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Better governance of vast mineral resources drives new prosperity

Article - October 24, 2016

The government in recent years has stepped up its efforts to bring greater transparency to the mining industry to help drive prosperity and attract more foreign investment


Most of the DRC’s impressive growth in recent years has been derived from increased investment in mining activities, and while China’s slowdown and lower commodity prices have had an impact, mining continues to be the country’s economic engine.

Wealth generated by mining has yet to trickle down to the majority of the Congolese population, but President Joseph Kabila believes that will change, “The state must improve its share in the mining sector,” he says. “It is a condition for this sector, which is a key driver of growth, to become a vector of socio-economic development.”

In recent years, the government has stepped up its efforts to bring greater transparency to the industry, which will help drive prosperity and attract more foreign investment. Those efforts paid off when in December 2014, the DRC became fully compliant with the Extractive Industries Transparency Initiative (EITI), a global transparency standard for improving governance of natural resources, which cited the “great strides” made in implementing transparency over the past few years.

“The DRC is engaged in the good governance of its natural resources; and we will work with the private sector to aim for win-win partnerships that will have a positive impact on the well being of the Congolese population,” says Martin Kabwelulu, Minister of Mines.

Plans to revise the mining code, which included increased taxes and royalties on producers, have been put on hold after opposition from mining companies, who are facing another tough year due to lower commodity prices.
“The mining code that is in place will stay in place for the moment,” says Mr Kabwelulu, maintaining that the current code will help keep investors from fleeing a stressed marketplace and bring stability to the sector during the downturn. “Businesses who are interested in investing will not have to modify their business plans.”

It was welcome news to copper producers, who saw production drop 3.3 per cent in 2015 compared to the previous year, partly due to the suspension of operations by some mining units. But the news is not all gloomy. Ivanhoe Mines, a Canadian mineral exploration and development company, announced it would begin production in late 2018 at its Kamoa facility, where it has discovered what could be the world’s largest untouched copper deposit.

Louis Watum, Director General of Ivanhoe DRC expressed confidence in the project at a recent mining conference. “We believe that even if China is in the process of running out of steam or slowing down, other countries continue to ask for copper. So in the two or three years to come, we can easily foresee a deficit of copper in the market just as we go into production.”

According to Ivanhoe’s estimates, the Kamoa project represents at least 45 million tonnes of pure high-grade copper, from which the company expects to extract 300,000 tonnes per year. The Congolese government is a shareholder with a 5 per cent stake in the development.

The Ivanhoe deal is an example of the government’s efforts to attract multinational partners to help build development and drive job creation.

The DRC’s mining sector accounts for about 33 per cent of its GDP. Copper and cobalt make up more than 80 per cent of the country’s exports, according to the DRC’s central bank. But to better tolerate marketplace shocks the country is looking to diversify production towards other minerals which have not seen a negative price fluctuation.

“The DRC is engaged in good governance of its natural resources; and we will work with the private sector to aim for win-win partnerships that will have a positive impact on the well being of the Congolese population” Martin Kabwelulu, Minister of Mines

The DRC, in addition to being a leading copper producer, is also the world’s leading cobalt producer, having extracted more than 69,000 tonnes last year, up more than 8 per cent compared to 2014. Cobalt, a vital component of lithium-ion batteries, has enjoyed steady production growth and the DRC lays claim to 70 per cent of the world’s  reserves. However energy deficits have tempered growth prospects.

The government is taking steps to address its energy and infrastructure needs, which remains one of its most formidable stumbling blocks. The vast majority of Congolese still have no access to electricity. Mining companies have complained that SNEL (Société Nationale d’Electricité), the State’s power utility company can only provide 50 per cent of their electrical needs, forcing mining operators to develop their own energy sources.

Mr Kabwelulu concedes the country needs to strengthen energy production if it is to meet its output targets. “The industry’s main challenge is the energy deficit, the government’s objective for copper production in 2015 was 1.5 million tonnes, but we couldn’t achieve it due to the lack of power supply”. The Vice-Minister of Energy and Water Resources, Maguy Rwakabuba says he expects to import 150 megawatts (MW) of energy from neighbouring countries to help make up the difference and a plan is underway to complete construction of the hydroelectric power station of Zongo II and rehabilitate three other power plants in the province of Katanga. Hydroelectric dams in the provinces of Bandundu and Kasaï-Occidental are also in the works, however the country still has a long way to go before it can reach its target of offering electricity to 60 per cent of the population by 2025.

More help is on the way as the World Bank announced in February that it approved a $125 million (£86 million) credit for the “High Priority Roads Reopening and Maintenance Project.”

The new funds would help improve more than 3,000 kilometres of roads or 30 per cent of the 9,000 kilometres of transportation structures targeted for construction or improvement. The project is designed to re-establish lasting road access between the provincial capitals, districts and territories.

The development of the transport sector is a critical element of the government’s policy to stimulate broad-based growth, contribute to poverty reduction, and support agriculture and mining – key sectors of its economy.

Half of the DRC’s territory remains inaccessible by road or rail transport. Only four of its 26 provincial capitals are connected by road to the capital city of Kinshasa. The planned road works, would help reconnect the eastern part of DRC where the majority of mining operations are concentrated, to Kisangani and then to Kinshasa by river transportation, creating an efficient and effective corridor of about 2,500 kilometres. “The government is working hard to rehabilitate transport channels so mining operators can transport their products,” says Mr Kabwelulu.

“This would facilitate internal connectivity and enhance trade opportunities between different parts of Congo,” says Alexandre Dossou, World Bank Task Team Leader. “Furthermore it would reduce the isolation of large parts of the Eastern provinces of Congo caused by decades of conflict and lack of infrastructure.”

Asia’s slowdown was blamed for dips in other areas of mineral production including zinc, diamonds, and coltan, but gold proved to be the bright spot in an otherwise lackluster industry report card, rising 31.9 per cent in 2015 from the previous year to 24,516 kilograms. Production was up 57 per cent in the first half of 2015 compared to the same period the year before. The boost in output is linked to the opening of the Kibali gold mine in 2014.

The Kibali Mine, one of the biggest in Africa, is a joint venture, owned and operated by Randgold Resources and AngloGold Ashanti, the two split a 90 per cent stake, with 10  per cent going to the DRC’s government. The project represents a $2.5 billion investment and company representatives were buoyed by news that the mine exceeded 2015’s production target of 600,000 ounces of the precious metal.

“We believe the north-eastern DRC holds rich potential for such discoveries and we trust the country’s government will partner with us in our drive to develop a major gold mining frontier there,” said Mark Bristow, CEO of Randgold.

“The state must improve its share in the mining sector. This industry brings growth and can become the vector of socio-economic development”

Joseph Kabila, President of DRC

As the DRC finds itself in the throes of a gold rush, the government is trying to get a handle on the rapid spread of artisanal mining. The country’s mining code attempts to impose some measures of control but for the most part artisanal activity remains unregulated. Several areas of concern include the exploitation of small miners who work with hand tools and barely subsist on what they make, and are further burdened by middlemen who do not pay a fair value for the produced metals. Furthermore, they often smuggle the goods out of the country resulting in lost revenue in taxes for the State. Also unrestricted access by thousands of diggers and the lack of health and environmental standards in some areas have created tension among mining companies who pay licensing and royalty fees for mining rights.

The government has undertaken Promines, a technical assistance initiative with the World Bank that aims to improve oversight and management of artisanal mining which will benefit all stakeholders and ensure conflict free mining. “The programme allows the government to cut the link between conflict and mineral resources,” said Paul Mabolia Yenga, National Coordinator of the Promines project. “It also increases government revenue and helps secure livelihoods for thousands of Congolese citizens.”