DRC: new president brings no fireworks

Current policy is likely to remain in place despite a new president in the Democratic Republic of the Congo (DRC), writes Leon Louw.

The DRC’s December general election was controversial, and flawed, but considering the country’s history, a change is as good as it gets. Democracy and a change in the ruling party are still foreign concepts to the DRC. The country has only had five presidents since 1960 when Joseph Kasavubu became the first president after independence. In 1965, Mobutu Sese Seko came to power and misruled for 32 years before, in 1997, Laurent Kabila’s troops marched into the capital Kinshasa to depose of the erstwhile dictator. Kabila’s assassination by one of his own body guards four years later, resulted in his son, Joseph, being inaugurated as president of the DRC in January 2001. Joseph Kabila held that position until January this year, when Felix Tshisekedi, son of veteran opposition leader Etienne Tshisekedi, became the fifth president since independence.

Felix Tshisekedi’s victory came as a surprise, and allegations are rife that he is in Kabila’s pocket and that the two had negotiated a deal before the election to maintain the Kabila patrimony. Tshisekedi is the leader of the oldest and largest opposition party in the DRC, the Union for Democracy and Social Progress (UDPS). Predictions before the elections were that Kabila would cook the elections and ensure that Ramazani Shadary, leader of the ruling party, the Common Front for Congo (FCC), and Kabila’s preferred successor, takes power, and in this way, perpetuate his own power and influence. The election results have been disputed by businessman and leader of the Engagement for Citizenship and Development, Martin Fayulu. But in a rather unsurprising verdict, the Constitutional Court of the DRC affirmed Tshisekedi’s victory.

According to risk consultants Signal Risk, the January 2019 Constitutional Court verdict was delivered by a panel of judges who were handpicked and largely considered loyal to outgoing president, Joseph Kabila. A report by Signal Room, Signal Risks’ analysis platform, states that this decision effectively nullified a petition by second-placed candidate and Lamuka coalition flagbearer, Fayulu, who rejected the results.

Fayulu’s claims that he won the election were backed by data from separate sources that were distributed by the New York-based Congo Research Group (CRG) on 16 January 2019. Both result sheets indicated that Fayulu secured an overwhelming victory in the elections.

According to election results obtained by CRG, Fayulu gained 59.42% of votes in comparison to Tshisekedi’s 18.97%. CRG also released a second set of data from the DRC’s Catholic bishops conference (CENCO), which had deployed 40 000 observers for the ballot and conducted a parallel vote-tallying process. Per CENCO’s count, Tshisekedi garnered only 15% of the vote in comparison to Fayulu’s 62%.

 A notable aspect of CENCO’s tally is that Tshisekedi finished in third place, with the ruling FCC candidate, Shadary, listed as the runner-up by securing 17.99%. Nonetheless, at least Tshisekedi is a new face, and although drastic change is not likely, the Kabila hold has been broken.

No fireworks

But what does all this mean for mining? Well, not much. The most likely scenario is that Kabila and his network will continue pulling the strings. It is doubtful whether Tshisekedi, unlike Jo?o Lourenco, will dismantle Kabila’s stranglehold with as much vigour and as boldly as Lourenco did with the Dos Santos empire in neighbouring Angola. So, don’t expect fireworks during the first few years of Tshisekedi’s rule. According to Signal Room’s report, the new administration is expected to continue the policy agenda of the Kabila government.          

 “Likely collusion between Tshisekedi and the FCC — as well as the FCC’s parliamentary majority and its potentially strong representation in the new cabinet — points to policy consistency under the president-elect. This includes matters pertaining to the mining code. Ongoing speculation regarding the legitimacy of Tshisekedi’s incumbency means that the new president will not inspire the investor and donor confidence that often accompanies ‘democratic’ transitions. However, the absence of a large-scale civilian outcry to political developments suggests that both donor contributions and investment inflows will not deviate from trend in the coming months,” says the report.

The unstable political environment has caused investors to think twice before making long-term commitments, while the recent promulgation of the new mining code contributed to an uncertain climate. The major investors in the DRC, including Glencore, Ivanhoe, and Randgold (now Barrick), opposed the mining code fervently last year, but despite their opposition, Kabila pushed through new policies that increased taxation, and reduced the stability period in which changes to taxes and customs cannot be modified from 10 to five years.

According to the new mining code, mining royalties on non-ferrous metals have increased from 2% to 3.5%, for precious metals from 2.5% to 3.5%, for precious stones from 4% to 6%, and a new ‘strategic substance’ designation could require companies to pay a royalty as high as 10% on metals such as cobalt, one of the DRC’s prime products. The corporate income tax for miners remained at a reduced rate of 30%, and the introduction of a new ‘super profits’ tax could mean a rate as high as 50% on profits that exceed 25% of the expectations outlined in a mining feasibility study.

Opportunities abound

Despite these new rules and regulations, exploration, expansions, and new developments in the DRC continue unabated. Cobalt, copper, and lithium deposits are drawing the most exploration attention, and gold, tin, and tungsten remain a big drawcard. While Chinese and Indian companies are developing several new projects, existing mines are expanding or consolidating their assets. A number of mines are venturing underground, production at Alphamin’s Bisie tin project in the eastern DRC is imminent, while Ivanhoe and Rio Tinto have big plans in the DRC. All this activity has created a range of opportunities for South African suppliers and service providers, but the DRC remains a complex country in which to do business. Infrastructure is almost non-existent and electricity supply continues to hamper development.

According to Duncan Bonnett, partner and director at Africa House, suppliers need to understand several issues before entering the DRC. “For example, companies have to be aware of mine ownership, procurement processes, and sources of procurement, local content, and procurement regulations,” says Bonnett. “Furthermore, they need to understand that the logistics of supplying into the region have changed, which is not necessarily better for South African suppliers,” Bonnett adds.

“A couple of decades ago, a very strong South African mining presence existed in the Katanga region, as South African mining companies, contractors, and suppliers made strong inroads into the market. Gradually, however, the presence of South African or South African-based mining companies has dissipated as Chinese buyouts and entrants from India, Central Asia, Australia, and Canada have made their mark. As such, the opportunity to piggyback on our ‘champions’ has diminished. In addition, these new entrants have introduced their own supply chains into the market, as they use suppliers that they are comfortable with. Thus, understanding who owns particular mines and how they source products and services, is key to gaining access to major operations in the country,” Bonnett explains.

Mixtec is a South African company that has been operating in the DRC for many years. The company manufactures industrial agitators and mixers. According to Rudi Swanepoel, sales and projects manager at Mixtec, the company improves mixing systems that result in power savings and increase the operational life of existing agitators. “These improvements include new impeller technology and engineering capabilities for the improved accuracy of agitator drive sizing and selection,” says Swanepoel.

Challenges

Swanepoel adds that there is a lack of knowledge in the DRC about the benefits of mixing technologies, not only in the mining sector but also in the petrochemical and industrial sectors. “We try to educate the mines through training and continue developing new technology through development,” says Swanepoel. Swanepoel adds that there has been a marked increase in exploration and development projects in the DRC, and that there has been an uptick in demand for better and more efficient impeller and agitator technology. He says that it is especially the copper industry that presents opportunities.   

“Having done numerous projects in the DRC, we see the need for innovations and improvements that will assist in speeding up recovery time and productivity. We have stepped up in terms of better upgrades and retrofitting of existing mixers and serviced most of the small to large mines throughout the DRC with our custom-designed mixers. The copper cobalt industry has benefitted greatly from our supply of mixers. We have about 130 mixers at one plant in the DRC; a fact that we are very proud of,” says Swanepoel. But, Swanepoel adds that the political situation has negatively affected operations, as it has created an uncertain investment climate.

 The DRC has always been, and will remain, one of the most challenging African countries in which to conduct business. A new president in the country doesn’t really mean significant political change, and the infrastructure constraints are highly unlikely of being addressed during Tshisekedi’s tenure. However, the rewards of investing in this vast country are substantial, and it is hard not to include the DRC in the list of top mining destinations in Africa.

Leon Louw specialises in African affairs and mining. For more about doing business in Africa, mining and mining operations in Africa and the political risk of operating in Africa, follow Leon on Twitter and Linkedin, subscribe to Mining Mirror and African Mining, or follow the two magazines online.