With a population that has a higher number of children and elderly, Zambia is left with not enough workers. Its dependency ratio leaves it vulnerable to taking on too much future debt, regardless of any post-default restructuring solution.
DRC: Miners on hold while government stalls
Six months after the Democratic Republic of Congo (DRC) presidential elections, discussions on the extractive sector are still on the table. This has slowed down the implementation of the new mining code, which gave more power to the state. Faced with such uncertainty, investors have put a freeze on their projects.
The Congolese people are still waiting for the appointment of a government in Kinshasa six months after Félix Tshisekedi was elected. Despite the appointment of Sylvestre Ilunga Ilunkamba as prime minister on 23 May, negotiations are dragging on between the ruling alliance of the Cap pour le Changement (Cach, pro-Tshisekedi) and the Front Commun pour le Congo (FCC, pro-former president Joseph Kabila). The most intensively negotiated posts are, undoubtedly, those in the mining sector, the pillar of the Congolese economy, and which account for 80% to 95% of the country’s exports.
Martin Kabwelulu, who served as mines minister for 12 years, will be replaced, but also a new portfolio minister to manage the state’s holdings in mining companies must be named. Currently, finance minister Henri Yav Mulang is dealing with mining issues. Also, the heads of publicly owned extractive companies are still to be appointed. This includes Gécamines, which reigns supreme in the four provinces that formerly were Katanga.
Albert Yuma Mulimbi, a close ally of Joseph Kabila, who has been in charge of Gécamines since 2010, is expected to be re-elected as chairman of the board of directors. A new general manager, Sama Lukonde Kyenge, who is affiliated with Tshisekedi and oppositionist Moïse Katumbi, will work with Yuma. The former president and Tshisekedi approved this dual leadership, but portfolio minister Wivine Mumba blocked the appointments following objections by FCC MPs opposed to Katumbi.
In 2018, Yuma began contractual renegotiations with Gécamines’ 17 major international partners, and the outcome depends on the confirmation of these two men. However, Kyenge has crossed swords with the Swiss giant Glencore, the main shareholder of two of the country’s largest copper and cobalt mines.
Sensitive appointments are expected in other parastatals:
- Société minière de Bakwanga (Miba, 80% state-owned), formerly the leader in the diamond industry in Kasai;
- Société Minière de Kilo-Moto SA (Sokimo), which holds gold licences in the north-east of the country, primarily in partnership with Canada’s Barrick Gold in the Kibali mine, the main Congolese gold mining project.
Playing the waiting game
International and local mining investors, hoping for new opportunities after the political changes, are waiting on these appointments.
“After the election, some leaders of Western groups came to Kinshasa to position themselves on new mining projects, mainly in gold and cobalt. But they left without getting answers to their proposals. In the absence of a government, there is no one to talk to outside a few shadowy advisers who might not have any real influence,” says a North American lawyer familiar with the sector and the country.
He points out that there have been no major investment decisions in the DRC’s mines since 2017. The most recent was $250m by Canadian Alphamin Resources Corporation in North Kivu to industrialise tin production at its Bisie site.
Production slows this year
Companies whose mines are already in operation continued to operate at a good pace in 2018:
- 1.2m tonnes of copper (+12.9%);
- 106,439tn of cobalt (+43.8%);
- and 28.5tn of gold (+22.6%)
But production has slowed since the beginning of 2019. Tenke Fungurume Mining, a subsidiary of China Molybdenum, one of the main players in the copper-cobalt sector in Katanga, currently mines between 10,000 and 13,000tn of copper per month, compared to about 18,000tn a year and a half ago. The nearby Kamoto mine, owned by Glencore, recently announced a temporary suspension of cobalt exports.
The mining sector’s reluctance to act was compounded by the fall in the price of cobalt — down 72% in one year. The DRC holds more than 70% of the mineral’s known reserves, essential for the manufacture of electric vehicle batteries. The collapse may be due to the major players in the sector rationalising their production of cobalt — mined at the same time as copper — until prices return to levels more in line with real supply and demand.
The mining code is imprecise
A major concern, however, is regulatory and political uncertainty in the sector. The mining code was promulgated in March 2018, but the terms of its application are imprecise.
“The tax on windfall profits is incomprehensible, as is the tax on capital gains on disposals and the calculation of authorised debt ratios,” says the lawyer, who claims to have employed several large audit firms to try to apply these new rules on behalf of a mining company without success.
“Without explanations, companies will not be in a hurry,” he warns. He considers, however, the obligation in the new code to pay local taxes directly to provincial or communal authorities — without going through Kinshasa — as a clear improvement in governance.
Because of the vagueness of the rules, large companies — with the largest legal and accounting teams — have stepped into the breach.
“We are negotiating with the various local and central governments to ensure that the previous rules from our mining convention apply in place of some of the measures in the new code until they are clarified,” says an executive of a major mining group active in the copper and cobalt sector in Katanga.
A senior mining official in Kinshasa acknowledged the wait-and-see attitude linked to the current political situation, but says, “the work of popularising the new rules has already begun”. He referred in particular to the discussions that had taken place on this subject during the last edition of the DRC Mining Week, held on 19-21 June, in Lubumbashi.
Difficulties of implementation
The same questioning arises with regard to the law on subcontracting, promulgated in March 2017, and reinforced by the mining code for extractive companies. It theoretically requires mining companies to work only with Congolese-majority-owned suppliers of goods and services.
“Most mining companies don’t see how to apply it in highly technical areas where there is no local expertise,” says the lawyer.
The lawyer argues that there is a risk in the creation of shell companies whose only beneficiaries would be Congolese intermediaries with no particular competence but who are politically connected.
“Things will be done gradually, since we were only appointed in December 2018,” says Ahmed Kalej Nkand, president of the Autorité de Régulation de la Sous-Traitance dans le Secteur Privé. “But, ultimately, the law will be applied to all private companies, including Chinese companies.”
Nkand confesses that he is still waiting to know about the means available to him to monitor the proper application of this subcontracting code.
The gap between the new laws and their implementation is further aggravated by the creation of 26 new provinces (up from 11), which is draining public funds. The Natural Resource Governance Institute (NRGI), an independent organisation specialising in mining governance issues, estimates that if the mining code were effectively enforced, the state and local authorities could receive between $348m and $1.2bn per annum solely from the copper and cobalt sectors.
To date, they have received less than $300m per year from the entire mining sector. But the projected windfall would only become a reality if the new funds provided for in the mining code — devolved to future generations and community development —the administrative services of the new provinces and the ad hoc financial control bodies, are put in place. This is far from being the case, according to NRGI.
Artisanal and clandestine mines
Each of the mining sectors – copper-cobalt, diamond, gold, coltan, and tin – require a long-term strategy. In copper and cobalt, the new mines minister and other key officials in the sector will try to address the issue of illegal mining. Artisanal diggers have invaded large mining sites such as Tenke Fungurume and Kamoto (where the collapse of tunnels has resulted in the deaths of 43 people).
About 30% of the cobalt mined in the country comes from artisanal sites. Most of it travels to China through a network of well-established traders in Katanga linked to major buyers in Beijing. Because of the importance of this mineral, the government will face the concerns of car manufacturers — including BMW, PSA, Renault and Nissan — about child labour and environmental protections. A traceability project has already begun for Kivu coltan – an ore used in the manufacture of smartphone microprocessors, 60% of whose known reserves are in the DRC. The new leaders in the mining sector will also study the potential of lithium and nickel deposits — also essential for battery production.
Finally, the diamond industry, mainly located in Kasai, the birthplace of the Tshisekedi family, needs a major recovery plan. Old veins have been exhausted, artisanal and clandestine mining is on the rise, and the inter-community unrest of 2018 has disrupted the functioning of mines.
“Miba, once the country’s mining jewel, is almost at a standstill,” admits a senior Kinshasa-based official. “The publicly owned company needs financing because it has to work on kimberlite [particularly hard diamond rock], which is more expensive. Without additional resources to restart exploration, which will make it possible to choose the areas to dig, it will have difficulty in returning to its former production levels,” he says.
There are some positive signs. For example, an increase in production from Anhui-Congo Mining Investment Corporation (Sacim), a joint venture between the state and Chinese investors. It produces about 400,000 carats per month. But its permits are adjacent to Miba’s, which could create tensions between the two companies.
Since his election, Tshisekedi has had discussions with stakeholders, notably at the Africa CEO Forum in Kigali in March, during which he met a delegation led by John Kanyoni, vice-president of the Chambre des Mines. While he has listened a lot, he has not yet said much on the subject.
The bottom line: Investors want to see if Tshisekedi will go along with the reforms — the mining code, subcontracting and renegotiations with Gécamines — launched under his predecessor’s mandate. It remains to be seen, however, whether the head of state will have the wherewithal to complete and implement them to improve public revenue.
This article first appeared in Jeune Afrique.