The Democratic Republic Of Congo (DRC) has a significant dollarized economy which is a legacy of extremely high inflation during the rule of Mobutu Sese Seko. Like Zimbabwe and some other African countries, US dollars are accepted in restaurants and shops and big-ticket-item purchases are usually made in US dollars. Estimates of the degree of financial dollarization in the economy are around 90%.
Given the dollarisation of the economy, the rapid depreciation of the currency, the Congolese Franc (CDF), from May 2023 is of grave concern.
Despite the currency depreciation, we remain relatively bullish on growth in the DRC as evidenced by the table below. This is relatively good news for future corporate profits.
* Represents Axiomatics’ forecast
While growth is expected to remain relatively strong, the economic theory postulates that a depreciating currency, exacerbated by a highly dollarized economy, must lead to higher inflation- and this is exactly what has transpired. The graph below clearly illustrates that inflation has moved significantly higher during the first half of 2023.
As Comp and Benefit practitioners are acutely aware, one of the most important inputs into the salary increase decision is the projected future inflation. While it must be acknowledged that there is no generic or standard methodology in Africa where one can state that the salary increase would be a real increase of, for example, 1.0% (the projected future inflation rate plus 1.0%) – one must accept that high inflation typically does concomitantly mean higher salary increases. Such salary increases must be tempered by the financial affordability of the company and the macroeconomic environment of the specific country.
DRC salary increase forecasts for 2024 are therefore extremely difficult to estimate.
The central bank has tightened monetary policy significantly. At the 8 August 2023 meeting, the policy rate was increased by 14.0% to 25.0%- the highest level in over a decade. The rationale for the extraordinary increase was justified because of the “… accentuation of pressures on the exchange rate and inflation”.
One will have to wait for more incoming inflation data to gauge whether the August 2023 draconian policy rate increase and the tightening of monetary policy, arrest the upward inflation trajectory and reduce the inflation rate in 2024.
However, employers should budget for significantly higher salary increases for 2024 than those granted in 2023.
The caveat to the above assertion is that higher salary increases in 2024 would only apply to employees being paid in CDF. Local employees being paid in US$ would have experienced an increase during the year to date of 28% in their local purchasing power due to the exchange rate having depreciated from 2,050 to 2,625- less of course, the applicable inflation rate.
A further action that employers can consider, is to ensure that employees are enjoying all permissible allowances and exempt income, in accordance with the applicable legislation and tax regulations. These exempt or partially exempt items include inter alia:
In addition, we have significant experience integrating the payroll platform with SuccessFactors, Workday, and other related systems.
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