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    Emerging powers in Africa Watch

    DRC: Chinese investment in Katanga

    Johanna Jansson

    2010-04-01, Issue 476

    http://pambazuka.org/en/category/africa_china/63573

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    Johanna Jansson looks at the implications of Chinese market-driven engagement for the DRC, with a focus on investment in Katanga’s mining sector. Contrary to popular perception, says Jansson, there are no direct links between Chinese government-led engagement with the DRC and the market-seeking activities of private Chinese entrepreneurs in the country. If Chinese investments are to have a positive impact on development in the area, says Jansson, adherence to regulatory frameworks has to be radically improved, both by investors and by Katangese civil servants.

    The Chinese presence in the DRC has received a great deal of attention over the past two years. While Sino-Congolese relations started to emerge more decisively in 2004, the ties came into the global spotlight in April 2008 as the signature of a ‘minerals-for-infrastructure’ barter agreement was announced. The much discussed deal is of such magnitude that other facets of Chinese activities in the country have been somewhat overshadowed. Often, this barter agreement and other forms of government-led engagement with the DRC are mistakenly perceived to be linked to the existing market-driven private Chinese foreign direct investment (FDI) in the country. There are indeed indirect links between the two, since both forms of engagement originate from the restructuring and opening up of China’s economy which spurred Chinese companies to seek opportunities overseas. However, in many other aspects, these two forms of engagement are distinctly different. This article series focuses on analysing the presence and impact of private Chinese entrepreneurs in the country’s south-eastern mineral-rich Katanga province. It draws on field research carried out during 2008 and 2009 in Katanga province, the hub for the Congolese mining sector.[1]

    CHINESE PRIVATE INVESTMENT IN THE MINING SECTOR OF THE DRC’S KATANGA PROVINCE

    The most important arena for Chinese market-driven engagement with the DRC is the south-eastern mineral-rich Katanga province and its ‘copper capital’, Lubumbashi. The lion’s share of Chinese private FDI to the DRC flows to this area. While there is no comprehensive data available pertaining to the value of these investments, respondents consulted during the field research suggested that many of the Chinese entrepreneurs had invested US$ 1-5 million in their processing plants.[2]Prior to October 2008 when the global economic downturn hit Katanga, a total of around 5,000 Chinese company owners and workers resided in Lubumbashi as well as in the neighbouring ‘mining towns’ Likasi and Kolwezi.[3]

    The vast majority of these private actors operated processing plants for copper and cobalt. A number of Chinese entrepreneurs also operated comptoirs, trading houses purchasing ore from Congolese middlemen and selling it on to Chinese-owned and other processing plants. While the exact number of processing companies ran by Chinese nationals at the time is not known, estimations range up to 70 companies.[4] The activities of the processing plants have been criticised on a number of points, a discussion to which we return further below. A few Chinese companies also have mining concessions in Katanga, often in joint ventures with Congolese business actors that may have held mining titles but not the resources needed to initiate exploration and extraction activities. The field research showed that prior to the financial crisis, the majority of these companies were conducting exploration activities and were yet to start full-scale extraction.[5]

    The global economic downturn affected the export-dependent Katanga province severely from October 2008 onwards and the Chinese private companies in the area were hit hard. The majority of private Sino-Congolese mining operations and Chinese-owned processing plants were put on hold awaiting better commodity prices. In December 2008, merely five of the Chinese processing companies in the Katanga province were still operating.[6] In April 2009, only around 1,000 or fewer Chinese nationals remained in Lubumbashi, although operations had slowly began to recover with several Chinese processing plants resuming operations on a small scale.[7] By July 2009, most of the around 30 processing plants remained dormant awaiting better market conditions, with 4-5 of them operating on a small scale and 1-2 having gone bankrupt.[8] This situation largely remains as of March 2010. According to a manager of a Chinese processing plant, a few of the companies are currently operating and many of the closed factories are still looked after by Chinese managers and Congolese staff.[9] Given that many of the Chinese entrepreneurs have invested around US$ 4-5 million in their factories, they hope to be able to restart production in the future. The respondent argued that it is however not sure whether these operations will be ever become economically viable again.

    The 2008 field research shows that with a few rare exceptions, the private Chinese entrepreneurs that are running businesses in Katanga province do not receive any support from the Chinese government or from China’s policy banks.[10] Many of the Chinese entrepreneurs interviewed stated that they are aware of the idea prevalent notably in Western media that their activities are coordinated and supported by the Chinese government, but that this perception is very far from their reality on the ground in Katanga. Instead, the Chinese entrepreneurs stated that they ventured to the DRC at their own initiative after having identified commercial opportunities in mineral trading and processing in the area. This follows the general trend of Chinese private FDI to Africa as identified by Gu Jing, where a strong entrepreneurial drive is the defining feature among the Chinese private investors present on the continent. She notes that ‘in reality, the ‘going global’ fund allocates very little to firms that invest in Africa’.[11]


    IMPLICATIONS OF CHINESE PRIVATE INVESTMENT IN KATANGA: PARALLEL VICTIM NARRATIVES

    The DRC’s Katanga province is known to be a challenging environment to live and operate in. Among the provincial elite and the expatriate Chinese working in Lubumbashi, Likasi and Kolwezi I have identified a pattern which I term ‘parallel victim narratives’. This means that on the one hand, the Chinese entrepreneurs in Katanga’s mining sector argue that they as economic actors are highly vulnerable in the opaque Congolese operating environment. On the other hand, provincial Congolese elites contend that the Chinese entrepreneurs are creating a great deal of problems in the area by not abiding to local laws and regulations. There is a plethora of allegations in the discourse around the Chinese entrepreneurs in Katanga and for space constraint reasons I only discuss a few of them here. Moreover, there is currently a lack of comprehensive data exploring these parallel allegations of misconduct and this article’s conclusions must therefore be regarded as preliminary.

    In the discussion below I tentatively suggest, based on existing evidence, that there are elements of truth to both the Congolese and Chinese accounts. Most importantly however I argue that beyond the narratives of victimisation, there is also collusion: non-transparent economic relationships maintained between Congolese civil servants and Chinese investors. While these relationships are beneficial to both parties involved, the outcome of this form of collusion is that in reality these investments have brought little to no tangible benefits to the impoverished local population, beyond the temporary employment opportunities offered.

    All of the Chinese company representatives interviewed during the 2008 fieldwork argued that it is extremely challenging to operate in Katanga, which they described as a near-lawless environment. They claimed that they are subject to a great deal of everyday harassment from corrupt Congolese government representatives and to abuse from local criminal elements.[12] They argued that they had to pay heavy, random and illicit fines, termed ‘phantom fines’ by one respondent,[13] to local Congolese officials in order to set up a business and to keep it running, extend necessary permits etc. Another Chinese respondent termed the payoffs ‘structural requirements’.[14] One of those fines, shown by the respondent, required that the Chinese company pay over US$ 1 million to Congolese authorities. That particular fine had according to the respondent eventually been negotiated down to US$ 80,000.[15] In February 2009, at the height of the global financial crisis when desperation mounted among the local population of the hard-hit Katanga province, a Chinese manager of a dormant processing plant stated that ‘it is like an American action movie here at the moment. The group of Congolese guards that we have had to hire to protect the factory fight veritable gun battles every night against local gangsters trying to break in’.[16]

    It was noted above that the private Chinese companies operating in Katanga have virtually no support from the Chinese government or from China’s policy banks. The Chinese respondents further argued that they get little to no assistance from the Chinese embassy in Kinshasa. One Chinese company manager claimed that one of his colleagues had been arrested by Congolese police in Likasi near Lubumbashi since he had refused to pay a bribe. The respondent argued that when his colleague called the Chinese embassy to ask for assistance, he was told ‘to learn perfect pŭtōnghuà [standard Mandarin Chinese] first, otherwise he could not answer any of his questions’, and then the call was cut.[17] On a later occasion, the same respondent stated that the Chinese embassy in Kinshasa only cares about issues like the DRC’s relationship with Taiwan, ‘if not, they will be sleeping’.[18] It is not clear whether this lack of contact between the Chinese companies in Katanga and the Chinese embassy is a result of a lack of capacity or will from the embassy’s side. When asked about this, the Chinese Ambassador to the DRC Wu Zexian argued that the Chinese Embassy would indeed like to engage more with the companies in Katanga and even establish a Chinese consulate in Lubumbashi, but that such decisions have to come from Beijing.[19]

    In this narrative, representatives of the Chinese companies in Katanga portray themselves as victims for a corrupt system that they have to operate in but have no impact over. Even though it is difficult to control for the accuracy of these episodes, the accounts are numerous and detailed and there is reason to believe that the Chinese entrepreneurs as newcomers in Katanga are at the bottom of the area’s pecking order and therefore may be more vulnerable to bullying by rent-seeking local officials than other, more established companies.

    However, the Chinese narrative is contested by local Congolese officials and civil society organisations. We will return to the latter’s arguments further below. In direct contradiction with the Chinese account of the situation, Congolese provincial elites argue that many of the Chinese companies create a great deal of problems in the area by not abiding to local laws and regulations. Early 2009, Katanga’s governor Moïse Katumbi claimed that a large number of the Chinese entrepreneurs in the province had deserted their processing plants in an organised move as copper prices fell at the end of 2008. He stated that the Chinese would not be welcome back after the crisis as long as he is the governor, arguing that ‘Katanga is not a jungle’.[20] He was also quoted as saying that ‘[t]hose who left like bandits, who didn’t pay their taxes to the state, who didn’t pay anything, they don’t have their place in my province anymore’, although the companies that left everything in order would be welcome to return.[21]

    In response, representatives of the community of Chinese entrepreneurs in Lubumbashi claimed in interviews that these allegations were not justified since this practice had only been confirmed in one out of the 30 companies that had closed down their operations.[22] According to the respondents, representatives for the remainder of Chinese operations were still present in Lubumbashi awaiting better market conditions, although most of the owners had left for China, leaving the factories in the hands of Chinese managers and local Congolese employees. Since these counterclaims have not been investigated by further structured research, we do not yet know the full reality behind this controversy.

    At any rate, the narratives of both the Chinese companies and the Katangese government are contested. The NGO Rights & Accountability in Development (RAID) carried out field research in 2008 and 2009 investigating the impact of Chinese operations in Katanga and concluded that the ‘Chinese companies are both the beneficiaries and victims of this system’.[23] On the one hand, the Chinese companies in Katanga provide rare employment opportunities for local Congolese workers in the impoverished province, the value of which has been acknowledged also by Katanga’s governor Katumbi.[24] Further, as noted above, representatives for the Chinese companies have expressed their despair at the harassment directed against them by corrupt local government officials.[25] On the other hand, discontent has been expressed by Congolese workers and civil society representatives over Chinese company representatives’ habit to pay bribes to corrupt local officials ‘get out of situations’, since this is seen to exacerbate the local problem of corruption. RAID notes that ‘Congolese workers spoke about complicity between the Congolese authorities and Chinese companies, and denounced the widespread practice among Chinese managers of bribing labour inspection agents, security services and members of the judiciary as a means of settling labour disputes to their own advantage’.[26] The Chinese companies are thus perceived by the local Congolese population to be in collusion with corrupt local elites, reinforcing the weak rule of law and hampering socio-economic development in the area.


    WHAT DOES THIS MEAN FOR DEVELOPMENT IN KATANGA?

    While it must be recognised that the governance situation in Katanga is challenging for investors and difficult for foreign actors to change, it is also important to acknowledge the role that overseas companies play in terms of perpetuating such patterns. Efforts from both Chinese and Congolese stakeholders will therefore be needed in order to come to terms with the situation. In this regard, the Chinese Embassy in Kinshasa could definitely become more active as a liaison between Congolese local government representatives, civil society and the Chinese companies in question. In order to safeguard China’s standing as a responsible international actor, it should be in the Chinese government’s interest to engage with the Chinese expatriate business community in Katanga to address concerns raised by the local population and local civil society. The recently established Chinese Chamber of Commerce in Lubumbashi could be an appropriate starting point in terms of such engagement.[27]

    A notion often echoed in discussions around corporate social responsibility (CSR) and Chinese companies’ activities in Africa is that ‘it is not reasonable to expect that Chinese companies should come to Africa and start implementing better standards than they are used to from home’. While such claims have no moral legitimacy - commercial actors cannot be exonerated from the consequences of their actions - the notion definitely holds explanatory power in terms of the CSR performance of Chinese operations in the mining sector of Katanga province. Engaging in CSR activities may not be perceived as a necessity by Chinese company owners and managers. It has been noted that ‘[u]nlike their Western counterparts, many Chinese managers arriving in the Congo are used to witnessing the hardships of migrant workers in China’s cities […]. [T]hey appear to take a fatalistic view of the problems in Katanga, which may in part explain why they do not take action themselves to prevent abuses […]’.[28] Indeed, Chinese company representatives interviewed argued that they do not see the need to invest in local communities ‘because it is unlikely that any additional revenue would be used to rehabilitate the Congo’s dilapidated infrastructure’.[29] This corroborates Jing Gu’s argument regarding the CSR performance of Chinese companies in Africa that ‘[p]art of the cause of this problem is to be found back in China and the issues of corporate social responsibility to be found in the domestic situation.’[30]

    Thus, part of the reason why CSR performance is poor in many of the Chinese private operations in Katanga is probably that the Chinese owners and managers simply do not see the need to further improve working conditions or contribute to community development. This being said, they are most certainly aware that local legal requirements have to be fulfilled. Representatives from the Chinese companies in question, particularly the larger operations, have stated in interviews that they indeed seek to respect local Congolese labour- and other regulations as best as they can given the opaque operating environment.[31] However, the above outlined evidence shows that legal obligations are commonly overlooked and it is therefore apparent that intentional neglect also plays a role here. Such acts are more likely to occur in an environment such as the DRC where law enforcement is generally poor. It has been noted that the deliberate disregard by corporate entities of their responsibilities towards their employees, the local community and the environment is not often followed up with legal action.[32] The adherence to regulatory frameworks both on the side of the Chinese investors and the Katangese civil servants therefore has to be radically improved in order for the private Chinese investments in question to contribute to sustainable development of the mineral-rich Katanga province.

    BROUGHT TO YOU BY PAMBAZUKA NEWS

    * Johanna Jansson is an Independent Researcher based in Stockholm, Sweden.
    * The author would like to acknowledge Professor Wenran Jiang, co-researcher for the Lubumbashi field research; the Centre for Chinese Studies, Stellenbosch University; the Extractive Industries Transparency Initiative, Oslo; Revenue Watch Institute, New York and the Rockefeller Foundation, New York for enabling the field research undertakings.
    * Please send comments to [email protected] or comment online at Pambazuka News.

    NOTES

    [1] Professor Wenran Jiang was my co-researcher for the Lubumbashi field research.
    [2] Interviews, 29.06.2009-02.07.2009, Lubumbashi.
    [3] Jansson, Johanna; Burke, Christopher and Jiang, Wenran (2009). ‘Chinese Companies in the Extractive Industries of Gabon & the DRC: Perceptions of Transparency’. August: Centre for Chinese Studies, Stellenbosch University. Page 36-38. Available on http://www.ccs.org.za/wp-content/uploads/2009/11/Chinese_Companies_in_the_Extractive_Industries_of_Gabon_and_the_DRC._CCS_report_August_2009.pdf
    [4] Jansson et al (2009). Op. cit. Page 36.
    [5] Ibid.
    [6] Ibid.
    [7] Author’s telephone interview with a well informed Chinese observer in Lubumbashi, 29.04.2009
    [8] Jansson et al (2009). Op. cit. Page 37.
    [9] E-mail correspondence between the author and the respondent, 10.03.2010.
    [10] Jansson et al (2009). Op. cit. Page 38.
    China’s two policy banks, China Agricultural Development Bank and China Export-Import (EXIM) Bank provide financial backing in the form of concessional finance for the Chinese government’s ambition to encourage Chinese companies to invest overseas (c.f. Brautigam, Deborah (2009). The Dragon’s Gift: The Real Story of China in Africa. Oxford: Oxford University Press. Pp. 78-81). China Development Bank (CDB) was previously a policy bank, but was restructured into a commercial bank in 2008. See further in Xu, Shenglan (2008). ‘China Development Bank goes commercial,’ in China Daily. Published
    02.12.2008, accessed 14.02.2010 from http://www.chinadaily.com.cn/bizchina/2008-12/02/content_7261101.htm
    [11] Gu, Jing (2009). ‘China’s Private Enterprises in Africa and the Implications for African Development’ in European Journal of Development Research Special Issue, Volume 24, Number 1. Page 579.
    [12] Jansson et al (2009). Op. cit. Pp 36-38
    See also RAID (Rights & Accountability in Development) (2009). ‘Chinese Mining Operations in Katanga Democratic Republic of Congo’, September. Available on www.raid-uk.org Pp 23-26.
    [13] Interview, 12.09.2008, Lubumbashi
    [14] Interview, 09.09.2008, Lubumbashi
    [15] Interview, 12.09.2008, Lubumbashi
    [16] Author’s telephone interview, 26.02.2009.
    [17] Interview, 15.09.2009, Johannesburg.
    [18] E-mail correspondence between the author and the respondent, 17.02.2010.
    [19] Author’s interview, 29.09.2008, Kinshasa.
    [20] Financial Times (2009). ‘RDC: Chinese copper entrepreneurs flee DR Congo.’ Published 19.02.2009.
    [21] Wild, Franz (2009). ‘Congo Copper, Cobalt Miners Restart Production After Price Fall, says Governor Moise Katumbi’ by Bloomberg. Published 02.03.2009.
    [22] Jansson et al (2009). Op. cit. Page 37.
    [23] RAID (2009). Op. cit. Page 8.
    [24] Financial Times (2009). Op. cit.
    [25] Jansson et al (2009). Op. cit. Page 38-42.
    [26] RAID (2009). Op. cit. Page 8.
    [27] A Chinese chamber of commerce was established Lubumbashi in 2008 in response to the Katanga Provincial Government’s suggested rise in export taxes from 1 to 3-10 percent for companies that process minerals which they have not mined themselves. The president of the Chamber is the Chinese CEO of one of the major private copper smelters outside of Lubumbashi. This was reportedly the first time collective action such as this had come about. See further in Jansson et al (2009). Op. cit. Page 41.
    [28] RAID (2009). Op. cit. Page 28.
    [29] RAID (2009). Op. cit. Page 8.
    [30] Gu (2009). Op. cit. Page 583.
    [31] Jansson et al (2009). Op. cit. Page 38.
    [32] RAID (2009). Op. cit. Page 15.


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