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The New Congolese Mining Code: Fairer Tariffs or a Way to Exploit International Corporations?

The New Congolese Mining Code: Fairer Tariffs or a Way to Exploit International Corporations?

By Andrej Sagaidak

The new Congolese Mining Code was signed by the former president Joseph Kabila in March 2018 and signified changes to the fiscal regime. The Code targeted foreign mining companies, imposing additional windfall taxes and raising royalties. These amendments were not welcomed by the international mining firms. Glencore, Randgold Resources and Ivanhoe Mines threatened to take legal action against the government unless it addresses their concerns over the new law.

The previous mining code was signed at the end of the DRC’s civil war in 2002. Congolese diplomat Marie Marguerite Ndjeka Opombo claimed that the 2002 mining code was “really in favour” of mining companies and their investors. She added that this time, the 2018 mining code had adjusted those terms “to be fairer.” Upon signing the new Mining Code, Congolese leaders were confident of reaching a deal with international mining companies over its fresh law.

The DRC’s directive concerning the mining industry originated from the 1967 Mining Regulation, which was replaced by the 1981 Mining Law, and subsequently by the 2002 and 2018 Mining Codes. Particularly the 2002 Congolese Mining Code was implemented to modernise the legal rules applicable to mining activities and to provide a uniform set of rules related to every operator and applicant to attract foreign investors (Andre-Dumont, 2007, p. 352).

The new code faces other challenges, as the country’s legal provisions are often superseded by informal arrangements. Mining companies in Congo often say that the risk and cost of investing in the vast country with poor infrastructure hits profitability, justifying demands for favourable terms.

A proportional analysis of African mining laws

The first country that could be compared to the DRC, on mining regulations, is Nigeria. This country is endowed with a wide variety of economic minerals which are spread across the nation, a lot of which are in proven commercial quantity and quality. The rapid slump in solid mineral mining has led to a decline in the fiscal revenue stream from mining. This passage culminated in the ratification of the 2007 Mines and Minerals Act of Nigeria. The outcome of the Act resulted in growth in governmental tax and royalties, which stakeholders considered even harsher towards international mining companies, compared to the one in the DRC.

Similarly, the 2002 South African Mining Law is a predominant piece of legislation dealing with acquisitions or rights to conduct reconnaissance, prospecting, and mining. The law does not differentiate between foreign and local companies. They all must comply with the same criteria for the grant of a right as an indigenous applicant. However, there is a requirement that at least 26 percent of the attributable units of production of prospecting from mining projects, be held by historically disadvantaged South Africans. Therefore, the tariff dynamics of this law demonstrate that the DRC 2018 Code is comparatively standard.

Congo’s potential and challenges

Currently, the DRC is Africa’s top copper producer and the world’s leading miner of cobalt. Especially the latter element has seen a surge in demand amid the amplified production of car batteries. The nation’s mining sector contributes to 22 percent of GDP and 28 percent of government revenue. The changes to the 2002 Mining Code were already proposed to the parliament back in 2015, but due to collapsed commodity prices and fierce industry opposition, the amendments were not made until 2018.

Statistics show that the DRC has one of the lowest GDP per capita in the world. The consequences of the two civil wars and systematic corruption have left 70 percent of the country’s population living under the poverty line. Despite the growing mining industry, the country has experienced a recent decline in its economy.  Figure 1 shows that the Congolese Gross Domestic Product (GDP) expanded 4.1 percent in 2018 from the preceding year, but has been falling since 2015.

Figure 1: 2008-2018 annual GDP in Congo

 

Source: Trading Economics

Comparative data could be seen in figure 2, which weighs the industrial production in the country. The industrial production measures the output of businesses integrated into the industrial sector of the economy such as manufacturing, mining, and utilities. The graph below shows that annual industrial growth in the DRC increased by 4.8 percent in 2016 over the previous year. Yet, compared to the GPD per capita, the data shows that the Congolese have experienced a continuous rapid decline from 2008.

Figure 2: 2008-2018 Industrial production in Congo

Source: Trading Economics

The new Code targeting the international mining tycoons could signify a shift of power on the continent, and, motivate other countries to follow the same pattern. Unfortunately, the weaknesses of legal institutions in the DRC, restrain the country from directing these profits to the benefit of the Congolese people.

What could happen next?

Upon signing the new Mining Code, Congolese leaders were confident to reach a deal with international mining companies. Yet, while the new code is now ratified, it will face further challenges as the country’s legal provisions are often superseded by informal arrangements. Mining companies in the DRC often say that the risk and cost of investing in a large country with poor infrastructure hits profitability justifying demands for favourable terms.

Following the contested inauguration of the new Congolese president Felix Tshisekedi, back in February this year, it is not clear whether he will be willing to amend the new code amid mining moguls’ complaints. On the one side, the weakness of legal institutions in the DRC restrains the country from directing the profits to the benefits of the Congolese. One of the practical solutions would be to complement the Code with an addendum for official flexibility. This practice would allow foreign companies that fulfill certain criteria, for instance, by contributing directly to reducing poverty and or delivery of specific public goods, access to exemptions and defined benefits.

Andrej Sagaidak
National Institute for African Studies
andrej@africanstudies.org.uk
@aid4tradeNIAS