DRC finance minister Kazadi says Rwanda gold trade holds back EAC potential

By David Whitehouse
Posted on Monday, 5 December 2022 12:30

DRC's Minister of Finance Nicolas Kazadi (photo: @nskazadi)

Rwanda’s tolerance of gold smuggling is undermining the free-trade potential of the East African Community (EAC), Democratic Republic of Congo (DRC) finance minister Nicolas Kazadi tells The Africa Report.

DRC’s gold and coltan resources mean that Rwanda has “preferred working on the black” and has “allowed criminal enterprises” to operate these trades, Kazadi  says on the sidelines of the Africa Financial Industry Summit in Lomé, Togo, on 29 November.

From Rwanda’s perspective, “there’s more to gain on the black and in crime” than in embracing transparent free trade.

The US Department of Treasury says more than 90% of the gold mined in the DRC is smuggled out to countries including Rwanda and Uganda, before being refined and exported to international markets, such as the United Arab Emirates.

Conflict gold is also the largest source of revenue for armed groups operating in the eastern DRC.

At the end of October, the DRC told Rwanda’s ambassador Vincent Karega to leave because of its claims that Rwanda is supporting M23 rebels in the east of the country. Rwanda denies those claims.

DRC joined the EAC in July, and the country’s foreign minister Christophe Lutundula Apala Pen’ Apala has said the seven-member grouping is the most integrated bloc on the continent.

According to Kazadi, Kenya and Burundi “understand that there is no choice but to build together,” but Rwanda has “not yet understood” the benefits of DRC membership. “At the moment it’s not working.”

  • Western countries have historically supported Rwanda but have not done enough to raise their voices against tolerance of the illegal gold trade, Kazadi says. The criticism is “starting, but is still too timid.”
  • He is confident that the EAC’s potential will be understood by Rwanda. “They don’t have any choice but to understand. Reason will triumph.”

FATF grey list

DRC has its own financial transparency issues to address. President Félix Tshisekedi said he would tackle money laundering, terrorist financing and corruption when he came to power in January 2019.

The global money laundering and terrorist financing watchdog, the Financial Action Taskforce (FATF), in October added DRC to its “grey list” of countries.

The FATF says since October 2020, DRC has made some progress, including making confiscation of proceeds of crime a priority.

But grey-listing means that banks face more scrutiny on DRC financial transactions, and higher compliance requirements can serve as a disincentive to investment.

The International Monetary Fund (IMF) estimates that incoming capital flows drop by an average 7.6% of GDP when a country is grey-listed.

  • Kazadi, who became finance minister in April 2021, says he welcomes the FATF move. “There’s nothing unusual about it. We want to meet good governance standards,” he says. “Our wish is to be reviewed and put under surveillance. It’s part of our reforms.”

Mining ‘super profits’

Growing global needs for minerals for electric vehicles, renewable energy generation and mobile phones have triggered higher prices and increased interest in the DRC’s resources.

The country’s revised mining code of 2018 introduced a new 50% tax on “super profits”, earned by companies when commodity prices rise 25% above the levels in a project’s bankable feasibility study.

The application of the tax is still under discussion. Kazadi says he hopes for an accord with miners in the coming days.

The sharing of profits when international prices rise 25% is a “normal principle” which applies in oil, he argues, noting that in bad years when prices fall, losses can be carried forward.

  • Most mining companies in the DRC have been making super profits in 2021 and 2022, Kazadi argues, citing the case of an unnamed company that saw profits rise from $120m in 2021 to $1.1bn in 2022.
  • Yet the company still claims that no “super profit” has been earned.

Tax receipts, growth outlook

DRC has a $1.5bn extended credit facility with the IMF agreed upon in 2021. Last month, the IMF said it will release $200m to DRC pending executive board approval in December.

The IMF has pointed to the complexity of DRC’s taxation system and the existence of three different tax administrations as creating opportunities for corruption.

Multiple Treasury accounts, it says, lack proper oversight. A single account as demanded by the IMF is a “key, flagship” reform, Kazadi says.

  • A competitive process to recruit the people who will implement the reform has been started, and the process will ensure that political interference is avoided, he says.
  • The recruitment will be finished by the end of December and implementation of the single account will then start. Next year will be a “year of great change”.

DRC’s tax-to-GDP ratio lags even Africa’s low rates. According to the OECD, the country’s 2020 ratio of 7.3% compared with an average for 31 African countries of 16.0%.

Digitalisation, Kazadi argues, can help improve tax collection.

A system of standardised VAT bills based on a model from Benin is being implemented and will mean sales can be more clearly identified.

The process of digitalising tax receipts has started and has led to greater transparency.

  • Since 2020, Kazadi says, the tax burden has increased from 9% of GDP to about 15% in 2022, which is “major progress” but not yet enough. “The fiscal burden will increase again in 2023.”
  • The IMF is “not demanding austerity, but transparency and good management,” Kazadi says.  DRC is “one of Africa’s least indebted countries.” Strong economic growth prospects mean that there is some “margin for maneuver” for further borrowing. The important thing is to avoid “badly used debt” incurred in the past.
  • The IMF predicts DRC growth of 6.6% in 2022, but “we think we can get 7%.” Growth in 2023 will be about 6.3%, Kazadi concludes.

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