Democratic Republic of Congo: Is resource nationalism on the rise again?

September 2021

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Many investors in the Democratic Republic of Congo (DRC) anticipated a new dawn for investor regulation early this year, as President Félix Tshisekedi shed the yoke of his predecessor, Joseph Kabila, and broke from their uneasy power-sharing alliance. Under President Kabila, mining companies faced opaque tendering and were subject to punitive taxation changes that ignored the industry’s petitions – causing the country to be labelled as ‘resource nationalist’ by many observers. Instead, observers saw Tshisekedi laying the groundwork for stronger governance, and espousing a pro-business, equal, stance, one that would benefit the Congolese people after years of graft and mismanagement of public funds. Since his inauguration in January 2019, Tshisekedi had promised to renew investor appetite in vital economic sectors, while maximising opportunities to fund key priorities for his administration – including infrastructure development, and free primary schooling.

To achieve this fresh start, Tshisekedi sought to reassess contracts signed under his predecessor, cleaning shop, and ensuring his commitments to the Congolese people materialised. Accordingly, investors’ commitments that have been slow to materialise, or fall short of contractual obligations, were, and continue to be, liable to fall foul of the presidency and face renegotiation. In the almost- three years since his accession, Tshisekedi has reviewed multiple infrastructure deals, notably the mega-hydropower project Inga III and the development of the country’s first deep seaport at Banana. Tshisekedi has sought to start afresh with many of these megaprojects, ensuring they align with his visions for the country’s development, and drawing a line under his Kabila’s 19-year tenure.

While the negotiation of some contracts that unduly favour foreign companies would be fair, investors fear a full-blown resurgence of resource nationalism under President Tshisekedi, motivated by his desire to break from the past. Contractual agreements made under Kabila’s tenure seem increasingly negotiable under the new administration, and finally, in the past few months, Tshisekedi and his government have started reviewing mining contracts. As we approach the presidential election in 2023, and with the sector generating 55.2 percent of government revenues according to the most recent data, we anticipate further scrutiny of mining licenses to raise campaign funds and garner popular support.

Chinese miners fall into crosshairs of Tshisekedi’s clean break

Until May, the mining industry had largely been spared investigation by the new administration. Tshisekedi seemed sufficiently satisfied with progress made at some of country’s most promising greenfield developments like Ivanhoe Mines and Zijin Mining Group’s Kamoa-Kakula, and initiatives aiming to achieve formalisation in artisanal and small-scale mining. Then the president issued a stark warning to the sector, cautioning that some mining contracts could be reviewed because of concerns they are not sufficiently benefiting the Congolese people. Last month, two mining contracts were earmarked for review, both Chinese owned.

On 27 August, finance minister Nicolas Kazadi announced that the government was reviewing its largest mining deal – the infrastructure-for-minerals Sino-Congolaise des Mines (SICOMINES) project. The USD 6.2 billion deal was the most significant Chinese investment project in Africa when it was agreed in 2007, and now faces a commission of inquiry to ensure its fairness and efficacy. In the deal between state miner Gécamines and two Chinese state-owned enterprises, Sinohydro Corp and China Railway Group Limited, the Chinese consortium received a 68 percent stake in the SICOMINES copper and cobalt venture, in exchange for the construction of roads and hospitals. Critics have decried a lack of transparency and a failure to realise various projects. Simultaneously, the president’s office began an investigation into the copper and cobalt mine run by Tenke Fungurume Mining (TFM), 80 percent owned by China Molybdenum, to evaluate the known and probable mineral reserves, ensuring Gécamines and therefore the state, “fairly lay claim to [its] rights”, according to the government.

Centralised nature of the reviews points to presidential primacy

Both review commissions are hosted in the president’s office and leave out key figures from both the mines ministry and the prime minister’s office. Prime Minister Sama Lukonde Kyenge is the former director-general of the state miner, a position he was appointed to by Tshisekedi in June 2019. Instead of Lukonde, the commission responsible for reviewing TFM is headed by André Wameso, the president’s deputy chief of staff responsible for economic and financial matters, and several senior executives from Gécamines. The commissions will seek to claw back control over these two mining projects, which are liable serve as blueprints for further reviews of large mining contracts. Going forward, operators will need to ensure they have a robust stakeholder engagement plans and open communication with senior figures in both the state miner and president’s office.

AML Analysis September DRC Nationalism

Coincidence, or harbinger of geopolitical unease in Congolese mining?

According to some reports, Tshisekedi’s renewed ties to the US government have been motivating his targeted scrutiny of Chinese miners in particular. After all, China, and its president, were closely aligned with ex-president Kabila, and Tshisekedi has sought to renew frayed ties with the US, fostered by his close relationship with the current US ambassador, Mike Hammer.

With Chinese investors controlling an estimated 70 percent of Congo’s mining sector, it is plausible the two major deals that are being reviewed are both Chinese owned by coincidence, and this does not represent a wholesale review of Chinese state-funded mining investment in the DRC. Either way, it is clear that Beijing is sensitive to these accusations – China’s ambassador to the DRC, Zhu Jing, warned on Twitter that the country should not be “a battlefield between major powers”.

It will be crucial to see where the presidency goes next in reviewing mining licenses to assess whether this is a targeted attack on China’s primacy in Congolese mining, or not. Chinese mining companies in general are facing a backlash in the Congolese media after it was revealed that six Chinese companies were operating illegal small-scale gold mining in South Kivu, and simultaneously a video emerged on social media apparently showing artisanal miners being abused by representatives of a Chinese trading company.

Looking to the 2023 presidential election

What is for certain is that these mining sector contractual reviews will continue. Mining generated 17.4 percent of gross domestic product in 2017 and a quarter of total direct employment, according to the most recent data from the Extractive Industries Transparency Initiative (EITI). Since 2018, and the promulgation of the new Mining Code, especially the application of the 10 percent strategic substance levy on cobalt, that is liable to have increased.

Mining companies, traders and investors with interests in DRC are therefore in another uncertain period as we approach the 2023 election. Mining, as ever, will form the backbone of political mudslinging, and the sector can expect further encroachments into 2022.