In a note released on June 21, Fitch Solutions tries to measure the potential economic consequences of the diplomatic crisis that has pitted the DRC and Rwanda against each other for several weeks. The agency studied three scenarios. The first, the most likely (65%), predicts that relations between the two countries will remain “tense” in the coming quarters, without this leading to a large-scale military conflict. Notably thanks to the mediation of the international community.
DRC – Rwanda: Can Felix Tshisekedi and Paul Kagame still choose peace?
As a reminder, Congolese President Felix Tshisekedi had accused, between the end of May and the beginning of June, Kigali of actively supporting the rebel group M23 – which claims to defend the interests of Tutsis against armed groups of the ethnic group. hutue. Allegations that the Rwandan government has firmly denied.
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In this context, the rating agency is revising the DRC’s score in its short-term political risk index downwards from 25.8 out of 100 to 24.2 (which means that the risk is higher). Similarly, the score for the security/external threats component has been reduced from 25.8 to 24.2. The same is true for Rwanda, with a score that goes from 69.2 to 68.3 on political risk and from 58.3 to 51.7 for the security/external threats component.
Foreign investments at stake
With a “robust” economy (6.4% growth between 2012 and 2021) and “largely dependent on significant flows of foreign investment and financial aid”, Rwanda would, according to Fitch Solutions, have every interest in keeping deviation from the allegations of which the DRC is accusing in order to maintain strong relations with the international community and continue to benefit from its investments. According to the Rwandan Ministry of Finance and Economic Planning, these subsidies represent 16.1% of government revenue in the budget for the financial year 2021-2022.
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“In this most likely scenario, we expect that – even if relations between the two states remain contentious for some time – the economic consequences will not be severe,” analysts say. They believe that mediation by East African Community (ECA) states will prevent an escalation of the conflict, which will avoid to disrupt the proper functioning of the extractive industries present in the DRC.
In a second, less likely scenario (25%), in which the armed forces of the DRC and Rwanda clash regularly, Fitch Solutions foresees a deterioration of the stability of the sub-region in the medium term. With a severely disrupted market, with Rwandan exports to the DRC accounting for 12.4% of the country’s total exports in 2021, and Rwanda’s only gold refinery relying heavily on Congolese minerals, both economies are likely to see growth. to slow down. Indeed, in this escalation scenario, the rating institute is revising its growth projections downwards to 5.5% in 2022 and 6.3% in 2023 for the DRC and to 7.1% and 7.8 % over the same period for Rwanda.
DRC-Rwanda: before everything changes…
Third and last scenario (10% probability): the conflict spreads to neighboring countries, with Uganda and Kenya mobilizing to protect their borders. With in this case a serious brake on the development of the mining sector in the DRC, the flagship project of Rwanda (Kigali Innovation City) as well as the oil project of Lake Albert in Uganda. Fitch Solutions predicts “significantly weaker” economic growth and higher risks to longer-term political stability.
“In this most severe scenario, regional ties will weaken considerably in the years to come – it is even possible that the EAC will break out. There would be much less cooperation on security threats, and reduced trade would slow economic development in East Africa,” the institute warns. of notation.