South Africa’s largest pharmaceutical manufacturer, Aspen Pharmacare, may have announced a relatively tepid set of annual results for the year ended 30 June 2019, but the anticipation of a reduced debt load freeing up cash flows pushed its share price up 12% the day after its results announcement.
S&P may have jumped the gun by raising DRC outlook
Standard & Poor’s on August 2 raised its outlook on the Democratic Republic of the Congo (DRC) to positive from stable – but the assumptions underlying that change may be too optimistic.
The ratings firm argued that the easing of internal tensions and an improvement in international relations will make it easier for President Félix Tshisekedi to achieve economic growth.
That will enable the DRC to raise new funds from international lenders and reinforce its currency reserves, S&P said.
The positive outlook means that S&P could raise the DRC’s ratings within the next 12 months.
Olivier Lumenganeso, an economist and banker in Kinshasa, welcomes the raising of the outlook and says that the DRC’s first peaceful transfer of power following elections in December in 2018 is a positive sign. Yet, he says, “nothing very concrete has change in macro-economic terms.” S&P could have kept the outlook stable while still sounding a positive note, he says.
According to S&P, the DRC has little commercial debt that falls due before 2022, meaning little risk of a payment default.
Repayment, Lumenganeso says, is not a major problem as the country’s debt levels are relatively modest, partly because the country has not developed the capacity to borrow in eurobonds.
- A bigger problem, Lumenganeso says, is diversifying sources of tax revenue away from the mining sector.
- “Domestic resources mobilization is crucial” for the new president to achieve his program, he says.
Too much attention, Lumenganeso argues, is paid to the DRC’s politics and not enough to civil society and technical capacity.
Enabling micro, small and medium-sized businesses (MSMEs) is key to the country’s future, he says. There is a need to diversify tax revenue away from mining by investing in services, transport, water and electricity.
Tshisekedi will need to tap into “diverse funding sources to succeed in his presidential program, from tax and non-tax public revenues, to public borrowing, to private investments, to innovative sources of finance,” Lumenganeso says.
The extent of Tshisekedi’s real power remains far from clear. The Economist Intelligence Unit (EIU) argues that the country will remain in a period of power flux until the rest of the government is named.
- The Common Front for the Congo, the party of Tshisekedi’s predecessor Joseph Kabila, will have a significant influence on the composition of the next cabinet, and informal networks of power will remain close to Kabila, the EIU says.
- Lumenganeso does not expect the DRC to have a new government before September.
S&P’s acceptance that internal tensions have eased also flies in the face of findings from The Congo Research Group and Human Rights Watch this month.
“Last year, 1.8 million people were newly displaced by violence in the DRC, more than anywhere else in the world except Ethiopia”, the report says.
- In North Kivu and South Kivu provinces alone, there are currently over 130 actively engaged armed groups.
- That represents an increase from 70 armed groups in 2015 and 120 in 2017, the report says.
Decades of conflict have created a “military bourgeoisie” the report says – “people within economic, political, and security elites who have used conflict to advance their careers and who have a vested interest in the persistence of violence.”
Bottom Line: Much more clarity is needed on the makeup and real powers of the new government before the DRC starts turning the corner.