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Links - DRC & Africa, page-73

  1. 608 Posts.
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    Hello fellow AVZ share holders and everybody else out there,

    I have just read this today's article, which I am posting below, and it made think that we may have another *really* good incentive for the DRC government to seek an out of court settlement with AVZ....

    The article talks about depreciation of the DRC's currency - which is called Congolese franc CDF - relative to USD.

    I recall that just recently I have read somewhere (can't remember where, though, but it was a good and credible source) that, since Felix Tshisekedi became the president (and we know that in the DRC the presidency is not just a symbolic position - it comes with executive power, and lots of it) in late January 2019, the CDF depreciated 47%. That's pretty much half.

    What that means it that whenever the DRC has to settle transactions (with whoever in the West and maybe some African countries) in USD, it costs them about twice as much than before Felix came to power - they have to spend about twice amount of their own money to purchase USD on foreign exchanges or get USDs from their export proceeds. Which, in turn, means raising inflation through issuance of more and more of their own currency.

    Inflation, for those who may not know, is a decrease in purchasing power of currency, for example, if inflation rate is 20% per year, that means you have to spend 20% more money than you spent a year ago in order to buy *exactly* the same amount of goods and services. By the way, as a side note, don't believe whenever you hear on TV that inflation in Australia is 3% or 4% or whatever they say these days , it is *much* more than that....

    Also, I read somewhere, can't recall where exactly (again, a credible source) but I'm sure this info can easily be located on the internet, that about 3 years ago some African countries started to settle their accounts between themselves not in USD. The reason for it was a difficulty in raising enough USD which was causing long delays in payments. But, whenever these very countries have to pay to the West, they still need to pay in USDs.

    Anyway, back to the main theme of my post....

    IMO, it looks like the DRC will have another *big* incentive to change their hostile attitude towards AVZ and seek a settlement.

    Why?

    Because, they know they can't win the ICSID court case.
    They also know that they will have to pay billions in USD - the award plus an interest on the remaining debt if they cannot pay all those billions all at once.

    Which, in turn means, the 5-6 billions USD (that was the sum of money which I used as an example in my previous post/s, maybe it will be more, I don't know and cannot know) will cost them double and, presumably even more than that because their inflation will be growing for sure.

    Anyway, my 2 cents,
    I wonder what your thoughs are...
    (Any accountant here? I'm not)

    Here is the link:
    https://www.africanewsrdc.net/featured/therapie-guerir-franc-congolais/

    Translated using:
    https://www.deepl.com/en/translator

    .... and here it is, the translation:

    DRC: The government's therapy to cure the Congolese franc

    The continuing depreciation of the Congolese franc against the US dollar, with its unfortunate repercussions on the household basket, is a preoccupation for more than one DR-Congolese, and above all a headache for low-income earners who no longer know which way to turn. The subject was at the heart of a meeting chaired by the Head of State, Félix-Antoine Tshisekedi, on Monday July 17 at the Cité de l'Union Africaine, and attended by the Minister of Finance, Nicolas Kazadi, and his colleague in charge of Communication and Media, Patrick Muyaya, as well as various other personalities involved in the financial sector.

    The meeting enabled the President of the Republic and his interlocutors to examine with a fine-tooth comb the current behavior of the Congolese franc on the foreign exchange market, and therapeutic measures were adopted with a view to halting the national currency's descent into hell. And that's all it took for the government to seize the opportunity, devoting a late-night briefing on Monday July 17 to the therapy designed to cure the Congolese franc. Finance Minister Nicolas Kazadi, accompanied by his colleague Patrick Muyaya, made the announcement.

    Firstly, the Central Bank of Congo, which now has substantial reserves, will begin to intervene on the foreign exchange market, and these interventions will continue until the situation is restored. Secondly, the government will give priority to the payment of taxes in Congolese francs, to increase the usefulness of the national currency.

    Thirdly, the government and the Central Bank of Congo will continue to work closely together to monitor the quality of public spending, and strengthen the monitoring of cash flow plans. And fourthly, the government will ensure that cash expenditures are avoided or kept to a strict minimum.

    "We're going to ban all payments made over the counter at the Banque Centrale du Congo, by reducing cash outflows. These are the measures we have just taken this evening. The aim is to reduce demand for foreign currency, in favor of the Congolese franc", said Nicolas Kazadi, the national treasurer. He added: "In terms of monetary policy, the Central Bank of Congo will regulate the flow through a key rate and change its reserves policy". On the other hand, knowing well the behavior of the recipients of these curative measures, many have reservations about their effective implementation.
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ end ~~~~~~~~~~~~~~~~~~~~~~~~~~~
    Cheers
 
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