Corruption
DRC: Mining multi-nationals get deal of the century
2008-07-18, Issue 389
http://pambazuka.org/en/category/corruption/49569
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There is potentially enormous mineral wealth in the DRC province of Katanga. In exchange, investors from all over the world, and especially China, are prepared to offer money and infrastructure to revive the DRC after 15 terrible years of war and invasion. The potential for ecological disaster, social exploitation and corruption is almost limitless.
Le Monde diplomatique
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July 2008 MINING MULTINATIONALS GET DEALS OF THE CENTURY
Copper colony in Congo
There is potentially enormous mineral wealth in the DRC province of Katanga. In exchange, investors from all over the world, and especially China, are prepared to offer money and infrastructure to revive the DRC after 15 terrible years of war and invasion.
The potential for ecological disaster, social exploitation and corruption is almost limitless.
by Colette Braeckman
Lubumbashi is the capital of Katanga, the southernmost state of the Democratic Republic of Congo (DRC). Day and night, huge trucks roar through its streets, making for the nearby Zambian border with cargoes of copper and cobalt on their way, via the Tanzanian port of Dar es Salaam, to Asia. Every month new stores open: fast food joints with American names, and shops where the locals stare in wonder at Chinese consumer goods, finally within their reach.
As prospectors and investors from all over the world grasp Katanga's enormous potential, the local authorities boast of its liberal mining regulations. It has estimated reserves of
5m tonnes of cobalt and 6m tonnes of zinc. Its estimated 70m tonnes of copper put it behind Chile, which has reserves of
88m tonnes; but the DRC's deposits are of superior quality, yielding an average 3.5% copper, compared with its Chile's
0.5%.
It is two years since Joseph Kabila was elected president, with 58% of votes, and although other provinces have yet to see the benefits of peace and democracy, Katanga is enjoying a spectacular economic boom (1). Over the past 10 years the price of copper has risen from $500 to $8,000 per tonne. In April the DRC's first major reconstruction project began at Kasumbalesa, a frontier post 100km southeast of Lubumbashi.
Dozens of bulldozers and JCBs belonging to the China Railway Engineering Corporation (CREC) are carving out a four-lane highway whose completion in 2011 will allow the more rapid transport of copper to Zambia. When the project began, the CREC promised to train 1,500 local workers.
But is the boom sustainable? In Lubumbashi's working-class Kenia district, contaminated water has caused a cholera epidemic. Beside cheap Chinese goods, mobile phones and DVDs, stalls offer adulterated alcohol for less than the price of a beer. The air is polluted and choking with dust. Since the authorities banned the export of raw materials to refining plants in Zambia, small units lie hidden behind high brick walls and small furnaces have sprung up in backyards. Their owners, from China, India and the Gulf, bribe local officials to get round the regulations and local ecologists complain of the pollution of the groundwater.
The euphoria hides many threats, economic as well as ecological. The central government has been slow to pay Katanga its 40% share of the receipts generated by the local economy and export duties. The provincial governor, who has already bought lorries, ambulances and tractors, and initiated various projects, suspects officials in the national capital, Kinshasa, of deliberately sabotaging Katanga's economic dynamism. The government, fearful of secession (2), seeks to prevent the copper province from getting too far ahead of the rest of the country.
Unprotected And there is a third, social threat. The small-scale exploitation of mineral deposits is coming to an end as the big multinationals move in, driving out independent miners.
Until a few months ago the Étoile mine at Ruashi, a few kilometres outside Lubumbashi, was just an open pit where men worked unprotected. Children scurried through unsupported tunnels, pulling out rocks striated with green copper or yellow cobalt and cramming them into jute sacks. Cave-ins and fatalities were so frequent that the miners had their own mutual insurance scheme to cover hospital or funeral expenses.
A South African company, Ruashi Mining, has now ended all that. Fences and private security guards protect the site; bulldozers are flattening the honeycombed mounds; day and night, mechanical diggers bite vast craters out of the red earth.
The people of Ruashi, who drew their living from small-scale mining, were given $200 per family and told to clear out, and
400 children were sent to school. Eight-year-old André, sitting at the back of the classroom, admits that he prefers studying. He still coughs from the dust that got into his lungs, and remembers his brother, killed by a cave-in. But he also remembers proudly that both of them used to bring in $60 a day for their family. In the hope of earning a few dollars, his mother is in another classroom studying dressmaking, an income-generating activity recommended by the Belgian association Group One. Meanwhile his father has gone to work in the mines at Luisha, which are still open to independents, although not for long.
Luisha is a vast city of tents clustered around a pit from which foreigners are excluded. Chinese goods, fashionable clothes and alcohol are on sale; a canvas cinema shows kung fu movies. At the end of the track, by the road to Lubumbashi, a sign in English, French and Chinese announces that an Asian company will match any price for sacks of ore.
Zacharie Mudimba has a law degree; his friend is a trained accountant. In polished French they complain of the lack of work for graduates and point out that they can earn more from mining. Older men beside them agree: they used to work for Gécamines, the huge state company that succeeded the Belgian colonial regime's Union Minière du Haut Katanga. Badly managed, and milked by the Congolese government, Gécamines saw production plunge from 450,000 tonnes of copper per year to less then 20,000.
White-collar predators President Joseph Mobutu (1965-97) always rejected privatisation, out of national pride and personal greed. But shortly before he was overthrown he authorised a piecemeal sell-off. Strangled by debts of over $1bn, Gécamines had to make a deal with private partners. The World Bank supervised the operation. In 2003 it financed the "voluntary departure"
of 6,000 workers, who quickly blew their modest redundancy pay-offs and turned, with their entire families, to independent mining.
The investors piling in to Katanga resent their "amateur" competitors. The Belgian industrialist Georges Forrest complained: "They cream off the surface deposits, making deeper exploitation more expensive and difficult." Katanga's governor, Moïse Katumbi, said: "The 140,000 miners who will lose their livelihoods will create a dangerous social problem, since the highly mechanised industry will be unable to absorb more than a tiny proportion of them."
There has already been violence throughout the new concessions. Men wander on to the railways and dig up the ballast in the hope of finding something; when they are chased off, they defend themselves, overturning and burning lorries. Security guards working for the Australian company Anvil Mining were involved in deaths that resulted in a controversial trial.
In a progress report on the extractive industries presented in Kinshasa in March 2008, the minister for mines, Martin Kabwelulu, revealed that 33.8% of DRC territory had been conceded to mining companies. In the past, foreign investment in mines was banned and the Bakajika law, introduced by Mobutu in 1973, forbade the sale of Congolese soil. Such protectionist measures ended with his fall in 1997. Two wars (1996-97 and 1998-2002) brought the country to its knees.
Rwanda and Uganda, its neighbours, occupied areas and pillaged their wealth. When Zimbabwe came to the assistance of the government in Kinshasa, it took the opportunity to establish itself in the sector.
Mobutu's successor, Laurent-Désiré Kabila, turned against the companies that had secured advantageous contracts by financing the war. He was assassinated in 2001 and succeeded as president by his son, Joseph Kabila, who turned to the West and submitted to the liberalising precepts of the international financial institutions. Since 2003 the very liberal provisions of a mining code virtually dictated by the World Bank have helped squander the country's mineral wealth.
It should have come as no surprise to the bank when the unelected leaders of a weak, chaotic state succumbed to the lure of corruption and signed contracts that were to the country's disadvantage.
Eric Monga, an expert in mining economics with the Congo Business Federation (Fédération des entreprises du Congo, FEC), recalls the specific circumstances under which the code was adopted. "The country was just emerging from a bloody war; under the transition agreement the rebel leaders were coming back to Kinshasa and being integrated into government... The mining code was an attempt to attract investors by offering them a 10-year stability clause with various tax exemptions. When raw material prices soared subsequently, those who had taken a risk and gambled on the Congo won out. Can you blame them for that?" In his view, the legislation is less in need of reform than of rigorous enforcement.
That is exactly what has happened since Antoine Gizenga, a former colleague of Patrice Lumumba (3), became prime minister in 2006. An intergovernmental commission, supported by experts from the Carter Centre, spent eight months discreetly "revisiting" the contracts signed during the transition process and examining how they worked on the ground. Its conclusions were damning. None of the 61 contracts analysed met the criteria for viability and trustworthiness necessary to reach category A, defined as acceptable to both parties; 39 fell into category B, which requires renegotiation; 22 fell into the irredeemable category C and should be annulled.
The terms granted to private companies associated with Gécamines took the commissioners aback. The investment of external partners was systematically overvalued and that of the Congolese (the value of mineral deposits and existing Gécamines infrastructure) underestimated. Fiscal and para-fiscal concessions (such as 30-year tax exemptions) deprived the state of essential revenues. Mining rights were acquired for purely speculative ends (the partners sold the shares on the stock exchange before even starting work on the ground), while social and environmental clauses were ignored, local skills undervalued, local workers underpaid and concession boundaries extended without authorisation.
Finally, the companies began actual mining when they only had permission to explore. The Congolese authorities have established that the mining sector contributed only $27m to the national budget, compared with the World Bank's estimate of almost $200m. In neighbouring Zambia, revenues from the mining sector amounted to $2 billion.
Economics minister André-Philippe Futa, who studied in the US, said: "In 2002, during a period of negative growth, the mining sector still made up 30.33% of GDP; in 2007 this figure fell to 6%." This decline is mainly due to tax exemptions granted to the companies, but also to fraud and corruption - under-the-table payments and the diversion of money before it reaches the exchequer. The government should renegotiate some one-sided or misapplied agreements and bring the companies involved before a conciliation commission. So far, 16 have been invited to prepare their arguments and such giants as Anvil Mining, BHP Billiton, Freeport-McMoran and Phelps Dodge are drawing up legal submissions.
The contract of the century As international institutions turn a blind eye to this white-collar predation, the new government, elected in July 2006, finds itself still waiting for promised foreign aid, only 28% of which has been forthcoming. Meanwhile 33% of the national budget goes to pay off interest on the debts accumulated during the Mobutu years ($800m in annual interest on a total debt of $12bn). The International Monetary Fund continues to place new conditions upon any possible debt relief.
The situation is unravelling. The people resent the government's inability to fund social reform; health, education and infrastructure have all collapsed; promises of aid remain unfulfilled; and international equivocation continues to hinder the re-establishment of government authority in the eastern provinces where armed groups still hold sway. In September 2007 the Congolese government tried to find an answer by signing what is already being called "the contract of the century".
In exchange for 10m tonnes of copper and 200,000 tonnes of cobalt, China committed to an immediate and ambitious programme of infrastructure reconstruction: 3,500km each of roads and railways, 31 150-bed hospitals, 145 health centres, four universities, schools. The partnership agreement involves $9bn (a sum that could quickly rise to $14bn), $6bn of which will be devoted to infrastructure and $3bn to reviving the mining sector. It is anticipated that $700m will be committed this year. To reduce the risk of pilfering and bribes, the deal between Gécamines and a group of Chinese companies (4) is a straight swap: raw materials for infrastructure.
Gécamines' managing director, the Canadian lawyer Paul Fortin, described the deal reached in Beijing after two months of intense negotiations as "irreversible". The court of arbitration in Paris will handle any litigation. In accordance with its doctrine of non-interference, China has not made the contract conditional upon any political reforms or good governance. Some western governments are using human rights organisations as agents to demand information about the details of these private contracts.
Unlike western governments, incapable of releasing the credits necessary for the reconstruction of a country four times the size of France, China has been quick to get down to work: several projects have already begun in Katanga, Kivu and Kinshasa, where 250km of roads and 1,000 units of social housing are to be built. The people's hopes are undermined by fears that the arrival of Chinese workers and engineers heralds a new wave of colonisation. The unconcealed displeasure of the West, Belgium especially, could endanger the stability of the government. But the Congolese government is determined to pursue its relationship with China.
* Colette Braeckman is a journalist with Le Soir in Brussels
* This article appeared in Le Monde Diplomatique
(1) See Colette Braeckman, "Congo's abandoned miners", Le Monde diplomatique, English edition, July 2006.
(2) For three years, after Congo secured its independence from Belgium in 1960, Katanga seceded, destabilising the new state.
(3) Lumumba, the independent Republic of the Congo's first legally elected prime minister, was deposed in a coup and assassinated by Katangan troops (with alleged US and Belgian complicity) early in 1961.
(4) The China Exim Bank concluded the agreement in tandem with two other Chinese companies, Synohydro and the CREC.
Translated by Donald Hounam