Regulatory Changes in the DRC: Nothing Yet Written in Stone

New Amendments to DRC’s 2002 Mining Code stir the country’s investor-friendly waters.

Razvan Isac

DRC-BLOGPhoto Courtesy of DEM Group

The DRC is the world’s 11th largest country, with a population of 65 million people spread across a territory roughly equal in size with that of Western Europe. Historically plagued by disrupting civil wars, the country has seen some improvements since its 2006 multiparty elections, which, at the time, were the first of their kind in more than four decades. While DRC’s GDP growth rate has averaged 7% over the past years (7.2% in 2010, 6.9% in 2011, 7.1% in 2012), a number enviable by most countries around the world, the reality is that the economy is still underperforming, given the $24 trillion that the DRC has in mineral resource potential alone. Its present domestic mix consists of diamonds, gold, tin, copper, cobalt and coltan and while some claim that the DRC does not have a sufficiently diversified portfolio, others point out to the strategic relevance of its resources that are heavily used in the electronics sector around the world. Considering the overwhelming dominant position that the mining industry has for DRC’s economy, it is no surprise that the legislation governing it is high profile. The current active regulatory framework was set up in 2002 to replace the old 1981 mining code, and it is largely characterized by investors-friendly provisions, such as reduced import taxes during exploration and exploitation phases.

Now, more than 10 years later, the process to amend Law 007/2002, more commonly known as DRC’s Mining Code, is fully underway and this development has been one of the mining industry’s focal points of discussion in 2013. While nothing has been decided yet and negotiations are still ongoing, several of the government’s amendment proposals have caused an adverse reaction from private investors in the mining industry, while also leading to disparities across the DRC’s political spectrum.

The first controversial suggestion is that of increasing state participation in mining ventures from 5% to 35%, with an additional 5% at every exploitation permit renewal. While the current 5% participation is lower than that of neighboring countries such as Angola, South Sudan (both at 10%), or Zambia (currently between 10% and 25%), the new 35% platform has been at the forefront of private sector players’ criticisms. Additionally, the industry’s income taxes would be standardized with those of the rest of the economy and would therefore go up from 30% to 35%. These measures would be complemented by yet another raise, this time of royalties, from 2% to 6% for non-ferrous metals, and from 2.5% to 6% for precious metals. Meanwhile, exploration permits’ validities would be reduced from 15 years to only six, and would consequently put increased pressure on potential producers. Current tax incentives for the mining industry, such as the discounted 2% import tax during exploration and 5% import tax during exploitation, are also under scrutiny and it is uncertain whether the model, in its current form, will survive in the new Mining Code. Furthermore, the new Mining Code will have to incorporate the VAT as well, a tax which was adopted by the DRC only in January of 2012.

On April 5th 2013, DRC’s Minister of Mines, Martin Kabwelulu, in conjunction with the country’s Minister of Finance, Augustin Matata Ponyo, issued an inter-ministerial decree banning exports of copper and cobalt concentrate, giving mining companies a 90-day moratorium to comply with the measure. The decree, envisaged to be an incentive for producers in the DRC to start beneficiating more copper in the country, had several legal and practical flaws. Firstly, the changes that the decree aims to implement fall under the jurisdiction of the DRC’s Parliament. Secondly, the lack of proper power supply across the DRC makes the beneficiation of copper unfeasible at the moment. The latter point was also cited by Katanga’s governor, Moise Katumbi, as the main reason for which he would not enforce the ban in DRC’s main mining province. Given the decree’s weaknesses, on July 4th 2013 the moratorium was extended until the end of the year and the current plans are to include the measure into the new mining code.

Emery Mukendi Wafwana & Associates is a law-firm that has in-depth knowledge of the DRC’s Mining Code. In 2000, the firm was chosen as the local consultant to the elaboration of the law and now, in 2013, it is once again actively taking part in processing the amendments. Edmond Diata, partner at EMW&A, discusses the process: “There are three amendment proposals that we need to take into consideration before elaborating the final draft of the new code: one from the government of the DRC, one from the civil society and one from the Chamber of Mines, an integral part of FEC (the Federation of Congolese Enterprises). Additionally, EMW&A can also incorporate other amendments that have surfaced as being necessary during the past 10 years of mining code application. Since many parties are required to work on this project, delays will occur and most probably the new code will not be sent for parliamentary approval sooner than Q1 2014. We currently estimate that open workshops with the private sector players might occur sometime in November.”

In all likelihood, the amendments to the 2002 Mining Code will see the national government grabbing a bigger piece of DRC’s profitable mining industry pie. Considering the current investor-friendly framework and the increased maturity of the mining sector now compared to that of the early 2000s, this shifting of the balance is understandable. What is essential however will be to avoid the excess compensation of the state, a move that could endanger the willingness of new entrants to invest in the DRC, a country with already considered a high-risk investment destination already.

Overall, while the final form of the code is still engulfed in mystery, the need for dialogue and collaboration is essential as Moise Katumbi, governor of Katanga, concludes: “It is essential to have a dialogue and an agreement between the mining sector players, the chamber of commerce and the government: I am not going to accept this code otherwise. We run the risk of killing investment in the country and that cannot happen. It is my job as governor to create stability in my province, and if people lose their jobs as a result of this code, I will be responsible. I cannot agree with something that will negatively impact the business sector.”

This article was written as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s