Congo: The Government Mines for Cobalt Profits With a New Law

3 MINS READMar 8, 2018 | 23:29 GMT
The Big Picture

The mining sector of the Democratic Republic of the Congo is a linchpin for current battery technology and the progress of electric vehicle development incorporation. In our 2018 Second-Quarter Forecast (publishing March 12), we dive into the geopolitical implications of increased interaction between the country's unstable, uncertain government and the international mining sector.

The Democratic Republic of the Congo's government has started trying to profit more directly from the country's mineral resources, including the booming cobalt market. President Joseph Kabila and other Congolese leaders met with the heads of multiple international mining companies for almost six hours March 7. Afterward, it was announced that Kabila would soon sign into law a measure that had been pending since late January that would increase the royalties that mining companies owe to the Congolese government, remove a clause that protects the companies from fiscal changes for 10 years and add a tax on windfall profits. Once the law takes effect, mining companies will need to renegotiate existing agreements, and the government may face international arbitration over it.

The law will not likely affect Congolese mineral production in the short term. For instance, in other countries, such as Indonesia, governments have also implemented legislation to better take advantage of mineral wealth. However, despite initial panic from mining companies, such laws have not necessarily threatened production.

While it is unlikely to happen en masse, Western mining companies still could decide that the new terms of working within the Democratic Republic of the Congo are too onerous. Many minerals that the country produces can be found elsewhere, but mining companies will struggle to replace the country's contributions to the small but important cobalt market. However, China's emergence as a global leader, as well as its continued interest and influence in Africa, means it may keep its cobalt operations there alive even if some Western companies decide to leave. China is a leader in battery manufacturing — and is the world's largest consumer of the cobalt that those batteries require. The domestic development of this technology and others is a key part of its economic transition strategy.

Beyond the efforts at the political level, infrastructure improvements in the Democratic Republic of the Congo can help it better export its mineral wealth. The Angola-Congo rail system, which had been disrupted by Angola's decades-long civil war and its aftermath, has reportedly restarted. Until the 1970s, the rail system had been the most efficient way for the Congo (formerly Zaire) to export resources from the mineral-rich province of Katanga. The Angolan side of the railway underwent Chinese rehabilitation from 2006 to 2014, and updates on the Congolese side followed. Now that the rail system is up and running again, it could help the Congolese mining sector reduce costs and avoid more expensive routes through South Africa and Tanzania that it had relied upon since the 1970s.

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