The government wants to safeguard the purchasing power of families

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The measures announced by the Minister of Economy – reduction of fiscal and local taxes on basic products, regulation of the internal market through price controls and removal of illegal obstacles on roads – do not bring anything new. The same measures were tried in the time of Marshal Mobutu. Without success. The government should reduce institutional costs. Most public spending is spent on consumption of goods and services and investments that are not economically profitable.

Gaston Mutamba Lukusa

At the Council of Ministers on Friday, August 9, the government adopted a series of measures aimed at combating the high cost of living. These measures, proposed by the Minister of Economy, concern in particular the reduction of fiscal and local taxes on basic products, the regulation of the internal market through price controls and the elimination of illegal obstacles on roads. Many of these measures have been adopted by governments since the days of Marshal Mobutu, but their effectiveness has not yet been shown. Is this still the effect of announcements? Paradoxically, the Congolese Ministry of Finance and the Central Bank claim a stable exchange rate and slowing inflation. Some say that rising prices cause social tensions. Inflation takes the elevator, while purchasing power painfully takes the stairs. Everything is expensive. People struggle every day to find work and means of survival. Moving from one country to another is another great torture. Life is nothing more than a long and exhausting battle. These tensions are exacerbated by the preparations for the 2024-2025 school year in September.

Exchange rate and price controls

Unlike the government, the Central Bank of Congo considers the economic situation under control. According to a press release issued by the Monetary Policy Committee on August 8, “In the first seven months of 2024, economic activity remained sustained, with a decline in exchange rate and domestic price pressures. During this period, the Congolese franc depreciated by 6.4%, compared to an increase to 17% by the end of July 2023, reflecting the impact of the continued implementation of stabilization measures in the monetary and budgetary fields. Inflation slowed down significantly, reaching 8.5% at the end of July 2024, compared to 16.5% in the same period of 2023. As a result, the key interest rate remains at 25%. » According to the Economic Brief of the Central Bank of Congo on August 2, as of July 31, 2024, international reserves amounted to US$6.08 billion, equivalent to 14 weeks of imports of goods and services. Regarding public finances, by August 2024, “the forecast cash flow plan foresees a deficit of CDF 653.8 billion, resulting from the low level of public revenues of 2448.9 billion and public expenditures of around 3102.7 billion. This trend could further deplete previously established cash profits if other alternative financing methods are not considered. » This situation risks leading to an accelerated depreciation of the franc, a resurgence of inflation and a collapse of the economy, depriving the state of its means of functioning. Therefore, the state should reduce its lifestyle. But there is no political will in this regard. On the contrary, the multiplication of public expenditures is incompatible with the decline in income levels. The bulk of these expenditures tend to be used for the consumption of goods and services by a privileged few and for investments that have no economic profitability. From past experience, this policy inevitably leads to a depreciation of the currency and an increase in prices. Currency depreciation leads to an increase in the prices of goods, especially imported goods, and devalues the national currency, causing distrust among the population in favor of foreign currencies. As a result, it leads to a decline in consumption, the flight of investors, an increase in speculative activities and the dollarization of the economy.

The limitations of the policies envisioned by the government to deal with the high cost of living

When the State is looking for revenues to finance its lifestyle and make investments, it is not advisable to reduce taxes. On the contrary, we must find budgetary resources for the State that can be used to increase the general level of revenue. In the past, by reducing fiscal and local taxes, consumer prices did not increase accordingly. Sometimes it was quite the opposite. The inspectors of the Ministry of Economy found a way to round up the end of the month. They were corrupted. They closed their eyes. Regarding the announced price controls, we cannot ignore Law 18/020 of July 9, 2018 on price freedom and competition. This law provides that price freedom gives anyone carrying out an economic or commercial activity the right to determine the price of its goods or services in accordance with the conditions established by this law. “The prices of goods and services are set freely by the providers. They do not require prior approval, but must be communicated to the Minister in charge of the national economy after their establishment, together with the relevant documentation, for ex post control. » Price increases are not always explained by monetary reasons or exchange rate effects. There are also structural problems. This is the case of difficult transport from inland areas to urban centres due to old vehicles, lack of spare parts, police roadblocks, deterioration of land, railway and lake roads leading to a decrease in the number of vehicles. There is also the phenomenon of expectation. Fuel prices remain another determinant of the price level due to their impact on transport costs. Finally, the ability of local industry to supply goods at competitive prices. In addition to the poor quality of products, the systematic overcharging of imported inputs and equipment is also an important reason for the high prices of locally produced products. The lack of renewal and modernization of equipment, due to a lack of confidence in the country, also leads to higher cost prices and poorer product quality. It is not normal that local cement prices are three times higher than on the world market. It is also incomprehensible that bananas from central Congo are sold at the same low prices in Kinshasa, less than 200 km away, as those from nearly 9,000 km away. Bananas from Costa Rica, which are well-seasoned and shipped across the ocean, are just as expensive in Brussels. And customs! Instead of banning the import of beer, soft drinks, cement, tiles and pottery, we must develop a policy that guides industries to minimize production costs. Credit interest rates and bank charges are too high. The hourly labor cost is very high because workers often steal and are unproductive. To this must be added the hassles of management and the untimely water and power outages. The state must encourage local industries to face foreign competition. Then they will be able to offer products at a lower cost and export.

Gaston Mutamba Lukusa