Will DR Congo Finally Face Down Miners’ Pressure Again Over Revised Code?
The process of revising the 2002 mining code in Congo has dragged on for over five years but the National Assembly on Friday, December 8th approved a bill that would increase taxes and royalties and sent it to the upper house Senate for a second vote.
The revision of DRC’s mining code is line with efforts by mining jurisdictions and the African Union to revise the liberal mining regimes imposed on cash-strapped African countries in the 1990s under the assumption that increased revenue from mining would lead to development. Countries like Tanzania have claimed that this promise has not materialized, largely due to under-reporting of earnings, tax evasion, and little, if any, efforts to benefit the mining communities.
In a recent statement, several of Congo‘s largest copper and gold mines, including projects operated by Swiss-based commodities giant Glencore and London-listed Randgold Resources, said investors would look elsewhere if the code were approved by the Senate and signed into law by the president.
“This very heart of the DRC‘s economy is now seriously threatened while it should be protected, supervised and strengthened,” the statement said. In an unambiguous threat to the government, the miners claimed that “This would cause the certain death of a young industry, however it contributes to the achievements of the national economy.”
The government and some civil society groups in Congo, however, dispute the companies’ financial models and argue that the proposed 3.5 percent royalties on precious and base metals are lower than in competitor nations such as neighboring Zambia. Tanzania has also seemingly compelled mining companies to negotiate agreements that could benefit its citizens.
It’s worth noting that Congo‘s mines minister suspended consideration of the revised code in March 2016 because companies had complained that its fiscal terms would make their projects unprofitable, given current low commodity prices. But the government reintroduced the proposal in May, saying it was essential to boosting public revenues in a country with an annual budget of only around $5 billion.
Congo‘s mining sector accounts for some 95 percent of the country’s export revenues and represents about 20 percent of national gross domestic product. However, the current desperation of Congo’s government has led it to seek ways to head off a collapse in national finances that is hitting the economy. Inflation is now at 50 percent and the Congolese franc has lost 30 percent making it one of the world’s worst performers this year, though it recovered slightly recently. In addition, the central bank is so low on forex it has barely three weeks of import cover left.
Congo’s economic pain is fueling political instability instigated by the refusal of President Joseph Kabila to step down, following the expiration of his second term tenure back in December 2016. Kabila took power when his father was assassinated in 2001 and has since won two elections.
Violent street protests against Kabila, a surge in militia and resumption of war in the eastern and southern provinces, as well as prison breaks have stoked fears the Central African giant could slip back to the civil wars of the turn of the century in which millions died. Last week, 14 United Nations peace-keepers from Tanzania were killed by rebel forces in the Kivu region.
Recently, former banking association head Michel Losembe told Reuters that “Currently there is no possibility – with the current economic situation and political instability – to have … sufficient confidence to sustain a stable exchange rate.”
Back in August, ratings agency Standard & Poor’s downgraded Congo’s sovereign credit rating, predicting year-end depreciation of the franc of about 35 percent and annual GDP growth of less than 2 percent from 2017-2020, down from 7.8 percent for 2011-2016.
The government forecasts 2017 GDP growth at 3.1 percent, up from 2.4 percent last year. Standard & Poor’s sees GDP growth this year at 1.5 percent.
Three quarters of Congo’s budget pays civil servant salaries and government operating expenses. Labor unions have launched strikes in recent weeks to demand pay rises. Mining companies are preying on the likelihood of labor unrest would worsen Congo’s security crisis, should the country’s mines close down and lay off workers.
That would add more fuel to the current crisis created by 12-month-long combination of violence, mass displacement and slumping agricultural output are having a devastating impact on the very young.
On December 12th, the United Nations warned that “At least 400,000 children under five… are suffering from severe acute malnutrition and could die in 2018 if they are not urgently reached with life-saving health and nutrition interventions.” The children are the neediest of more than three-quarters of a million who are badly malnourished, even though the security situation in some parts has stabilized and displaced people are starting to return home.
Kabila needs the slush cash from mining companies to prop of his regime, but the government’s is also keen on increasing treasury receipts to enable it to provide minimal services to placate the citizenry. Yet, a report by Global Witness, an NGO, accused the government of failing to report what it did with about $755 million mining revenue.
Under these circumstances, the government faces a dilemma: should it face down threats mining companies or borrow some gumption from President John Magufuli of Tanzania and pressure mining companies to finally factor the interests of the Congolese into the calculation of their bottom line?
Part credits to REUTERS