A sector in turmoil.
Although the mining sector has been the DR Congo's main driver of economic growth for many years, it does not contribute to the socio-economic development of the country. The new mining code must make changes.
"As a result of the efforts made, copper exports, which came to 7,400t in 2004, attained 992,000t at the end of 2013. Over the same period, exports of cobalt and gold increased from 1,200t to 76,400t and from 12kg to 9,000kg respectively. Mining production is expected to increase further, doubtless reaching record levels by the end of the current year, with copper production forecast to exceed the one million tonne threshold," announced President Joseph Kabila during his speech to the nation in December. Such figures provide further evidence of the importance of the mining sector in the DR Congo, as the lifeblood of the economy. What's more, the Katanga province continues to maintain its image as a mining El Dorado in the eyes of international operators.
The potential of the DR Congo's mining sector is huge. Even if the impact of the international financial crisis and a drop in commodity prices have significantly weakened the national economy, the boom no sign of faltering. Between 2002-2012, production of copper rose by 300%, rising from 20,000t to 62,000t; the increase for cobalt was 400%, with a production of 100,000t in 2012 compared with 20,000t in 2002. As a result, the DRC has become the biggest producer of this ore in the world. Gold production experienced a recovery, with 2,546kg of the metal produced in 2012. It is a similar story for diamonds, with record production of the gems. This explains why the mining companies are beating down the doors of the DR Congo to land contracts, which are becoming increasingly difficult to obtain.
Given that we are nowhere near quantifying the extent of the country's resources, the authorities, driven by strong international demand, have introduced a series of measures and initiatives to boost the sector, based on good governance and transparency, with the aim of increasing tax revenues and stimulating growth as a result. The sector's activities are concentrated in the province of Katanga, in the south-east of the country, which contains 10% of the world's copper reserves and 60% of all cobalt, but this is being gradually expanded to other provinces, of which the two Kivu provinces and the eastern province are the most affected. The latter are already considered to be the second-largest mining region of the country with 5bn tonnes of iron reserves.
A huge (almost untouched) potential
However, the fact remains that, until now, this has not contributed to the development of the country. Indeed, not even the province of Katanga has benefited. This is a situation that the authorities are seeking to correct. "As the biggest source of tax revenues, the contribution made by the mining sector to the Treasury is still relatively modest", lamented President Kabila. "The mining code must therefore be reviewed as a matter of urgency, in order to maximise the financial and fiscal benefits for the Treasury, without nevertheless putting too great a burden on the profitability and competitiveness of the mining industry.
"Another key objective of this review will be to set a minimum threshold for the development of the local economy, before any mining products can be exported, the period at the end of which the export of crude products must cease, and the schemes of the businesses with a majority Congolese ownership for sharing the profits of the rapid expansion of the mining sector, through subcontracting. A substantial draft bill will shortly be examined by Parliament."
The currently applicable mining code, enacted in July 2012, is indeed under review. The main modifications will focus on the repeal of the stability code, which is likely to be reduced from 10 to three years. The state's interest should be increased from a 5% to a 35% share initially, with a further increase to 40% over the five coming years and 45% in the five years after that. A tax on surplus profits is also in the pipeline as well as an increase in the royalty percentage. Indeed, the loss of profit for the state was significant. For example, copper only yielded $150m in 2013 for the Treasury, compared with $860m for the previous years. During this period, Gecamines was the key player in the sector.
Reorganisation of the sector
An illustration of the difficulties, which continue to face the former jewel of the Congolese mining industry, was the dismissal of the director of Gecamines, Ahmed Kalej Nkand in September '14. This despite its chairman Albert Yuma making the following announcement in 2011: "Gecamines will rise up from its ashes!" The restructuring of Gecamines was one of the conditions for reinstating the Extractive Industries Transparency Initiative (EITI), following the DR Congo's suspension in April 2013. In recognition of the efforts undertaken by the authorities, and publication of mining contracts in particular, the EITI's board of directors finally declared that the DR Congo was a "compliant country" in the area of transparency at its July 2014 meeting in Mexico. However, further measures are expected as part of the reorganisation of the mining sector.
One of the objectives of the new mining code announced for 2015 are new fiscal regulations that are triggering concern. "We do indeed make a lot of money," admitted a mining operator. "But our production costs are much greater due to problems with energy supplies. Consequently, if the taxes, which are already very onerous, are raised, we will be unable to make a profit ..."
The rapid growth of the mining sector is severely hampered by the energy deficit, which manifests itself in unexpected and repeated power cuts. However, this is an area where medium and long-term projects are required in order to fill the gap. Given that the Inga III major development project will not be operational until 2020, other smaller power stations must be renovated, including Nzilo, Nsek, Koni and Mwadingusha, with the backing of the mining industry. Consequently, the Kamoto Copper Company (KCC) and Tenke Fungurume Mining (TFM), two of the leading companies of the sector, contributed towards the funding of the renovation works of the regional power stations.
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|Date:||Feb 1, 2015|
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