Thursday, June 23, 2016

The Democratic Republic of the Congo has long been known for its wealth of natural resources. Wars have been fought over them, and to this day they are the reason for neighbors meddling in DRC affairs, and militias and criminal gangs looking for ways to get hold of them for financial benefit.

In the colonial era, Belgium controlled the trade in rubber, copper and later gold and diamonds. These are still important exports of the DRC, but now the list of precious metals and other minerals exported to world markets is considerably longer.

Among leading export is cobalt, with the DRC providing 55 percent of the world consumption. Copper continues to be a major export too, and generates some 30 percent of the country’s export revenue.

Other exports include niobium, tantalum, petroleum, industrial and gem diamonds, gold, silver, zinc, manganese, tin, uranium, coal and timber. The uranium used for the first atomic bomb came from the DRC.

Today, mining is still the major source of national wealth and has been at the center of the DRC’s robust gross domestic product (GDP) growth in recent years. This growth was made possible by a relatively stable situation in the country after the civil war largely came to an end with a peace agreement that took hold in 2003.

Also important to the industry was the adoption by DRC Parliament in 2002 of a Mining Code that regulates the industry. This was developed with assistance from the World Bank, and took much of the risk out of making investments in the mining sector.

With clear rules in place, foreign direct investment has soared, with most of it in the extraction industries.

Over the five years between 2010 to 2014, the mining sector saw an annual average of $2.56 billion in foreign direct investment (out of a total annual average FDI of $4.06 billion), according to Ministry of Mines data. Thus foreign investment in mining over this five-year period represented 63 percent of total foreign investment in the DRC.

A recent KPGM country auditing guide for the DRC lists 31 major foreign and 29 domestic companies active in the mining sector. These lists continue to grow as the DRC becomes increasingly an investment destination with manageable risk.

Currently, the largest international player in the DRC’s economy is China, which accounts for 40 percent of all DRC exports, as well as 20 percent of imports. As with most foreign investment and trading activities, most of the Chinese activity is in the mining sector.

In September 2007, two large Chinese state construction companies signed a $6 billion deal with Gecamines, DRC’s state-owned copper company, to exchange output from the Dima mining complex for grants, loans and infrastructure development.

Under this agreement, China would get 11.7 million tons of copper and 690,729 tons of cobalt. As part of its commitment, Beijing would build or rehabilitate some 2,000 miles of roads, 1,500 miles of railroads, 32 hospitals, 145 health centers and two universities in the DRC.

Accurate statistics for the mining sector, as with other areas of the economy, are hard to come by in part because of the impact of conflicts in the past. Both Rwanda and Uganda supported militias in the eastern part of the DRC, and took considerable resources for themselves. Furthermore, many small operators are found only in the informal economy.

But the overall pace-setting growth of the DRC economy in recent years is a testament to the strength of its mining sector. Year-on-year GDP growth was 6 percent in 2007 and rose steadily each year, with only one dip, to 9 percent in 2014.

This sustained economic expansion makes DRC a growth leader among African economies.

It has been estimated that the DRC has natural resources worth $24 trillion. However accurate this figure is, it cannot be disputed that this is one of the richest nations in the world for potential exploitation of minerals and other valuable natural resources.

With growing stability and a stronger legal framework for investors, the steady flow of investment is likely to continue.

One concern is the shortfall of electricity, a critical input for mining and related industries. It is estimated that there is a shortfall of some 450 MW, requiring rationing of power.

The original Inga hydropower plants on the Congo River were built in part to provide electricity to the extraction industries, but that was in the 1970s. Generating equipment is old and no longer efficient.

The new Inga III Dam, if built, will provide as much as 1,300 MW to the mining sector, especially in mineral-rich Katanga Province. The anticipated demand from the mining industry is one of the reasons the DRC expects to be able to raise the necessary funds to build the dam and plant.

As mining output increases, it will become increasingly important for the DRC to develop a good quality transportation infrastructure to facilitate getting the goods to international markets. Hence the China deal will be a boon to this sector if implemented successfully.

There will also be growing opportunities in related industries, for processing raw materials and manufacturing. All these activities will create new jobs and improve the lives of Congolese.

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