Katumbi et Chine
Investing in African Resources: Following the Congo Line
By Jack Lifton
DETROIT (ResourceInvestor.com) -- The first two sentences in a Resource Investor article yesterday, “China to Release Policies Controlling Copper Product Tolling,” were from a press release by China’s Interfax News Agency. That release began:
“China is set to announce new policies to control refined copper imports for processing and finished product exports. The new policies are aimed at reducing energy consumption and combating high pollution in the copper processing sector, and would badly hurt imports by copper processing companies, industry insiders told Interfax.”
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When I read that press release alongside an article that appeared in Mining Weekly Online, the day before, “Permanent ban on all raw ore exports, DRC’s Katanga governor decrees,” I see a pattern that I think is an unintended consequence of China’s policies with regard to African natural resources.
American investors in natural resources used to shun opportunities in countries the names of which contained adjectival words such as “socialist,” or “democratic,” or even “people’s.” Investors knew well that those socialist regimes had either a non-existent or sharply lesser view of the wealth creating value of private property than America does.
Investors were also in agreement that democratically named countries were typically not democratic in operation, and “peoples” rarely had much say in countries named after and supposedly dedicated to them. It was obvious that in all such “republics” state-ownership of natural resources meant that the availability and price of such resources were liable to be decided at the whim of frequently unelected officials who not only didn’t care about the free market in principle but were actually opposed to it in practice.
Africa is a huge continent composed of a large number of nations, which, with the exception of the Republic of South Africa, do not have economies that are broadly industrialized and self-sufficient in food and energy. All of Africa’s nations have boundaries that were drawn up or finalized in the twentieth century either as the result of local wars, the distribution of land from the winners to the losers in World Wars I and II, or the withdrawal of European nations from their African “territories, colonies and protectorates.”
Even prior to withdrawal the various European Empires had sometimes been forced by the practical costs and needs for their own human resources of administrators and soldiers to do something to politically organize their colonies into self-administering, if not self governing entities. Africa was thus seeded with facsimiles of British Parliaments and French Assemblies in the best cases and Worker’s Parties, Socialist Parties and Communist Parties in almost every case.
In the chaos that followed the pre-emptive withdrawal of a bankrupt Great Britain after World War II, and the reluctant withdrawal of France the vacuum, was filled for the most part by the political and military operatives of the Union of Soviet Socialist Republics. Until the collapse of that regime African politics consisted pretty much of local governments pitting the United States versus the USSR to see who would give the most to get access to the vast mineral and energy resources of the continent.
As African political fortunes ebbed and flowed over the arbitrarily and hastily drawn borders of the new African “nations” leaders of parties of the people, democratic republics, and socialist republics grabbed as much territory and wealth as they could for themselves and left Africa in many ways in worse shape than when it was composed of the aforementioned territories, colonies and protectorates.
The collapse of the USSR in 1989 allowed Africa’s nations to drop off of the radar of the US, since our main political interest there had been to keep African nations politically and economically from falling into “their” hands.
Into this new vacuum stepped the People’s Republic of China (PRC). The Chinese have been pretty much free to do and say what they wanted in Africa since, what many Americans refer to, wrongly and cluelessly, as, “the fall of communism.” Chinese “businessmen” and “diplomats” newly supplied with the vast sums of money China has made by supplying low cost labour to western businessmen immediately got sympathetic hearings from African leaders to whom they introduced themselves as brothers who had also thrown off the yoke of western imperialism. The Chinese pointed out that they had no interest in territorial expansion in Africa and that they had a plan.
The plan was in every case to lend or even, if necessary to their ends, gift the money, technology and the engineering skills to build an energy and logistics infrastructure in any interested country in which such development allow the production of mines, petroleum and natural gas and renewable natural resources to be dramatically ramped up. They would agree to be paid back in ore concentrates, oil, coal, natural gas, wood and metallic raw materials. The repayment schedules were generous and long term.
The PRC wasn’t interested, its representatives said, in internal politics. Therefore it was of little concern to the businessmen and diplomats of the PRC if some of the African leaders wanted some aid in the form of automatic weapons, armoured vehicles and artillery. It was understood that “anti-democratic” factions in many of the countries needed to be prevented from disrupting commerce or endangering the enlightened rule of one of the many presidents-for-life with whom they dealt. Training cadres from the People’s Liberation Army (PLA) were provided to ensure that soldiers were trained to use the new weapons and to use tactics proven by the ever victorious PLA in its battles with western imperialists in Korea and Vietnam, for example.
When the Europeans withdrew it was mainly for economic reasons-they couldn’t afford to pay for a sufficient military presence based on the revenues generated even by the easily accessible raw materials and low labour cost produced goods no longer needed in their shrinking home economies. The facsimile democracies they had imposed mostly decayed rapidly and the result was civil wars, dictatorships and tribalism. Infrastructure needs got pushed to the background as the great powers interest faded.
One excellent example of lack of economic foresight is Belgium’s brief imperial interlude in Africa. It had only been in 1908 that the King of the Belgian’s, Leopold II, gave up to the Belgian parliament his personal control of what was called the Congo Free State and the Belgian Congo was born. But Belgium, itself, was overrun militarily and economically devastated in World War I. and again in World War II, so the reconstituted postwar Belgium was only too glad to grant “independence” to the Republic of the Congo in 1960. In 1970 the country became Zaire under a lifetime president, and now, after another revolution, it has become today the Democratic Republic of the Congo.
Belgium used the Congo Free State to mainly produce natural rubber. In doing this Belgium managed in its imperial heyday during the 1920s to halve the Congo’s population.
Now that the World Wars of the twentieth century are just a memory it is a source of amazement to us to realize that Belgium had so little foresight. The mineral riches of the Congo are massive, but Belgium made money from them only by selling or leasing concessions to mining companies that were free to do what they wanted to extract the minerals, process them wherever they liked, and to bring them, to market. Since Belgium did not provide the region with a strong “native” militia to safeguard it and preserve order the companies were allowed to and did finance their own paramilitaries to guard their operations and enforce their rules. These paramilitaries seeded to myriad of local insurgencies that plague some parts of Africa to this day.
Belgium could not have ever afforded to build an infrastructure of roads and power plants and water control that would have allowed even smaller companies to mine the cobalt, copper, tin, uranium and diamonds, for example that exist in commercial quantities in more than one province of the Congo. Apparently Belgium also did not have the financial talent or political interest to put together a plan that would have made the Congo self-sufficient.
China, free of the taint of prior colonialism and exploitation, has stepped in to fill the void left by the withdrawal of western sources of capital and technology. China has the money and the resources of technology to do anywhere in Africa what Belgium could not do even in the Congo. This is not to blame Belgian capitalists for not being able to see the future. China’s domestic demand for the natural resources of Africa may well dwarf Europe’s demand in its imperial heyday as well as that of the US economy at its peak of growth after World War II.
But as China’s dramatic domestic growth and its growing influence in Africa proves: History did not end when the USSR collapsed.
Nowhere are the Chinese learning that lesson themselves better than in Katanga, the mining-rich province of the Democratic Republic of the Congo (DRC).
The new governor of Katanga province of the DRC is described as a businessman turned politician, Moise Katumbi. Remember that name, because Governor Katumbi-he was actually elected by a landslide in a fair election-has figured out how the people of Katanga can derive the maximum benefit from their natural resources even though they have a non-industrial economy. He has forbidden the export of all raw ores. This means that unless the mining company concentrates, refines and smelts the ore to a market grade metal, such as copper cathode, then the mine cannot export its output.
As an additional benefit of this policy theft of ore for export has become a much less profitable occupation. Prior to the decree “private” miners merely sold their output to large companies or to “wholesalers” who then exported it with false provenance. Now province doesn’t matter the ore itself is illegal to export.
The governor said that it was unacceptable to Katanga that value was added to DRC resources in other countries: “They have to add the value here,” he said.
The existing mining companies have been given six months to comply with the decree by building in-country facilities to process the ores of copper and cobalt. It also ends any possibility for ores of radioactive materials to leave the country without a license. This last very clever move gives Katanga’s governor the political support of the home countries of many of the large mining companies. This will ensure that the existing miners do not cry bankruptcy, because capital is clearly available for the required infrastructure without resorting to Chinese lenders who require very long term control.
China, of course, has done exactly the same thing. The export of the ores of most strategic metals from the PRC is both under a quota system and taxed at a higher rate than the export of finished goods made from the metals refined from those ores. Therefore it behoves foreign companies to make their products in China and export them back to their home markets to cut costs. Jobs are thus created in China and technology and capital are drawn to China by its domestic natural resources.
The new governor of Katanga has learned from China’s actions at home as well as its actions in Africa how to create jobs and infrastructure through control of the production of domestic natural resources.
China’s new copper product tolling policy may well be timed to take into consideration that copper from Katanga, and one day perhaps from all of Africa will be in the form of metal refined to copper cathode, so that the energy consumption and high pollution normally produced by the copper processing sector can be placed on the Congo’s inventory of responsibility.
The governor of Katanga has learned from the Chinese. Let’s hope he can at least begin to teach the rest of Africa how to add value to their natural resources before they leave their countries or come under the control of another country’s domestic economy, again.
In Africa, starting with Katanga, I think with regard to the handling of natural resources the DRC is becoming a truly emerging nation.
I’m going to find out what mining companies are complying with the new Katangese decree and what equipment and engineering companies they are going to deal with. I’ll get back to you on the investment opportunities.