Memorandum by Lizzie Parsons, Global Witness
1. Between June and September 2008, Global
Witness undertook research in the Democratic Republic of Congo
(DRC) on a substantial Collaboration Agreement (hereafter "agreement")
signed between a consortium of Chinese state-owned enterprises
and the Congolese government. This research has formed the basis
for the following evidence.
2. Using the agreement as a case study for Chinese
involvement in Africa, Global Witness intends to highlight concerns
about the lack of transparency surrounding the agreement and elements
within the agreement which may be unfavourable to the country
once the programme of work is implemented. These concerns are
particularly important in view of the enormous economic significance
of this agreement, especially in terms of the DRC's long-term
financial commitments.
3. In Global Witness's opinion, the evidence
demonstrates deficiencies in the approaches of the China consortium
and the Congolese government in the following areas: lack of transparency;
failure to involve democratically-elected institutions; risks
for long-term financial stability; insufficient protection of
labour rights; and concerns about sustainable development through
the mineral-for-infrastructure deal.
BACKGROUND TO
THE COLLABORATION
AGREEMENT
4. In April 2008, an agreement was signed
between the Congolese government and "Group of Chinese Enterprises"
(GEC). The agreement is the most significant African example to
date of what has been labelled the "resources for infrastructure"
model. It reflects China's enormous desire for guaranteed mineral
supplies for its mushrooming manufacturing industries.
5. The GEC was composed of China Railway
Group Ltd and Sinohydro, with financing from the Chinese government's
export credit agency, Export-Import (Exim) Bank. Infrastructure
projects, including railways, roads, dams, health and education
facilities, were promised in exchange for copper and cobalt mining
titles and rights in Katanga province (south-eastern DRC) to guarantee
reimbursement of the finance. The value of the investments in
the April 2008 agreement totalled US $9.25 Billion,
to be divided into US $3.25 Billion and US $6 Billion
for the mining investment and infrastructure developments respectively.
A joint-venture company was to be split between the Congolese
(32%) and the Chinese (68%). Since the signature of the agreement,
further revisions to the identity and shareholding of the partners
have been made.
HOW THE
AGREEMENT CAME
ABOUT
6. The agreement reflects the recent large
increase of overseas investment by the Chinese state, working
through the country's state-owned enterprises, entitled the "Go
Global" strategy. The long-term goals of this strategy are
to increase the productivity and competitiveness of Chinese companies.
7. The agreement clearly stipulates its purpose.
Article 1 states that the agreement broadly provides for
the GEC to "invest in the non-ferrous metals sector in the
DRC" and for the DRC to "find the required financial
resources to carry out national infrastructure projects that are
deemed important and urgent".[21]
8. The DRC is one of the poorest countries
in the world, with an immense need for long-term development.
In the 2008 Human Development Index ratings of the UN Development
Programme, it was listed 177 out of 179 countries.[22]
In contrast with this poverty, the country is one of the richest
in terms of the variety and volume of its natural resources: minerals,
forests, oil, water and wildlife. For over a century, the DRC
has exemplified the "resource curse", with its population
suffering widespread corruption, armed conflict over resource-rich
areas and autocratic rulers.
9. Throughout the 2006 presidential
election, President Joseph Kabila had promised "cinq chantiers"—his
five pillars of development, comprising infrastructure, employment,
housing, water and electricity, and health and education. He has
set these out as the test by which he will be judged in his current
term of office and in the run-up to the next presidential elections
scheduled for 2011. The wished-for post-election investment for
the DRC has been described by members of the Ministry of Infrastructure,
Public Works and Reconstruction as the equivalent of a "Marshall
Plan" for the country. However, support from the "traditional"
Western donors for these five pillars has been noticeably lacking
and slow to materialise.[23]
At the Consultative Group meeting for the DRC in Paris in November
2007, donors, including the British government and the European
Union, pledged US $4 Billion over three years, but the following
year, donors themselves recognised that only a limited proportion
of the money had been forthcoming.[24]
10. Once the agreement with China was signed,
President Kabila was quick to voice his frustration at the conditionalities
of Western aid and the slow release of promised funds. The Chinese
deal offered a welcome "no strings attached" alternative
to traditional aid packages. This sentiment concords with China's
policy of "mutual respect for sovereignty and territorial
integrity", part of the five principles of peaceful co-existence
by which China operates its foreign diplomacy and trade policies.[25]
Both Congolese and Chinese government representatives have emphasised
that the relationship between partners is not based on a colonial
past and that there is mutual understanding. A representative
of the Congolese Ministry of Mines explained to Global Witness
researchers that the respective partners "are two developing
countries who can understand one another".[26]
LACK OF
TRANSPARENCY AND
DEMOCRATIC OVERSIGHT
11. A debate on the agreement took place
in the Congolese National Assembly on 9 May 2008, two weeks
after its publication. The only Congolese government signatory
to the deal, the Minister of Infrastructure, Public Works and
Reconstruction (Minister Lumbi), gave an account of the agreement.
This was followed by a heated debate which resulted in the formulation
of ten recommendations.[27]
However, observers argued that the debate was conducted "just
to calm people" and that it was simply "a formality…a
semblance of a debate, producing recommendations that have no
force."[28]
There has been little, if any, follow-up to the debate.
12. The Congolese side of the negotiations
for the agreement was carried out by a small group of senior government
officials from the Ministry of Infrastructure, Public Works and
Reconstruction, the Ministry of Mines and the Office of the President.
Representatives from the Ministries of Finance, Budget and Planning
were excluded, despite being tasked with playing a major role
in managing the country's limited financial resources and its
debt levels.
13. Given the enormous importance of the
deal for the DRC in the long term, there was a reasonable expectation
that it should have been fully debated prior to signature in the
Congolese Parliament and that a wider group of government representatives
should have been involved in the negotiations and final approval
of the deal. Coming so soon after the country's national and Presidential
elections in 2006, such measures could have served as an endorsement
of and test for the new democratic institutions. Instead, the
negotiations took place behind closed doors and with very limited
public debate.
FISCAL IMPLICATIONS
OF THE
AGREEMENT
14. Parties to the deal have expressed their
desire for it to provide economic growth to the DRC. However,
the International Monetary Fund (IMF), on behalf of its national
members, has expressed concern that the deal would risk loading
dangerous levels of debt onto the DRC. Over recent months, the
DRC has been attempting to meet the criteria necessary to join
the IMF's Highly Indebted Poor Countries (HIPC) scheme whereby
it could be relieved of the majority of its multilateral and bilateral
debt obligations. The signing of the Chinese agreement meant that
the IMF, along with various other creditors, became concerned
that should the DRC's debt be removed through the HIPC process,
the country would simply be replacing one type of damaging, unsustainable
debt with another. At the time of writing, the parties to the
deal are undertaking feasibility studies in an attempt to satisfy
the IMF's demands.
15. The agreement emphasises a quick transition
in the mining operation towards income generation. Specifically,
Article 13.3.3 of the Agreement states that "if the
feasibility study shows that the IRR [internal rate of return]…of
the Chinese Companies Group is less that 19%, the DRC agrees to
take all the necessary steps to improve the cooperation conditions
in order to reach [an internal rate of return] threshold of 19%
for the benefit of the Congolese Companies Group". This guarantee
presents a number of potentially adverse consequences, creating
an uneven playing field for mining and infrastructure investments
in DRC. Firstly, additional mining concessions may be required
to reach the promised IRR level because the level can be calculated
in various ways, thus making the calculation process open to abuse.
Furthermore, Article 13.3.3 appears to suggest that tax rules
could be manipulated to ensure that the high rate was achieved.[29]
In addition, recent research indicates that such pressures to
meet repayment deadlines risk heightening the likelihood of accidents
and damage during the construction and operation phases of the
mining project.[30]
16. Article 14.4 of the agreement is
a stabilisation clause which ties the DRC to a legislative regime
at a certain point in time from which they will not be able to
diverge without paying compensation for resulting higher costs
or lower revenues.[31]
A group of international mining law experts concluded that it
is "one of the most comprehensive and uncompromising stabilization
clauses that the authors have encountered" [italics in
original].[32]
The provisions of the stabilisation clause run the risk of undermining
the DRC's right to regulate key public policy areas such as the
environment and human rights.
POOR LABOUR
CONDITIONS
17. There have been widespread reports of
the poor treatment of workers in mines, smelters and other operations
under Chinese and non-Chinese ownership in the DRC.[33]
There are concerns that such practices will be repeated in the
infrastructure and mining operations covered by the agreement.
Chinese government policy states that Chinese companies should
respect the laws and regulations of the countries where they operate.
However, as a Congolese lawyer explained, the very weak capacity
of the Congolese state to uphold the law is an intrinsic reason
why Chinese companies are able to continue operating with poor
labour conditions.[34]
OVERSIGHT AND
MONITORING OF
OPERATIONS
18. There are doubts about the Congolese
capacity to provide quality control for the infrastructure projects.
Without appropriate oversight and safeguards, the costs of works
risk being overinflated. In addition, because of the inherent
guarantees for the reimbursement of debt and for an internal rate
of return at 19%, higher infrastructure costs would mean fewer
finished projects for the same value of loan. In the same way,
overinflated costs may in turn require a greater volume of minerals
to be sold to repay the Chinese debt within a specific time frame.
19. To date, the Congolese government has shown
a dependence on the Chinese parties for direction and guidance
in valuing infrastructure. This reflects broader weaknesses and
an imbalance in other aspects of the partnership, including in
negotiation, technical expertise and operational capacity.[35]
Monitoring and oversight of both mining and infrastructure projects
is vital to ensure that the deal brings the proposed benefits
to the Congolese people. Despite professional expertise within
Congolese government ministries, civil servants are seriously
under-resourced and often lack appropriate training. Investment
to improve the capacity of the Congolese administration to carry
out its oversight role must be seen as a precursor to the implementation
of programmes.
17 April 2009
21 "Collaboration Agreement between the Democratic
Republic of Congo and the Chinese Companies Group: China Railway
Group Limited, Sinohydro Corporation regarding the development
of a mining project and an infrastructure project in the Democratic
Republic of Congo 2008", Article 1, unofficial translation,
22 April 2008. Back
22
United Nations Development Programme, Human Development Indices:
A Statistical update 2008-HDI rankings, 18 December 2008,
online at http://hdr.undp.org/en/statistics/ Back
23
Global Witness interviews with officials from international financial
institutions, Kinshasa, 17-18 June 2008. Back
24
Consultative Group press release, "Consultative Group Meeting
on Democratic Republic of Congo", 30 November 2007;
Global Witness interview with official from international financial
institution, Kinshasa, 17 June 2008. Back
25
World Bank, "Africa's Silk Road: China and India's New Economic
Frontier", 2007, p.171. Back
26
Global Witness meeting with Congolese Ministry of Mines official,
Kinshasa, 25 September 2008. Back
27
Bell Pottinger-Democratic Republic of Congo press release, "DRC
unveils its $9 Billion minerals-for-jobs deal with China",
9 May 2008; La Prosprit Kinshasa, "Allocution du
Ministre des Infrastructures, Travaux Publics et Reconstruction
à l'occasion de la presentation à l'Assemble nationale
des accords signs entre le Gouvernement de la Rpublique Dmocratique
du Congo et la
publique Populaire de Chine", 10 May 2008. Back
28
Global Witness interview with human rights activist, Lubumbashi,
10 June 2008; Global Witness interview with Congolese parliamentarian,
Kinshasa, 17 June 2008. Back
29
Expert analysis for Global Witness, 2008, unpublished. Back
30
Leader et al., Global Project Finance Rights and Sustainable Development,
ESRC project RES-156-25-0011, documents available at http://www.esrcsocietytoday.ac.uk. Back
31
Article 14.4 states that "all new legal and regulatory
requirements which put [the Mining Joint Venture and the contractor
in charge of infrastructure] at a disadvantage will not be applied",
unofficial translation. Back
32
Expert analysis for Global Witness, 2008, unpublished. Back
33
Global Witness report, "Digging in Corruption: Fraud, abuse
and exploitation in Katanga's copper and cobalt mines", July
2006; Bloomberg, S. Clark, M. Smith & F. Wild, "China
Lets Child Workers Die Digging in Congo Mines for Copper",
23 July 2008., Back
34
Global Witness interview with Congolese lawyer, 11 June 2008. Back
35
According to a senior representative from the Ministry of Infrastructure,
Public Works and Reconstruction, the Chinese partners established
the exact price of each piece of infrastructure. Global Witness
interview, Kinshasa, 19 June 2008. Back
| 
