Zambia’s neighbour, the Democratic Republic of the Congo, formerly Zaire is a vast mineral rich country and one of the world’s wealthiest, yet its population wallows in unimaginable squalor of poverty.
The Central African nation is host to a variety of minerals such as, Diamonds, Gold, Coltan (vital material for mobile phones, computers, planes, medical equipment etc) Copper Cobalt, Tin, Manganese, Lead and Zinc.
Congo DR, enjoys the largest swathe of the copper rich strip called the Lufilian Arc shared with Zambia. The arc extends from the Copperbelt, Northwestern province into the mineral rich Katanga province of the DRC- and currently ranked a high activity area in terms of copper mining. The region is also highly potential for new investment.
A recent Deloitte report on Africa’s state of mining has discharged debate on whether with the DR Congo’s uncertainty investment profile; Zambia would truly lag behind for long in copper production.
The report lays case: “Despite the DRC being perceived as a difficult country to do business in, this region has seen more mineral exploration activity over the past three years than anywhere else in Africa.
It is clear to us that the quality of the ore body strongly influences investment decisions, with higher-grade deposits being pursued.”
“It seems that by changing tax royalty rates, Zambia stands to remain behind in our suggested competition for investment. Will other countries look to the copper-rich Lufilian Arc, shared by the DRC and Zambia, for lessons learnt when considering altering their tax and legislative frameworks?”
The argument continues, “Governance, mining legislation and tax law seem to be broadly stabilising, with the exception of Zambia and Zimbabwe, which increased their tax royalty rates twice in the past six years. It appears that governments are making a general effort to sustain mineral policy, law and ownership laws across Africa.
The DRC and Zambia could be in a race to develop their natural resources. It appears the DRC is winning that race in terms of exploration investment, future mine development project pipeline and total copper production.”
Deloitte concludes, “Given that Zambia has head grades that are clearly lower than that of the DRC, is Zambia being disadvantaged further by the fact that it has changed its mineral royalty tax twice in the past six years? The DRC demonstrates that investors are willing to accept other perceived risks if the grade is good enough and regulation remains stable.”
But talking about risks, just a few years ago, First Quantum Minerals, FQM, operators of Kansanshi mine in Solwezi had its largest copper mine Frontier nationalized by the DRC government, accusing the firm of contract violations. FQM later sought international court arbitration and was awarded a lucrative settlement.
Other than that the country has never enjoyed peace since independence from Belgium in 1960 as sporadic fighting erupts anytime anywhere. Marauding militias roam across the vast country pillaging minerals and other resources in addition to killing civilians raping women and children.
DRC is not only awash with illegal guns, but it has perhaps the largest unaccounted for and unknown armed groups in the world, rampaging from one end of the country to the other disrupting human and animal life while hurting the economy to the hilt.
Zambia’s Copperbelt, Luapula, Northern and North Western provinces remain host to thousands of illegal immigrants mostly refugees fleeing endless unrest in their country. Even years of rounding them up and deporting the families to the DR Congo have yielded none or little results.
As if that is not bad enough, at the beginning of the year, Kinshasa the capital was gripped in a wave of riots, people protesting against an attempt by President Joseph Kabila to extend his term of office.
At the moment there is a stand off between Kabila and Katanga governor Moise Katumbi who has since been sacked as provincial head of the party for allegedly scheming to challenge Kabila for the top job in the elections scheduled for next year.
The political turmoil notwithstanding, the Congo also suffers from poor road infrastructure, lack of security, erratic power supply starving the mining industry of the much needed electricity to run equipment and other machines.
At the end of March just when President Edgar Lungu ordered a review of the controversial 2015 mineral tax which has pitted the government against mine owners, Kabila announced that he was doubling mineral royalties to improve revenues for his country.
The DR Congo Chamber of Mines reacted with alarm, “The new mining code the government has proposed will take back the country to 10 years,” said Chamber of Mines vice President Simon Tuma-Waku.
A former Mines minister Tuma-Waku feared the new law was likely to cost the country billions in lost investment putting the thriving mining industry at great risk.
Investors in the country favour the 2002 mining code which they say has spurred production leading to stripping Zambia of Africa’s leading copper producer status.
But Kabila intends to replace the above law by doubling taxes and mine royalties while mine companies there complain of government harassment, and poor power and transportation infrastructure.
Tuma -Waku told a recent chamber of mines gathering, “The 2002 code attracts investment but not at the expense of taxes. It is, in fact, a model of its kind, which has exceeded expectations in all the dimensions in which success can be measured.”
With this profile can the DRC hold on to leader as Africa’s largest copper producer?
Tom Meyer, Engineer and Research Analyst at CIBC, a subsidiary of the Canadian Investment Bank of Commerce, World Markets, writing in Mining.Com, thinks that it is unlikely as the DRC is a vulnerable market and copper supply could be in jeopardy.
Meyer urges investors intending to go into the mineral rich country to, “consider the risk of political instability.”
He says, “In a market that will likely see a deficit in development as early as 2017, we raise the question- has the market factored in the rising tensions in the DRC as we move closer to the November 27, 2016 presidential elections?”
Meyer’s views are supported by The Ministry of Mines which maintains Zambia is still capable of beating the Democratic Republic of Congo’s record because of the country’s favourable political and economic climate.
Mines acting permanent secretary Paul Chanda, said Zambia would reclaim her lead in copper production because of not only the tranquil environment but the country was moving further to expand copper production.
“There are a lot of factors involved in this industry and we have a very stable political environment. “We are doing better, so we will catch up,” he said.
Chanda said the government was in the process of lining up new investors, which would also be expected to add to existing production.
Other than that mine companies operating in Zambia are pulling into coffers good copper revenues. For a long time many have enjoyed tax concessions and are saving greatly because of their mild social responsibility programmes.
Production programmes on the copperbelt are encouraging, but there are good indicators that sooner or later the country will stumble onto a much improved copper grade especially in North Western province.
Otherwise how else would one explain the resilience by Barrick Gold to hold on to its Turf at Lumwana? Zambia remains a politically stable and economically conducive country to do business in the current set backs may be temporary and may not guarantee DR Congo a lead in the two horse race for long.