Becoming the 17th member state of OHADA in 2012 was important first step.
Many investors are wary of entering a country infamous for bureaucracy and corruption. Regulations are often unclear, the political situation is in a state of uncertainty and, admittedly, one still hears of payments going astray and draconian fines being levied for trumped up technicalities. Nevertheless, several reforms instituted over the past few years have helped bring more formality to the DRC.
The first and most far-reaching of these was the country’s accession to the Treaty for the Harmonization of African Business Law (OHADA). In existence since 1993, the DRC joined in 2012, making it the 17th member state. The agreement consolidates nine separate aspects of the law into one universal code. In the past, legal practitioners had to make reference to a long litany of confusing and often conflicting laws, some of which date back to the 19th Century. OHADA’s nine uniform acts supersede this older legislation and serve as a common reference to ensure that all parties are playing by the same rules.
Several of the OHADA acts have a direct bearing on how foreign companies operate in the DRC. The act governing general commercial law provides a framework for fundamental issues such as contracts. Clear procedures are outlined for companies looking to bring in outside financing, which explain how both investors and banks should act and what documentation is required.
The treaty has also simplified the process of incorporating new companies. Previously, there were five types of commercial companies, many of which were rarely used. OHADA introduced several more practical options. Notable among these is the Société de Action Simplifiée (SAS). While more common francophone organisational denominations, such as SA or SARL, require strict corporate structures, SAS grants a company more freedom to implement a management hierarchy of their choice. This has proved popular with Anglo-Saxon and Chinese investors who are less familiar with the French system.
In the case of dispute, there is a common court of arbitration based in Abidjan, Cote d’Ivoire, which can hear cases from all member states. “This common court facility means that there is now an established body of case law that has been built up over more than 20 years,” explained Regina Ayuk, compliance manager at Tiger Resources. “If we have a case here in Lubumbashi then we do not rely solely on resolutions from the DRC, we can draw upon jurisprudence from the 17 member countries, which is of real benefit to all parties.”
The second major reform was the introduction of a 16% value added tax (VAT) in 2012. “After VAT was introduced…companies were forced to rapidly become more formal. More and more SMEs are working with banks and routing their funds through the proper channels,” said Louis Odilon Alaugillaume, director southern region for BCDC. While the measure has reduced the number of companies operating on a purely cash basis there have been some teething problems with the implementation.
Unsurprisingly, most of these issues seem to arise with the terms of reimbursement: VAT contributions should be repaid to companies within 30 days but the process can take several months. “In response, miners are extending the terms of payment for their suppliers; instead of paying within 30 days, they will pay within 90 days. The end result is that the companies bearing the real cost for introducing VAT are the SMEs,” said Michel Schittekatte, business development manager for Trust Merchant Bank. In the long-term, the treasury should be able to organise a more robust pre-financing scheme to improve the turnaround time for the payments but for now the mines continue to complain.
Applying for expatriate worker documents can be another headache for DRC registered companies. Local labour laws encourage the employment of Congolese workers but the lack of skills means that most companies rely to some extent on expats. The larger mining houses tend to have a dedicated department to manage the necessary documentation but this is not always realistic for new entrants or smaller companies with limited resources.
In these cases it is common to turn to local agencies that specialise in assisting new arrivals. Boutique advisory firm BFG was established in 2011 to cater to this growing demand. Since that time they have helped many foreign companies bring over personnel. “In the DRC there are many different kinds of visa and it can be difficult for outsiders to know which one to apply for,” said managing director, Tuzzi Kiaku, “It is important to point out that the work visa and the work permit are two different documents. The work permit is issued by the Ministry of Labor, while work visas are the responsibility of the Ministry of the Interior.” Without assistance, it can take up to eight weeks to receive a work permit but local agencies can arrange for an interim visa to be issued in just 20 days.
This article was written as part of research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2016. A pre-release report on the Central African Copperbelt was released in May 2015 and can be accessed here. To participate in this report, please contact Molly Concannon at email@example.com or +243(0)826300684.
IMAGE: Bell Technologies