New levy confirms post-Kabila transformation as a distant prospect
On 13 February 2019, the outgoing government, under Prime Minister Tshibala, attempted to present an additional parafiscal charge on mining companies operating in DR Congo.
The levy, purported to support the development of manufacturing under the Fonds de Promotion de l’Industrie (FPI), was established in 1989 but had not been actively applied to mining projects, only agricultural projects. The FPI body has come under fire for years as a mechanism for politicians to arrange kickbacks and grab bonuses to supplement their already bloated salaries. It’s also run by former president Kabila’s relatives.
An opposition-led investigation into its activities in 2015 called the FPI a ‘money-laundering machine’, which turned-over USD140 million between 2008 and 2014. It found 80% of the local governments which receive grants to create infrastructure projects do not reimburse the funds as dictated in the FPI’s terms. And many projects they received financing for did not happen. The vast majority of the figures implicated in the official report are close to Kabila’s camp.
What are the implications for existing operators?
It’s unclear how this tax for industry promotion (TPI) will affect existing operators fiscally, as its terms are not public, but it is unlikely to make as big a dent in profits as more onerous terms of the mining code. The relevance of DR Congo's mining tax lies more in the obvious continuation of resource nationalism under the new president, and the buttressing of Kabila’s post-election position through corrupt practices.
The departing cabinet led by Tshibala is only supposed to be handling the day-to-day running of the country until a fresh government is established under the new president, Tshisekedi.
As we expected, the establishment of another mining tax further cements Kabila’s continuing role behind the scenes as the transition becomes clearer.
It also raises concerns that any new cabinet will be strongly aligned with current FCC stalwarts, including unpopular mines minister Martin Kabwelulu.
The legality of the TPI is dubious, as it is not tallied in the exhaustive list of levies applied under sections 220 ii) and iii) of the 2018 Mining Code. But pre-empting the legal questioning, the prime minister issued a report from a supposed inter-ministerial commission. This qualifies the FPI tax as a levy not collected by the state, but by a ‘personalised public service’, thereby permissible under the new code. Miners planning to challenge the TPI’s promulgation will therefore struggle to dodge the charges.
DR Congo is extreme risk on our Corruption Index. This 0.89/10.00 score has remained stagnant for the past two iterations, but we envisage the score to go down as additional instances of grand corruption are reflected in the corruption outcomes indicator.
What is the outlook for miners?
We expect DR Congo's mining tax to be challenged legally by miners and further backlash driven by the anti-corruption organisation, Licoco. It’s likely any contests will be given short shrift if heard in heavily-biased local courts.
We still remain convinced Kabila will have a formal role within the new administration, likely as President of the Senate. But, in the short-term, the TPI shores up Kabila’s stranglehold over the mining industry and its profits, making a 2023 presidential run more likely.
The extra tax comes at a time when the investment landscape in DR Congo is shifting. No doubt, as with other encroaching measures over the past year, the TPI will expedite this process. Most notably this concerns the primacy of Chinese investment over others, and issues ongoing with Glencore at Mutanda and ERG’s Boss Mining concession.