It was confidently billed at the time as the “deal of the century”. The Sino Congolaise des Mines (Sicomines) was the most significant Chinese investment project in Africa when it was agreed in 2007.



The infrastructure agreement gave Chinese partners mining rights to cobalt and copper in the Democratic Republic of Congo (DRC). These minerals are used in electric vehicle batteries and electronics, including smartphones and laptops. In exchange, China agreed to build much-needed infrastructure projects such as urban roads, highways and hospitals.



In addition to new infrastructure, the Sicomines deal was expected to provide a significant boost to the DRC’s economic growth. The view was that the agreed volumes of mineral production would contribute to higher levels of exports, tax revenue and inflow of US dollars.



READ MORE | <a href="https://www.forbesafrica.com/woman/2019/03/19/in-pictures-noella-coursaris-musunka-the-trailblazer-in-the-congo/" target="_blank" rel="noreferrer noopener" aria-label="Noëlla Coursaris Musunka The Trailblazer In The Congo (opens in a new tab)">Noëlla Coursaris Musunka The Trailblazer In The Congo</a>



More than a decade on, the Sicomines deal has not lived up to expectations. There have been infrastructure project delays as well as unexpected costs. There have also been problems associated with poor quality roads and infrastructure and inadequate environment and social impact studies.



On the economic front, mineral exports from the DRC&nbsp;<a href="http://www.intracen.org/country/democratic-republic-of-the-congo/">have indeed risen steeply</a>. But sharp cyclical fluctuations show that the country is heavily reliant on both the Chinese market and the price of a few minerals. In addition, the Sicomines deal won exemption from taxes until infrastructure and mining loans were fully repaid. This means that the DRC will not receive any substantial income from the agreement in the foreseeable future.



The Sicomines agreement demonstrates one of the main problems with deals of this nature. It never included any guarantee of the actual value that the Congolese population would get in exchange for the country’s main source of wealth.



As we argue in a recent International Affairs article, the Sicomines deal provides lessons for other African countries. Future deals like this present an opportunity to change the model followed in Sicomines and by most Sino-African trade relations. This has, to date, essentially involved China supplying value-added manufactured goods and high-skilled workers. In exchange, African countries have agreed to export mainly primary-based resource products. And African workers are hired for unskilled, low-cost tasks.



It needn’t be this way.



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<h4 class="wp-block-heading">Protecting the host country’s interests</h4>



The first decade of the deal shows that Chinese companies have focused their efforts on benefiting from access to valuable natural resources. But the interests of local communities have been neglected.



In addition, several of the problems affecting the building of infrastructure have arisen because quality control responsibility was assigned to the same two Chinese companies responsible for execution. These were China Railway Engineering Company and Sinohydro, a large state-owned hydropower and engineering company.



This highlights the potential trap of these deals. The level of contribution to development depends, to a great extent, on the ability of inexpert local institutions to manage complex multilateral projects.



There is a solution to this. Host countries should create committees of experts, if necessary with regional and international support. Alternatively, they could contract independent specialised consultants to guarantee that national interests are satisfied.



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Instead of negotiating with a unique consortium of companies, these teams would participate in the development of a public procurement process to award the project to the most competitive bidder. Additionally, the committees would be in charge of monitoring implementation of the contract. This could include extraction works, quality of infrastructure, compliance with environmental and social standards.



<h4 class="wp-block-heading">Learning through small pioneer initiatives</h4>



China has shown that it is ready to take risks and engage in enormous African infrastructure development projects. And that it’s prepared to do this even when western donors are not willing to allocate funds.



To some extent, China’s favourable attitude towards deals such as the Sicomines agreement is based on the same logic as the infrastructure loans received from Japan in the 1980s. These were mutually beneficial: they fostered Japan’s development and they were very lucrative for Japanese firms.



But there are many potential complications with the multi-billion dollar resource-backed credits offered by China to African countries recovering from conflict.



With this in mind, African countries could take a more incremental approach. They could foster development through a process of gradual reforms, implemented through several pioneering small deals.



READ MORE | <a href="https://www.forbesafrica.com/economy/2017/09/06/china-really-helping-africa/" target="_blank" rel="noreferrer noopener" aria-label="Is China Really Helping Africa? (opens in a new tab)">Is China Really Helping Africa?</a>



<h4 class="wp-block-heading">Changes that are needed</h4>



Any new agreements should include precise objectives and financial resources to guarantee training and upskilling for workers.



In parallel, the terms of the agreement should create the conditions for the transfer of know-how in a way that helps local companies to move to higher value added activities.



African governments could take into account China’s experience. The Chinese government decided that in some strategic sectors (such as the automotive sector), foreign investors had to create a joint venture with a Chinese partner to enter the market. This strategy has contributed to the emergence of several competitive domestic firms and national champions.



Finally, as economic diversification prompts an increase in GDP per capita, additional taxes collected from extracting industries could be invested in other economic activities to promote development.



The model has the potential to enable projects that would otherwise be impossible in fragile and conflict-affected African economies. But the Sicomines deal shows that it’s necessary to address particular challenges if China’s new financing schemes are to accelerate development in Africa.



&#8211;Andoni Maiza Larrarte; Professor, Department of Applied Economics I, UPV/EHU, Universidad del País Vasco / Euskal Herriko Unibertsitatea



&#8211;Gloria Claudio-Quiroga; Associate Professor of Economics at Francisco de Vitoria University in Madrid., Universidad Francisco de Vitoria



-The Conversation



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The DRC And China’s Sicomines: Why Future Deals Should Be Different

Sure, optimism shone forth in Cape Town like the late summer sun bouncing off Table Mountain, as more than 6,000 powerful people, including more than 20 government ministers, headed for the biggest mining gathering on the planet.
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There were more mining companies this year, up 50% on last year, after more than five years of decline. The keen-eyed investors were back and looking for contenders across the continent. A fruitful place to be for the brave, like the motorbike riding maverick Mark Bristow who has spent the last 20 years making money digging gold in mines from Mali to Cote D’Ivoire. Two decades ago many fellow South Africans may have laughed at Bristow for taking risks far from home, in what many see as barren land for mining, but now they’re laughing on the other side of their faces. At the Mining Indaba, Bristow’s Randgold Resources announced it had increased gold production, for the fifth year in a row, plus it was debt free with more than $500 million in cash. Many mining companies would kill to be in that position.
Among the investors looking to blaze a trail across Africa is the Lagos-based African Finance Corporation that began life, in 2007, with a fund of $1.1 billion and now has assets of $3 billion, according to one of its directors, Osam Iyahen. It is a public-private fund, 42% owned by government, that invests in: oil; gas; resources; infrastructure and power. In January, it broke ground on a $200-million bauxite mine in the Boffa region of Guinea Conakry, just 15 kilometers from the coast, with plans to ramp up to 15 million tons.
“I think there has been a rebound in the industry this year,” says Iyahen in Cape Town.
“Last year was a bit of a disaster. People were not interested in talking about transactions; all they were worried about was protecting their downside. There was a lot of sulking going on.”
You could be forgiven for thinking the host nation is still sulking. South Africa, the biggest mining country on the continent, has been like a boxer on the ropes since the power cuts and global financial collapse of 2008. More than 60,000 jobs have been lost since 2012; capital expenditure ground to a halt and the South African industry lost R38 billion (about $2.8 billion) in 2016 alone, in a year when mining output fell 4.8%.
“We have to get our house in order in South Africa, capital is a coward and it goes to the place where there is least risk. We have to remember mining is a global game now and it is easier than ever for foreign investors to move capital around. Our grandchildren will live with the legacy of what we do now,” says Kieran Whyte, a lawyer and partner at Baker McKenzie, who specializes in energy and infrastructure.
The last few months of 2016 were better as commodity prices lifted, according to the Chamber of Mines, especially the risk haven of gold in the wake of the unpredictable, to put it kindly, presidency of Donald Trump.
“I think we are seeing the green shoots here, we just have to watch out for frostbite,” says Roger Baxter, the CEO of the Chamber of Mines, with a smile on the first day.
Baxter was alluding to two cold fronts: the first, the fact that South Africa – that mined more than a third of the world’s gold – is no longer the king of mining. In fact, in these troubled economic times, more and more nations, from West Africa to South America, are ready to accept foreign investors with open arms. A sign of the times is that, on the eve of the Mining Indaba, analysts in Cape Town were extolling the virtues of the copper, gold and coal mining nation of Chile.
The second frosty front is regulatory uncertainty. The South African government, which has met six times with the Chamber of Mines, has been working on amendments to its mining law since December 27, 2012. It promises to gazette the amended Mineral and Petroleum Resources Development Act (MPRDA) by the end of March; the Chamber of Mines feels it could be April.
<div id="attachment_4588" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-4588" class="size-medium wp-image-4588" src="/wp-content/uploads/2017/04/Mark-Bristow_JC-300x200.jpg" alt="" width="300" height="200" />Mark Bristow</div>
What is likely to be in the bill could cause conflict. It is expected there will be greater ministerial discretion and set in stone that all mining companies have to have 26% black ownership at all times. One of the problems is black shareholders, once they have passed their lock-in date, often cash in their stakes by selling to white shareholders, thus diluting the empowerment stake.
The Chamber of Mines, which represents almost all South African mining houses, disagrees strongly with this. It feels that once mining companies have borne the cost of financing black shareholdings it has done its job regardless of dilution. If this so-called “once empowered, always empowered” principle is accepted, many of the country’s biggest mining houses will be compliant overnight.
“I have never seen the Chamber of Mines so aggressive. Normally they get along to go along, but it seems the worm has turned,” says one mining insider in Cape Town.
It is all likely to end up in court where mining lawyer Peter Leon reckons they have a strong case.
“All they have to do is challenge section 100 of the MPRDA. This gives the minister the power to promulgate the act, but doesn&#8217;t give the minister the right to rewrite or amend the act. That would blow it out of the water,” says Leon.
There appears to be little sign of a U-turn by the government over an issue that could further confuse and deter investors.
“We don&#8217;t want to encourage a place where courts take the place of government. We don&#8217;t agree with the norm that if you don&#8217;t agree with us you take it to court,” says South African mining minister Mosebenzi Zwane.
It’s a cold front that could mean a Chile future.

Beware, It’s Chile Out There

A few years ago, it was assumed that fiber optic cabling would eclipse copper cabling in Africa. It hasn’t quite happened yet, but fiber optics has a warm place in the sun. Dave McGeehan, an Irishman, is taking advantage of this.
McGeehan and his wife, Sandra, took a huge risk. They both quit their well-paying jobs and started their own company, Apache Optics. They had to borrow around $10,000 from a friend to buy their first stock.
“We had no money. We were not in a good financial state to start a business,” says McGeehan.
“People think we’re great businessmen. I back the horses, I take a punt on the football. We take risks. You’ve got to be a little bit of a maverick.”
Apache Optics sells optical transceivers. These are needed to send and transmit information such as data and emails. They are also used for the internet and storing documents.
Large technology companies require unique firmware to operate in their systems. Apache Optics offers systems for all.
The company’s greatest advantage – its cheapness. It has raised the ire of the big multinationals.
“If they could close us down tomorrow, they would,” says McGeehan.
“We’ve never had any direct contact with them, but I’m sure they would like to close down our industry as a whole.”
McGeehan encourages clients to just order the boxes from the big players and the components from him. A lot of people appear reluctant to do so.
“It’s out of fear. They insist they’ll nullify your warranty. They’ll say it verbally but they don’t actually have a legal foot to stand on.”
“It was initially a very hard sell. Companies depend on these systems to deliver their service. The fear of God is put into them by these firms saying ‘you have to use our products or the system won’t work.’”
McGeehan says he is slowly winning the battle in South Africa, Botswana, Namibia, Zimbabwe, Zambia, Mozambique, Nigeria, Cameroon, Ghana, Kenya and Uganda.
With the increased importance of telecommunication and data in business, fiber optic cables are becoming more and more popular. Fiber is faster, cheaper and more stable than copper wires. Africa, however, has been slow to catch on.
“In a lot of African countries, telecommunications and copper is controlled by the government because of the huge revenue involved in it,” says McGeehan.
“The fiber networks in Europe are so much bigger because the governments there invested in it. That is why you can access Twitter, Facebook, YouTube while you’re on a train or a bus. You need government investment in fiber.”
Although there is a lot of fiber available in Africa, it is not very cheap as most of it is built by private money. McGeehan expects mobile phone companies to grow the industry.
“Cellphones and tablets are a big driver in our business and technology because of the direct fiber links. We were projected to do R4.2 million ($394,000) in the first year of business in 2013, we did R6.8 million ($638,000). This year we forecast R8 million ($750,000), but we’re already at R5 million ($470,000) and we’re only halfway through the year. So the growth is there.”
McGeehan has come a long way since he arrived on African soil in 1996. He left Ireland for adventure. He was offered a chance to play and coach cricket for six months. During his first year he was offered around $100 a month and a scooter to get around on. He spent half the year in Ireland and the other half in South Africa for four years. While in Johannesburg, he met Sandra, a student at the time, at a braai organized for the cricket players. She had to work 10 shifts a week so the couple could pay their bills.
“She was always a hard worker, so I knew then she was the girl for me.”
In 2000, they married, moved to Ireland and had two sons. They missed the great outdoors and moved back.
Sandra developed codes that were used in fiber optics for the couple’s former employers. The company, EPS Global, stopped developing the codes because they viewed it as controversial since they had to buy parts from the larger companies that would then become the competition. With the shift in the business, the couple decided it was time to do things their own way. Sandra had worked in the industry and they started finding their own manufacturers in China without ties to global companies.
McGeehan was a salesperson and had no experience in the technology industry. He didn’t even have an email account. The couple’s roles have now switched. Sandra does more admin work now while Dave focuses on the technical aspects.
“It’s an unbelievable change!”
His thick accent helps him do business in Africa. He says that Nigerians and Kenyans identify with the Irish being colonized by England.
“Kenyans and Nigerians know their history and know how the Irish were treated by England.”
Selling can also be as simple as a small sticker.
“Guys that work with the products are technical guys, they’re not in purchasing. Because our brand is on it, they’ll give us a call for reorders. Other companies don’t put their names on their compatible products because they are a little afraid of the large companies. It’s a bit of a grey area but our legal guys tell us that we are fine. As long as we clearly say we are a generic product.”
“To be a good salesperson you’ve got to tap dance, you’ve got to be a chameleon,” he says.
McGeehan is not a South African citizen yet, but says he’ll never go back to Ireland.
“Our son wants to be a Springbok; he doesn’t want to play for Ireland.”
“In Ireland you have to work hard to earn your money. It’s the same in South Africa but you get the sunshine here.”
McGeehan certainly has a place in the sun.

‘If They Could Close Us Down Tomorrow, They Would’

Solwezi was once a tiny village in northern Zambia, 16 kilometers from the border of the Democratic Republic of Congo, 581 kilometers from Lusaka, and a million miles from the rest of the world. A few hundred people lived off maize for more than 2,000 years. A walk to the nearest village was days away through thick bush. Now, thanks to copper, Solwezi has become one of Africa’s fastest growing towns in a few short years.
“What started as little more than a village, now has a population of half a million,” says Andrew Hickman, the Local Development Officer for the Kansanshi mine, the largest copper mine in Solwezi.
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The two mines near Solwezi, Kansanshi and the Equinox Minerals-owned Lumwana mine, now produce almost 40% of Zambia’s copper; between them they are giving a free market makeover to what was once a tiny village.
Solwezi and copper date back further than the New Testament. Archaeological digs around Solwezi found people traded copper crosses 2,000 years ago. Arabs used the crosses as currency.
Solwezi got back into the business of copper mining in 2005. After years of trial and error Kansanshi, originally a nationalized underground mine, was abandoned when a fissure flooded the shafts. Run by Canada’s First Quantum Minerals, it has expanded since its reopening. It began producing 110,000 tons of copper in 2011 and in 2013 produced 270,724 tons. A new expansion project aims to increase copper capacity to around 400,000 tons by 2015.
Solwezi is not the only mining town to bloom in Zambia. According to the World Bank, Zambia has the largest known reserves of copper in Africa, 6% of the world resource. The country has been exporting copper since the 1920s, but it’s been a rollercoaster ride made more difficult with nationalization, cheap Russian copper and poor economic development.
“Copper production in the country peaked in the 1970s at 700,000 tons and gradually declined to 255,000 tons by 1998, as a result of depressed prices and under-investment in the then state-owned industry. However, as copper production soars on the back of the completion of major projects and also because of the development of the new Trident mine, operated by Canada-based mining company First Quantum Minerals (FQM), Zambia is set to be at the peak of copper production once again,” says Jason Kazilimani Jr, a senior partner at KPMG in Zambia.
Demand for copper is high and expected to grow. The power stations of China alone buy 45% of the world’s copper, says Kazilimani.
It means people and businesses have flocked to Solwezi as if it were the days of the 1849 California Gold Rush. Trucks, buses and taxis veer around potholes in gridlocked traffic. Along the town’s only tar road rises smoke from hundreds of wood fires. The shouts from informal traders, selling anything from cooking pots to roasted nuts, ring the dusty streets. The city is growing; one shack is thrown up after another.
“There is this expectation that we can create full employment for all of them, but it’s impossible. We can only employ 13,000 and these jobs are for semi-skilled and skilled laborers. Our biggest problem is convincing the growing community that we can’t provide jobs for them,” says Hickman.
“On the one hand you have local resentment towards the mine and the idea that foreigners are making millions. On the other you have this huge impact on the community with the social evils like crime, alcohol abuse and gender based violence,” says Bruce Lewis, the head of Kansanshi Corporate Social Responsibility.
Of the 90% of the mining company’s expenditure, 5% is spent in Solwezi. But the town has not been left to fend for itself, claims Mathias Mutupa, the president of the North Western Province Chamber of Commerce and Industry, who is also an entrepreneur.  Kansanshi runs a number of programs with the local chamber of commerce, some include lessons in how to apply for tenders, says Mutupa. He believes the speed at which Solwezi is growing is vital and local business needs to take advantage of it.
“When we started we were giving tenders to locals to kill weeds in our pipeline at KWA 50,000 ($8,000) &#8211; small jobs. Now those companies are winning larger tenders to build houses.”
Solwezi should have cheap costs compared to importing them from the copper belt or internationally. In the last four years, the local tenders awarded have quadrupled. In 2011, we were able to give $22 million worth in tenders to local businesses. We are now seeing $105 million going back towards the local community,” says Hickman.
Production of copper may be strong, but the infrastructure isn’t. It’s the story of good and bad news. The good is that by the end of the year Kansanshi will have completed a smelter which will refine 300,000 tons of treated copper concentrate per year &#8211; a very lucrative and welcome development at a time when African leaders want more self-manufacturing capabilities. The bad news; the highway needed to transport the copper has not been built due to land rights disputes with local authorities. It means, for now, hundreds of trucks will clog the streets of Solwezi on their way to the smelter.
This lack of infrastructure does not hamper Solwezi alone, explains Kazilimani.
“The problem is so serious that, according to an Africa Infrastructure Country Diagnostic 2011 report on Zambia, investment of at least $16 billion over the next decade is required just to catch up with the rest of the developing world,” says Kazilimani.
Despite this, Zambia has won back its claim to be the copper powerhouse of Africa. There is even talk in Solwezi that another copper belt could be hidden under the soil of Zambia. There is no doubt that the mining companies will find it, eventually.

The Copper Rush

In September 2011 the Patriotic Front’s Michael Sata defeated the Movement for Multiparty Democracy’s (MMD) incumbent Rupiah Banda. Banda gracefully conceded defeat and handed over power to Sata, a three-time presidential aspirant. The peaceful handover of power set an example to the rest of the continent and a sign of Zambia’s maturing democracy.
The Patriotic Front (PF) government pledged to fight poverty through wealth redistribution and job creation. Government’s pro-labor stance has seen a flurry of strikes as workers demand higher pay and improved working conditions.
The government has also embarked on an anti-corruption drive spearheaded by prominent anti-corruption lawyer, Mutembo Nchito. This campaign has seen scores of public servants, including the governor of the central bank, dismissed, with investigations of a number of MMD ministers. In addition, Sata has reversed a number of deals, including the $5.4 million sale of Finance Bank Zambia to South Africa’s First National Bank.
This anti-corruption drive has already begun bearing fruit with some donors resuming aid and others set to follow. Donors will take further comfort through the government’s engagement with the International Monetary Fund (IMF) under the Extended Credit Facility (ECF) program.
Economic fundamentals in the country remain robust. The IMF expects the economy to expand 6.7% this year and next. Inflation is expected to remain in single digits, with some upside risks.
Zambia’s economic growth will be driven by government’s expansionary fiscal policy, focused on the agricultural and construction. Copper revenues will finance much of this expenditure. Government increased mineral royalty rates from 3% to 5% for base metals and and 6% for precious metals. While the fundamentals in the copper market point to a robust price, uncertainty emanating from the Eurozone crisis will place a ceiling on copper prices as well increase price volatility.
Zambia’s robust economic fundamentals coupled with the countries priorities have strengthened the government’s resolve of tapping into the international bond market through the issue of a Eurobond. The government announced that it plans to raise $700 million this year, up from an initial $500 million. This resolve has been vindicated by rating agencies Fitch and Standard &amp; Poor’s, both of which assigned a B+ long term credit rating to Zambia. This is on par with Ghana and Kenya.
The World Bank and IMF both indicated that Zambia can afford up $1.7 billion in non-concessional loans over the next six years without compromising debt sustainability. However the issue of a euro bond depends on the fortunes of the Eurozone debt debacle. The launch is likely to be delayed until concerns around the Eurozone debt crisis subside.
Once a Eurobond is issued government has to ensure that the proceeds are managed prudently. Effective spending of Eurobond proceeds should in turn boost growth and allow the government to tackle social and economic problems.
There is a likelihood of social unrest if government fails to meet its election pledges as there is high unemployment and many Zambians struggling below the poverty line. Such protests could be avoided if the government delivers.

Tag: Copper

FORBES AFRICA SOCIAL MEDIA

The DRC And China’s Sicomines: Why Future Deals Should Be Different

Beware, It’s Chile Out There

‘If They Could Close Us Down Tomorrow, They Would’

The Copper Rush

Copper-Bottomed Money Pot