growth. This growth is largely driven by the extractive sector, which expanded by 20.8%, overshadowing the non-extractive sector’s modest 3.2% growth. Exports and investments have been significant contributors, growing by 23.8% and 18.6%, respectively.

However, this growth comes with challenges. Inflation rose to 9.1% in 2022, and the budget deficit widened from 0.9% of GDP in 2021 to 2.8% in 2022. Thereby reflecting increased government spending. Public debt saw a marginal increase from 23.7% of GDP in 2021 to 24.7% in 2022. There was a dramatic surge in credit to the private sector, from 17.8% in 2021 to 39.6% in 2022. That could signal increased financial sector activity. Besides, it could also raise concerns about financial stability and credit risk. International reserves increased by 54%, covering 1.7 months of imports by the end of 2022. Yet this remains insufficient for a country with the DRC’s vulnerabilities. The current account deficit expanded significantly from 1% of GDP in 2021 to 6.4% of GDP in 2022. This clearly indicates a growing imbalance between the country’s exports and imports.

DRC 2023 GDP Forecast at 8%, Inflation to 13.2%

The DRC’s economic outlook shows mixed signs. The country’s real GDP is moving toward growing by 8% in 2023 and 7.2% in 2024. The extractive sector continues its strong performance with at least 12% growth over the next two years. However, this sectoral growth raises concerns about the sustainability and diversification of the economy. The market anticipates inflation to rise to 13.2% in 2023 before potentially easing to 6.5% in 2024. Therefore indicating ongoing economic volatility.

The budget deficit is forecasted to narrow slightly to 2.6% of GDP in 2023 and further to 2.2% in 2024, but fiscal discipline remains a critical challenge. Public debt is projected to average around 24.1% of GDP during 2023-2024, and the current account deficit is expected to average 4% of GDP. Foreign exchange reserves are forecasted to reach $6.4 billion, providing 1.9 months of import cover, yet this is still below ideal levels for economic security.

DRC Climate Costs $48.7B by 2030; Revenues $11.7B in 2022

The National Adaptation to Climate Change Plan for 2022-2026 focuses on developing public-private partnerships to mobilise private finance. However, the plan’s success hinges on overcoming significant institutional and financial barriers. The World Wide Fund for Nature’s initiative in North Kivu province generated $1.3 million, but this is a drop in the ocean compared to the estimated adaptation and mitigation costs of $48.7 billion by 2030. Government revenues in 2022 were $11.7 billion, illustrating a vast gap between available resources and necessary investments. The finance needed for 2021-2030 totals $66 billion, equating to $7 billion annually, leaving a substantial climate finance deficit of $6.2 billion per year.

The mining sector, which dominates the DRC’s exports at 98.9%, has the potential to address this deficit. However, reliance on this sector also poses risks, including environmental degradation and economic vulnerability to commodity price fluctuations. Good governance in exploiting natural capital is crucial for achieving ecological, economic, social, and cultural goals, yet natural capital per capita has declined by more than 5% from 1995 to 2018. The African Development Bank has initiated a $2 million multinational climate finance project to support these efforts, but more substantial and coordinated actions are needed.

Strong Growth Amid Inflation and Fiscal Challenges

In 2022, the DRC maintained its position as the world’s largest exporter of cobalt, with total exports valued at $5.99 billion. China was the primary destination, receiving cobalt worth $5.74 billion, followed by Singapore ($151 million), South Korea ($82.4 million), and the United Arab Emirates ($12 million). The fastest-growing export markets between 2021 and 2022 included China ($1.34 billion increase), South Korea ($58 million increase), and Singapore ($17.5 million increase). While these figures underscore the DRC’s significant role in the global cobalt market, they also highlight the country’s economic dependence on a single commodity.

On the import side, the DRC’s cobalt imports in 2022 were minimal, amounting to $6.77k, making it the 126th largest importer. The primary sources of these imports were South Africa ($3.47k) and India ($3.3k). This low level of imports contrasts sharply with the country’s export profile, indicating a narrow economic base.

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