Hannah Edinger

Johanna Jansson

There has been no lack of attention for the $9-billion mining and infrastructure deal struck on April 22 between stakeholders from the Democratic Republic of Congo (DRC) and the People’s Republic of China. The agreement has raised enormous interest in the African and international media and a wide array of judgments have been made.

On the one hand, important donors, such as the World Bank and the UK, have expressed support for China’s engagement with the DRC. On the other hand, as the deal was announced in the DRC Parliament in early May, the 150 Parliamentarians representing the main opposition party, the Movement for the Liberation of the Congo, rose from their seats and walked out in protest against the profit of $80-billion that the Chinese State-owned partners allegedly are to pocket in exchange for a $9-billion investment.
The reprehended extraction of copper and cobalt will take place through a joint venture. Société Congolaise Minière (Socomin) was originally set to comprise China Railway Group and Sinohydro Corporation, holding a 68% stake in the joint venture, and the DRC’s State-owned Gécamines, holding the remaining 32%. In early July, however, China Railway Group announced that it would cut its stake in the joint venture from $4,04-billion (43%), to $2,64-billion (28%), as the State-owned China Metallurgical Group, a company with significant resources development expertise, took a 20% stake in the project. Simultaneously, Sinohydro will reduce its stake from 25%, to 20%.

By means of the agreement, the DRC will be provided with much-needed infrastructure, valued at $6-billion, most notable of which would be 3 200 km of railway tracks between the resource-rich south-eastern Katanga province and Matadi, the DRC’s Atlantic port. The infrastructure package also includes the construction of 4 000 km of roads as well as two hydroelectric dams, airports, schools and hospitals.

The construction work has indeed started. It has been reported that most of the building material has already arrived in Kinshasa and Katanga, and reconstruction of the road linking the DRC’s southern parts with Zambia is in progress. Such generous infrastructure roll-outs, of course, do not come without a price. In return, rights to extract 10,6-million tons of copper and 620 000 t of cobalt have been ceded to the joint venture. Socomin will also invest $3-billion in the mining infrastructure of the DRC, primarily in new mining areas.

The historical landscape of the DRC paints a picture of exploitation and mismanagement. Although home to one of the world’s most mineral-rich deposits, the war-torn country is ranked 168th out of 177 on the Human Development Index and is ravaged by absolute poverty. Concerns of abuse raised by opposition members are, without doubt, understandable.

At any rate, the country requires large-scale postconflict infrastructure refurbishment. China Exim Bank has generally proved to be an important actor on the continent; by mid-June this year, the bank had financed more than 300 projects in Africa worth at least $6,5-billion, of which nearly 80% had been committed to infrastructure development. This process has often been carried out using the ‘Angola model’, a barter trade agreement, where goods and services of supposedly equal value are sold forward in return for the loan financing. In Angola, Chinese oil-backed credit lines have been used to build and refurbish roads, schools, hospitals as well as energy and water infrastructure. In the case of the DRC, the $9-billion credit line is backed by the copper and cobalt revenues from the mining joint venture together with toll road revenue.

With regard to the concerns of the Congolese opposition, it is appropriate to evaluate the expected revenues from the joint venture closely. Should the mining projects come about and function as envisaged, and assuming that prices remain unchanged, the gross revenues of the joint venture would exceed $140-billion. While at least $9-billion of this amount would be used to repay the loan extended by China Exim Bank, the difference will be divided according to the stakes of the different companies in the joint venture. If these numbers and assumptions remain correct, 68% of the remaining $131-billion (maximum), that is, gross revenues of $89-billion, would go towards the Chinese partners of the joint venture. Mining taxes, royalties, depreciation of capital goods, interest payments on the loan and other investment-related expenses would, however, be deducted from that amount.

The Chinese State-owned partners of Socomin, thus, stand to gain considerably from the agreement, in terms of revenue and access to resources. However, the agreement must be put into perspective, taking into account the precarious situation in which the DRC government finds itself. No other donor active in the country has to date offered the DRC such a sizeable loan package and, most notably, the $9-billion offered by China Exim Bank comes in at more than three times the size of the DRC’s 2007 budget – $2,7-billion.

Also, it can be compared to other infrastructure rehabilitation packages, such as the $110-million five-year road rehabilitation accord signed on July 8 by the DRC government, the World Bank and the UK, in terms of which roads in Orientale, South Kivu and Katanga provinces, totalling 1 800 km, are to be refurbished.

All things considered, it is clear that China has entered the picture at a time when its assistance is dearly needed. This has given the Asian powerhouse a very good bargaining position. Nonetheless, the agreement offers considerable developmental possibilities for the DRC, and it is now up to the two partners to make sure that these opportunities are harnessed. This can only come about through careful management and scrutiny of the projects, and the Congolese opposition has a vital role to play in that process.