Chinese mining and the DRC balance of power
Joseph Kabila was president in the DRC from 2001 until 2019. Thereafter, even outside the office, he maintained considerable influence through public appointments, the legislature, wealth and networks. See: Who takes the wheel? However, over the last six months Kabila’s successor President Felix Tshisekedi has gradually extended his control over the strategic direction of the country. First in cabinet appointments and now via a review of Kabila-era mining contracts. The process is testing commercial relationships with Chinese entities who are the primary players in the mining sector[1].
Significance – Transparency and vital interests
Mineral exports account for more than 90% of export earnings and more than half government revenues in the DRC. It is a global leader in copper and cobalt production internationally. Economic diversification is a Tshisekedi-government objective but for now and the foreseeable future, it would be difficult to overstate mining’s strategic significance to the country. But the current administration argues that (a) developmental gains from production have been insufficient, (b) practices have violated governance standards. The sentiment is buttressed by important sections of the international community.
Speaking in the mining town of Kolwezi in May when the plan for the contract review was announced, President Tshisekedi said: “it is not normal that those with whom the country has signed exploitation contracts are getting richer while our people remain poor… it is time for the country to readjust its contracts with the miners in order to seal win-win partnerships.” In July the IMF signed off on a USD 1.5 billion Extended Credit Facility (ECF) [2] and it is likely that plans for renegotiation informed approval. Part of the funds will go towards increased transparency in the natural resources sector.
Political considerations such as Tshisekedi proving his control over the sector and removing potential avenues of influence for Kabila are also visible. In that context, two deals in particular have drawn the attention of Tshisekedi – the Tenke Fungurume mine and the so called “Sino-Congolese deal”. They press on Congo-China relations.
A commission was launched in August to investigate the true value of reserves at the Tenke Fungurume copper and cobalt mine operated by China Molybdenum (China Moly) mine in which the state mining firm, Gecamines, has a 20% interest. It is thought that it was undervalued at the time the agreement was initially signed in 2006[3] and that Gecamines could be entitled to increased revenues.
The 2007 Sino-Congolese deal was a USD 6 billion agreement between DRC and the Chinese state firms, Sinohydro and China Railway. The Congolese government would have access to loans to finance infrastructure spending and in return, the two Chinese firms would gain a 68% share in the newly created Sino Congolaise des Mines (Sicomines) venture that was awarded various mining concessions and would carry out the infrastructure development. The loans are to be repaid from government profits from Sicomines.
However, since its inception, there have been criticisms of the agreement. The promised developments have not been carried out for the most part and, where they have, they are of an inferior quality. There has also been a lack of transparency over production totals and profits of Sicomines.
Meanwhile on 20 August, six Chinese firms operating in the mineral-rich province of South Kivu were ordered to stop working by the governor for alleged illegal operations. The order was ignored despite the launch of a parliamentary probe, and tensions with local stakeholders have become pronounced.
There are strong incentives to manage the Tenke Fungurume and Sino-Congolese deal concerns with care. In addition to Chinese investment in Congolese mining operations, DRC-China trade flows were valued at USD7.5 billion in 2020 or 36% of total DRC trade (including a large Congolese trade surplus). At present, the accompanying diplomatic relationship appears strong despite the above sequence of events. The Chinese government has told the six firms to cease work immediately and return to China where they will face punishment alongside opening a desk at their Kinshasa embassy to investigate alleged breaches by Chinese firms and nationals in the mining sector.
Outlook – Strained negotiations
The Tshisekedi government has clear interest in extending its control over the mining sector and increasing revenues from production for the state. Tax revenue as a proportion of GDP over the last three years is estimated to have ranged between 6% and 8 (less than half the regional average). Addressing that imbalance is a key facet of the IMF ECF programme.
Congolese authorities’ review of the Sicomines agreement is just starting but they are expected to seek to renegotiate sections of the agreement calling for no taxes to be paid until all mining and infrastructure loans have been repaid. Meanwhile, the Extractive Industries Transparency Initiative (EITI) released its own preliminary report on the Sicomines agreement in October. The EITI findings were highly critical, calling the deal “unconscionable” and advising the government to dissolve the joint venture all together. Having been a member of the EITI since 2007, the Congolese government would struggle to wholly dismiss the report, as the Chinese leadership of Sicomines is calling for them to do.
On the Tenke Fungurume valuation, a government representative was quoted in August saying that: “if we find nothing, the contract will stay as it was established with its initial inequalities. But if it’s changed disfavouring the DRC, we’re ready to go in another direction.” He continued to say: “the mine has a lot more reserves than what was in the original contract, so it’s quite logical that we should review what equitably belongs to each according to the contributions of each. If the conditions have changed in terms of something that wasn’t there at the initial time, we must review the agreement on the basis of reality.”[4] Also in the mix then is China Moly’s purported USD 2.5 billion in planned investment.
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[1] Estimates from Congo’s Chamber of Mines put Chinese participation in the sector at around 70%.
[2] IMF Executive Board Approves US$1.52 billion ECF Arrangement for the Democratic Republic of the Congo. (2021, July 15). IMF Communications Department
[3] At this time, China Molybdenum had no involvement in the project; they purchased their first stake in 2016.
[4] Congo seeks revaluation for China Moly’s copper and cobalt mine. (2021, August 23). Mining Technology.
Photo: Shane McLendon. @kctinman, Unsplash
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