China-Congo Development Model Unbeatable



China outdoes Europeans in Congo
by John Vandaele
February 12 , 2008
http://www.atimes.com/atimes/China_Business/JB12Cb01.html

BRUSSELS - The massive deal that China signed with the Democratic
Republic of Congo last year is not the "second colonization" that some
Europeans allege it is. The agreement appears, in fact, a promising
way to kick-start an economy.

The agreement on developing infrastructure through "resource-backed
finance" certainly gives China a lot of influence in a country where
Europeans are used to dealing the cards. European countries now look
with a certain envy at what China has achieved.

President Joseph Kabila's political future depends on this
Sino-Congolese deal, and, with that, at least a part of the economic
future of Congo itself.

The Democratic Republic of Congo has been endowed with tremendous
natural resources, but 40 years of mismanagement have brought the
country down. The DRC is now one of the poorest countries on earth -
even the most basic of infrastructure has succumbed to four decades of
neglect.

The announcement in September 2007 that China would take on big
infrastructure projects in the DRC, to be paid for with Congo's
immense copper and cobalt reserves, inevitably attracted a lot of
attention. But it created also a lot of suspicion: what exactly were
the Chinese up to?

The Chinese companies will, for one thing, start work on
infrastructure projects in 2008 more or less along the lines of the
five priorities Kabila has set: water, electricity, education, health,
and transport.

These works will cost more than US$9 billion. That is a lot of money,
considering that the 2007 government budget was a mere $1.3 billion,
most of which was needed just to pay the salaries of government staff.
So how will the DRC pay off these Chinese loans?

The basic idea is that Congolese and Chinese state-owned enterprises
(SOEs) set up a joint venture, Socomin. This mining company will
invest $3 billion in mainly new mining areas. The profits of Socomin
will be used to repay these mining investments and the investments in
the big infrastructure works.

Broad agreement was reached in September last year. It was then
fine-tuned through two months of negotiations in Beijing in November
and December.

"It took a long time, that's for sure," said French-born Paul Fortin,
chief executive of Gécamines, the Congolese state-owned mining
company. "We had to agree on an economic model that stipulates how the
Chinese investments will be repaid with the revenue of Socomin. Apart
from that, these were normal business negotiations comparable to those
I did for the many partnerships of Gécamines with private companies."

One of the agreements was that over a 15-year period Socomin will
raise about ten million tonnes of copper to pay off eventually $12
billion in investments in mining and infrastructure.

The Chinese have hedged their position quite aggressively. The first
profits will be used to repay the mining investment, something that is
typical of most private joint ventures with Gécamines. The agreement
also says that "the Congolese government has to guarantee the safety
of the investments, and the repayment of the infrastructure works".
Any disputes would be settled by the arbitration tribunal of the
International Chamber of Commerce in Paris, and not through Congolese
courts, which have a reputation of being corrupt.

Under the agreement, only one in five workers can be Chinese. In each
of the projects half of 1% of the investment must be spent on transfer
of technology and on training Congolese staff; 1% has to be spent on
social activities in the region, and 3% to cover environmental costs;
10-12% of the work has to be sub-contracted to Congolese companies.

How all this will work out for the DRC remains to be seen. And what
will be the quality of the work? Is the Congolese government capable
of controlling that?

One thing is obvious: this is not the black and white story some
wanted to make of it. It is neither a colonial horror story, nor some
idealistic investment on the part of China.

To be sure, China is interested because it needs the natural
resources. But Fortin thinks the DRC has a lot to gain too. "Congo
doesn't have to wait for its infrastructure until it has the money.
Building starts immediately with the natural resources as guarantee.
Except in oil-rich states, I know of no other deal quite like this."

One well-informed European diplomat admitted that "if carried out
well, this can be positive for Congo".

The deal seems like a lifeline for Congolese President Joseph Kabila.
After more than a year in power, there's not a lot he can show to the
Congolese people, who have started to criticize him. Something has to
begin quickly if he wants to get re-elected in three-and-a-half years.

The Congo-China deal seems a good way to move forward, also because
the money does not have to be channeled through a corrupt Congolese
bureaucracy. Loans from China's state-owned Eximbank go directly to
the Chinese state-owned enterprises China Railway Engineering Company
and Sinohydro.

Kabila alluded very clearly to this in a recent speech. "The Chinese
banks are prepared to finance our Five Works (water, electricity,
education, health, and transport). For the first time in our history,
the Congolese will really feel what all that copper, cobalt and nickel
is good for."

The exchange agreement with the Chinese appears to be a satisfactory
solution in the short term. A better-run state is still a must though
and a necessary precondition for making good use of (and maintaining)
all the new roads, railways, hospitals and schools that are planned.

The Europeans are finding China's role frustrating. Through their
projects, the Chinese gain access to copper and cobalt. "This at a
time when we ought to be mindful of long-term provisioning [of
commodities to Europe]," a diplomat told Inter Press Service (IPS).
"Would the European development aid community tolerate us operating
like the Chinese?"

And that is just one question. There are others. Which other nation is
able to take on such gigantic projects as cheaply and quickly as the
Chinese? And, which European country still possesses the publicly
owned enterprises to undertake such ventures?

If Kabila is now politically dependent on the Chinese, that means that
Beijing's influence in this crucial African country has grown very
strong. The Congolese, like many other Africans, have had it with the
often paternalistic Europeans telling them how they must behave and
how they must improve governance.

To be sure, the government of the DRC is notoriously weak and corrupt.
Researchers found that typically a container entering the country in
the eastern town Bukavu is "attacked" by 20 different government
services, each requiring the right papers - or some kind of payment.

The Congolese state is dysfunctional, and governance problems are one
reason why Western countries have been slow to finance the Congolese
government after the elections. "We had no choice but to go to the
Chinese," a well-placed source in Congo told IPS.

With thanks to the Belgian magazine Mo for making this research
possible.

(Inter Press Service)

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