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Resource Capture In The DRC

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Shortly after his controversial re-election in late 2011, president of the Democratic Republic of Congo (DRC), Joseph Kabila, promulgated a new agricultural law, which stipulates that farmland must be majority-owned by a national or a company whose majority shareholding is owned by the state or a Congolese entity.

Nationalization is also a hot topic in the DRC’s mining sector. In February, during the Mining Indaba in Cape Town, South Africa, the Congolese minister for mining, Martin Kabwelulu Labilo, made his disappointment clear: the investor-friendly mining code had not delivered the intended changes. Designed with the support of the World Bank in 2002, the mining code will be 10 years old this year and is likely to be reviewed. In 2011, Gécamines, the main public mining company in the DRC, announced a review of all its joint ventures.

These talks are the direct consequence of growing investor interest in land and mineral resources in Africa. National control is at the center of debates in countries like Gabon, South Africa, Zambia and Chad. And Africa is not alone—in Brazil, foreign-controlled companies cannot own more than 250,000 hectares and raw materials diplomacy is becoming official policy in Europe. In the DRC, the new agricultural law and the likely mining code review are serious sources of concern for business.

In the 1970s, to end Belgian domination of the economy, former president, Mobutu Sese Seko, made full Congolese ownership a mandatory requirement for every business in the country. The DRC’s nationalization policy lasted only three years, from 1973 to 1976. Without capital and expertise, this policy led to an economic disaster. Foreign owners and businesspeople disengaged from the country, and the new Congolese owners were unable to run the businesses. In 1976, foreign investors were allowed to own 60% of their business. Since then, joint ventures are the norm and land belongs to the state.

State intervention in the mining sector has left bad memories in business circles. The mining contracts review (2007-2009) was intended to correct the imbalances of former president Laurent Desiré Kabila’s mining deals, to increase state shareholding and to revive the mining pillar of the nation, Gécamines. Unfortunately, the opaque review process put an end to these hopes. Under the supervision of the late Katumba Mwanke, special advisor in the presidency, the contracts review turned into a money-making scheme for state rulers. The review made mining investors bitter and the DRC is now considered a risky place to invest.

Given this historical background and the presence of Zimbabwean president Robert Mugabe at Kabila’s inauguration, the return of the nationalization policy just after the president’s re-election is making investors nervous. The minister for agriculture failed to reassure foreign donors during a meeting in Kinshasa, despite arguing that only new investments in agriculture will be affected by this law. Some foreign investors are preparing for a legal battle, while others are ringing the alarm bell, even though no-one knows how seriously the law will affect agriculture. But beyond the logical preservation of their interests, this quick reaction is very important for African governments.

In itself, the claim for national ownership is not illegitimate. This is official policy in Saudi Arabia, Dubai and Qatar. In times of aggressive investment policy, the anti-colonial rhetoric of nationalization may be appealing to African governments, but the practices are questionable. Real wealth redistribution is the objective of nationalization, but it is often used as a pretext for the ruling elite to capture resources, turning foreign plundering into domestic plundering.

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