CONGO: REGIME CASH MACHINE

OverView–More than $750 million of mining revenues paid by companies to state bodies in the Democratic Republic of Congo was lost to the treasury between 2013 and 2015. Instead, the money disappeared into a dysfunctional state-owned mining company and opaque national tax agencies. There is no clarity on what this money was spent on or where it ended up, but testimony and documentation gathered by Global Witness indicates that at least some of the funds were distributed among corrupt networks linked to President Joseph Kabila’s regime.

Gécamines, the state-owned company, is the main culprit in the diversion of Congo’s mining revenues from the budget. Its chairman, Albert Yuma, was appointed by Kabila in 2010 and is an ally of the president. He is described as a “financier” to the regime. He is on the audit committee of Congo’s Central Bank and is the head of Congo’s Business Federation.

Investigation shows how Gécamines is haemorrhaging money in suspect transactions
– sometimes involving millions of dollars in cash – while simultaneously failing to make any substantial contribution to the national treasury or invest in its own mining operations. The company is saddled with well over a billion dollars of debt and it carries out almost no mining of its own, despite having once mined up to 500,000 tonnes of minerals in a year.

Gécamines has apparently prioritised paying off debts to a friend of the president over paying its staff, who have at times gone months without their salaries, and has handed out a crucial contract in opaque circumstances to a little-known sub-contractor. Meanwhile, it fails to pay dividends to the government, its sole shareholder, and barely pays more than $20 million in tax per year, according to an industry transparency body – much lower than the contributions of several private mining companies in Congo.

Furthermore, each year Congo’s national tax agencies keep back a portion of mining revenues for their “own funds”, rather than transfer it to the treasury. What happens to this money is unclear. The agencies are secretive and often headed by powerful individuals with close professional or personal ties to the Prime Minister’s office or to the Presidency. The opacity around the withheld funds makes this system highly susceptible to corruption………………………..

POLITICAL CONSEQUENCES

In the midst of Congo’s turmoil, there is an enormous opportunity. The country now produces more minerals than at any other time in its history. It has grown to become the largest copper producer in Africa, and the largest cobalt producer anywhere.

Copper’s price on global markets slumped in 2015 down to under $5,000 per tonne. The price crash served as an unwelcome demonstration of just how important copper is to Congo’s economy. In 2016 the Congolese government was forced to slash its budget by 22 per cent, devastating public spending plans in a country already severely lacking in schools, hospitals, roads and other basic infrastructure.

By May 2017 the Congolese franc had lost half its value compared to a year earlier, inflation leapt to over 25 per cent in 2016, and GDP growth slowed.

However copper prices rallied in late 2016 and early 2017, reaching nearly $6,000 per tonne at the time of publication. Cobalt prices rose 70 per cent in the first half of 2017 on the back of high demand for electric car  batteries. Congo’s production of copper and cobalt, already at record highs, has boomed again at the start of 2017 as output of both minerals has risen by over 20 per cent in the first quarter of the year.91 If a price crash can cause such devastation, then a price rise (and a production boom) could have a strikingly positive impact on Congo’s economy.

The country and its people can scarcely afford to miss out on further public funds. With President Kabila overstaying his second and final term in office, some have begun to see parallels with Mobutu’s rule. The promise of elections delayed, the national conferences or dialogues, his refusing to abide by political agreements and attempting to split the opposition by unilaterally appointing a Prime Minister considered by his opponents to be unacceptable all seem eerily familiar.92

The difference today is that the money looted from Gécamines comes largely from transfers from international mining companies, rather than sales of its own mineral production. Also, the listed companies operating in Congo often have Western investors and pensions tied up in their profits and risks.

Time is running out for Congo to get this right. Its natural resources wealth may be bountiful but it is also finite. Much more of the money from the mining sector needs to reach the treasury and be spent on improving Congo’s education, health, transport and justice infrastructure, among other public spending priorities. While reporting to the EITI is an important move forward for transparency, it remains only a step towards the end goal of accountability and responsible management of natural resource revenues. More needs to be done to close down the gaps in Congo’s revenue- collection system.The alternative could be disastrous for the country.
If money continues to be siphoned away into parallel networks of power, then Congo’s political crisis is only likely to escalate. The continued mismanagement of revenues from mining companies is bound to discourage responsible investors from coming to, or staying in, the country. The result would be a shortfall in investment and the arrival of unscrupulous companies seeking to take advantage of Congo’s weakened institutions.

READ FULL REPORT How the Democratic Republic of Congo_s booming mining exports are failing to benefit its people ATM

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