Congolese mining sector beset by uncertainty

Congolese mining

Congolese mining

With delays in revision to the mining code and no clear date set for the presidential election, the DRC’s miners are waiting anxiously, reports Jessica Moody.

Franck Mwinkeu, logistics manager at Global Mining Katanga in the Democratic Republic of Congo (DRC), laments the impact political and economic conditions have had on the mining sector. He says that “the political system” in the DRC has forced mines to close in recent years.

Despite initiating a wealth of infrastructure and investment reforms and being one of the fastest growing economies in Africa in 2014, recording GDP growth of nearly 9%, the DRC’s investment environment is becoming increasingly troublesome for miners. Copper prices dropped to a six-year low in late 2015, unsettling mining companies in the DRC, which is Africa’s leading producer of the metal.

Political volatility, resulting from uncertainty over when the presidential election, due in November 2016, will be held, and whether President Joseph Kabila will seek to remain in power for a third term, has exacerbated fears that mining investments in the Central African country are no longer viable. The poor investment climate saw American company Freeport sell its mine in Katanga in May, while in September 2015 Glencore put its Katanga project on hold for 18 months.

Delays to the new mining code

Amid the high levels of political risk and dismal commodity prices, the decision by the Congolese government to drop mining code revisions in February 2016 was seen as a much-needed blessing for the mining sector. The proposals would have seen profit taxes increase from 30 to 35%, while royalties on copper and cobalt would have increased from 2 to 3.5%.

Miners had been fiercely opposed to the code revisions, with many companies stating that the increased taxes would make operations unprofitable. The CEO and founder of Randgold Resources Mark Bristow said the code would have been hugely detrimental for the mining industry and lauded the government for failing to pass the revisions.

However, the failure to pass the amendments to the 2002 code, which have been in the pipeline since 2012, is indicative of a deeper, more systemic problem facing the mining sector. The government’s mining policies are volatile and open to fluctuations, leaving miners in a precarious position, particularly in the lead-up to the presidential election.

The government has oscillated frequently on mining policy in recent years. The mines minister announced a directive in April 2013 banning copper and cobalt concentrate exports, only to persistently delay the ban and increase taxes on exports instead. The proposed amendments to the code have also been changed repeatedly. In 2014 revisions to the legislation included a plan to triple copper and cobalt royalties to 6%.

The decision to delay the amendments again, begs the question of when the long-awaited changes will be made. An employee of Katanga Mining, who wishes to remain anonymous, says the political situation in the DRC means the new code “is not on the priority list”.

But miners have no way of knowing when the bill will be passed. The day after the amendments were dropped, the mines minister’s chief of staff, Valéry Mukasa, said “the new draft mining code [was] still with parliament and the ministry could be called to defend it in parliament at any time”.

The timing of the code revisions will now be heavily influenced by the presidential election, with a contested electoral period potentially delaying the process further. “The current political crisis raises further questions around the review process”, explains Charles Pembroke, geopolitical team manager at risk management company Protection Group International.

“Any major defections from the ruling coalition or changes to key political figures involved in reviewing the mining code could prove a major setback”, he says.

What will happen after the election?

The composition of the government after the poll will also affect the code. The participation of Moïse Katumbi, the leading opposition figure, currently looks unlikely, as in June he was convicted in absentia of illegal property selling and sentenced to three years in prison. The move was widely seen as politically motivated, and designed to block him from contesting the election. But should he somehow manage to contest and win it, the code is likely to be more amenable to investors. Katumbi is the former governor of Katanga and has been praised for his efforts to keep taxes low during his time as governor of the province. And as Pembroke says, “Katumbi has extremely good relations with the mining sector.”

Katumbi would likely have to rely, at least in part, on the support of the current ruling coalition, which favours increased mining taxes and government stakes in joint ventures. This means that even under a business-friendly Katumbi government, a review of the mining code and some alterations affecting the mining sector are highly likely to take place. A new government might also come under pressure from international advocacy groups to tighten the transparency requirements within the code, particularly regarding the tendering process and the publication of contracts.

Nathaniel Dyer, Congo team leader at Global Witness says, “it is essential that Congo’s mining law include[s] anti-corruption and transparency rules to ensure that the public can benefit from the country’s rich natural resources”. Kinshasa may be forced to address these deficiencies when the code comes to be passed after the poll.

Further difficulties

Efforts by President Kabila to delay the election could lead to further policy difficulties for mining companies. In 2015 the president divided the country’s 11 provinces to make 26, in an apparent attempt to replace local government officials who did not support his continued stay in power. This has already elevated concerns over duplicated royalty and transport taxes from local and provincial authorities in the mining hub of Katanga – now four provinces rather than one.

Underscoring this problem, in early 2016 the special commissioner of Lualaba province began a campaign to restore the share of taxes levied at the border between Zambia and the DRC that the province lost when it was split from Katanga. To this end, the commissioner is now seeking to persuade mining companies operating in the area to fund the construction of a new road into Zambia.

Political and economic challenges for the DRC look set to worsen in the lead-up to the election, leaving the mining sector exposed to a myriad of challenges over the next 12 months, as mining policies continue to oscillate and uncertainty persists over when the code revisions will be passed and what amendments they will include.

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