COVID-19 has spread so rapidly that international trade has been among the first victims. In the past three months, the total number of confirmed cases has reached 4,400,000 people worldwide and has confined more than half of the planet, contaminating the functioning of industries, dysfunctioning many sectors such as healthcare, transport, trade, public services, but also national infrastructure. The virus has paralyzed much of China, the second largest economy in the world, and its impact is felt worldwide across all industries.. The slowdown in production in China has had harmful effects worldwide, reflecting China's growing role in global supply chains and in commodity markets.
The Democratic Republic of Congo, where foreign trade represents on average 60 % of its economy (Chart 1), is severely seized by this pandemic. Indeed, China remains the leading trading partner on the one hand, in terms of importing mining products from
soils of the DRC and on the other hand, in terms of supply of Chinese goods and services. In view of this Chinese predominance in trade, the Congolese trade balance is deteriorating further and weighs down all forecasts of an economic recovery expected after the exogenous shocks caused by the fall in commodity prices in 2015, whose disastrous consequences continued to rage on the Congolese economy until 2019. The drop in raw material prices combined with COVID-19 paralyzes the Congolese economy as a whole and its effects are felt on exports and imports, particularly with restrictions on the transport of goods and people and growing domestic demand. Falling exports have immediate impact on businesses and households.
Foreign investment in commodity extraction and related sectors tends to decrease, which means that the phenomenon of this decline does not only concern real production, but also affects potential production. Chinese importers cancel orders due to port closures, but also due to slower consumption in China. DRC exporters are forced to unload their products elsewhere at a reduced price.
Source : World Bank Group, World Development Indicators (2020)
The impact of COVID-19 is also being felt in the manufacturing sectors. Given China's critical role in the supply chain, factory closings increase the risk of global supply disruptions, raw material shortages, increased costs and reduced orders already plaguing Congolese businesses. Slowing growth in China and rising domestic consumption priorities will reduce Chinese demand for Congolese exports.
As a result, the trade balance will widen further, thus also making a negative contribution to international reserves, the budgetary balance (following the decline in receipts from production and exports of basic products) and growth (and / or increased unemployment).
What strategy for Congolese companies ?
Congolese companies operating in the import-export sector are called to prepare for this COVID-19 shock. By implementing some actions, such as the intensification of food and agricultural production, given that the world economy is rapidly plunging into a food crisis, in addition, millions of people worldwide depend on international trade for food security and livelihoods; dynamism in the pharmaceutical sector, with the development of cinchona for example and the local processing of materials extracted from mines in the DRC into finished products; the development of the scientific research sector as well as that of service production and so many others. These actions could help mitigate the effects of the economic recession in the DRC and strengthen economic resilience to shocks.
In addition, a post-COVID-19 entry effect is also expected, which will result in an increase in demand for raw materials and a resumption of trade on the horizon. 2021. But it will depend on the uncertain duration of the pandemic and the effectiveness of the measures adopted to deal with it. Public authorities also have a role to play in supporting these businesses, which are the pillars of the economy. Subsidies and bailouts of liquidity to allow its companies to cope with shocks and to intensify their production in the sector mentioned above, tax reductions, development of a securities market regulated by the Central Bank, allowing companies to find additional sources of financing, necessary to maintain production levels and / or their reconversion in different production sectors. However, Small and Medium-Sized Enterprises will be the most to support in order to keep the productive apparatus in balance. These actions would save the economy from the coming depression, reduce the extroversion of our economy and put less pressure on the foreign exchange reserves of the DRC.
With its expertise in foreign trade and risk management on import-export exchange transactions, MENTAL Consulting, analyzes the situation and sets up scenarios to support economic operators working in this sector in the DRC and allows them to mitigate their exposure to this situation.