THE Republic of Congo’s (Ba3 stable) oil sector is set to recover strongly from 2015 onwards, which could boost the country’s economic growth by 7.5% over the next few years and support the country’s rating, says Moody’s Investors Service in its annual Credit Analysis report published today.
However, the rating agency notes that Congo’s small economy remains vulnerable to political risks and its institutions and infrastructure are still developing.
The rating agency’s report is an update to the markets and does not constitute a rating action.
“While Congo’s GDP was estimated at a modest $14 billion in 2013, that figure is set to expand dramatically in the coming years as the country looks to ramp up oil production on the back of investment by international oil companies,” says Aurelien Mali, senior analyst at Moody’s and author of the report.
“Although production slowed to 281,000 bpd in 2013, we expect this decrease to be short-lived as new oil discoveries would make a further decline in the Republic of Congo’s oil production unlikely.”
The Republic of Congo’s economy is heavily reliant on the oil industry, which contributed 63% of its GDP in 2013. By 2015, Moody’s expects Congo’s crude oil production to rebound to the 2012 level of 290,000 bpd. And by 2016, production will likely exceed 350,000 barrels of oil per day (bpd) following the development of Moho-Bilondo Phase 1, as well as the Moho-Nord, Nene and Lianzi fields.
The 2016 projection surpasses the country’s 2011 peak in production, when the country’s output was 302,000 bpd. In April 2013, Total SA (Aa1 negative) announced a $10 billion investment to operate the Moho-Nord field starting from 2016. In addition, a discovery by ENI (A3 stable) in February 2014 in offshore Black Marine XII, 17 kilometers offshore of Congo, has raised the estimated amount of reserves at the Nene Marine field to a total of 1.2 billion barrels of oil equivalent. If these are proven, they would add another 14 years of production at the current output level. This means that the country net creditor position, currently in excess of 40% of GDP, is likely to strengthen further reaching around 100% GDP by 2020.
And while the Republic of Congo’s high reliance on oil makes it vulnerable to global price swings, the country is looking to address the lack of diversification in the economy by developing its non-oil and
mining sectors.
Moody’s has not incorporated the expansion of mining industries in its GDP growth projection, but notes that projects in metals (iron), potassium and phosphate are expected to start production in the coming years. The Mayoko project is planned to deliver 10 million tonnes of iron ore a year, while the Zanaga project has the potential to produce up to 35 million tonnes in iron ore annually in the next 10 years.
However, the government’s announcement to overhaul the mining code creates uncertainty about the legal operating environment for private stakeholders, though the distribution of mining licenses to several international companies augurs well for the future, says Moody’s.
In addition, a lack of efficient transportation networks, such as a port and reliable railways, as well as mining companies’ need for more electricity generation pose challenges to the development of the mining sector.
The Republic of Congo’s creditworthiness is constrained by a number of factors. Besides, the country’s lack of diversification, weak institutional strength, as evidenced by its low rankings on many international governance indicators, potentially limits the impact of a series of ambitious institutional reforms. Meanwhile, the country’s history of political and ethnic tension has long impeded the country’s
economic development.
Tension between the north and the south, coupled with uncertainty associated with the transfer of power from President Denis Sassou-Nguesso, leaves the country vulnerable to political risks.
African Eye News
