China 'opening up' Congo for minerals, bioenergy with massive $5 billion loan

China has signed its largest single deal in Africa with the Democratic Republic of Congo (DRC): a $5 billion loan to develop infrastructures, mining, bioenergy, forestry and agriculture. Infrastructure Minister Pierre Lumbi said the money will be spent on building roads, railroads, hospitals, health centres, housing and universities. All other bilateral and multilateral loans pale in comparison with China's.

In exchange, the People's Republic will get rights to Congo's extensive natural resources, including timber, agricultural products, cobalt and copper. The move is part of China's quest to guarantee supplies of raw materials to its surging economy. After years of war, dictatorship and turmoil, Congo's infrastructure is either non-existent or in ruins, and extraction operations are producing at a fraction of their potential. China wants to change this and take the advantage as an early entrant in the country's reemerging economy.

The West has been caught offguard by the sheer scale and the timing of the deal, with the IMF, World Bank and others seeking clarification. The $5 billion package is the largest single loan to any African country of the $20 billion that China has pledged to finance trade and investment in the continent over the next few years.

A first phase of $3 billion will finance huge transport infrastructure projects in the DRC, including a 3,400km (2,125 mile) highway between the northeast city of Kisangani and Kasumbalesa on the border with Zambia. There will also be a 3,200 km (2,000 mile) railway to link the country's southern mining heartland to the main Atlantic port of Matadi in the west (map, click to enlarge).

Besides connecting the mining areas to the Atlantic, the infrastructure works are set to open the enormous central area of the DRC, where a vast agricultural potential can be found. Analysts estimate that this zone holds the world's second largest sustainable bioenergy potential, after that of Brazil.

Quickfacts and superlatives:

• Congo experienced a natural resource war between 1996 and 2003 involving more than 10 countries; the conflict was the most lethal since the Second World War, killing an estimated 4.5 million Congolese; last year, the country held its first democratic elections since independence from Belgium, bringing Joseph Kabila to power; the East of the country remains unstable and hosts the UN's largest peace-keeping force
  
• the Inga rapids on the Congo River - the world's largest river basin - could generate an estimated 42,000 MW of hydro-electricity (more than the Three Gorges and the Itaipu complex combined, see a detailed overview here); plans by an international consortium are under way to build the Grand Inga, which could light up the continent and export electricity to Europe and the Middle East (earlier post)
• the Inga 2 dam is currently under reconstruction, which will bring electricity to the mining zones in the south; a $178 million World Bank loan is being used to revamp the world's largest network of power cables, a 1700 km stretch from Inga to the Katanga mining area; only 6% of all Congolese citizens have access to electricity
• the DRC holds the world's largest reserves of cobalt (35% of the total), around 10% of the world's copper, and uranium, diamonds and gold
• 70% of Congo's 57.5 million inhabitants are farmers; per capita GNI is amongst the lowest in the world, at around $120 per year (2006 estimate)
• Congo currently utilizes less than 5% of its potential arable land, estimated to be around 167 million hectares (412m acres); projections show the country could maximally produce between 35 and 40 Exajoules of renewable bioenergy by 2050 in a sustainable way - that is, without deforestation and without threatening food, fodder and fiber demand of the country's growing population; this is equivalent to roughly 15.7 to 17.9 million barrels of oil per day, an output that can be sustained for decades

Under the Sino-Congolese deal, a further $2 billion is earmarked for rehabilitating the crumbling mining infrastructure and setting up joint ventures in the mines sector. The state mining conglomerate Gecamines went bankrupt in 1990 and since then there has been a free-for-all that sees hundreds of giant 36-wheel trucks plying the roads each day, carrying mineral-rich ores across the border to Zambia.

When it comes to bioenergy, Beijing is paving the way for investments in the forestry, palm oil and rubber sector, with a recent announcement by a Chinese firm that it might invest $1 billion in a 3 million hectare energy plantation. Besides half a million barrels of oil equivalent energy, the project would bring 'a hundred thousand jobs' (earlier post). For its part, the Congolese government has identified bioenergy and biofuel production as a priority area for industrialisation (earlier post), and is actively seeking foreign investors:
energy :: sustainability :: biomass :: bioenergy :: biofuels :: natural resources :: mining :: infrastructure :: Congo :: China ::

China's move into the DRC is part of a wider scramble for resources in Africa. The official Xinhua press agency recently estimated there are at least 750,000 Chinese working or living for extended periods on the continent, a reflection of burgeoning economic ties that reached $55 billion in trade in 2006.

Chinese trade and investment has galvanised mineral production from South Africa (manganese) to Niger (uranium), and from Sudan to Angola (oil).

Much of that activity reflects an intense appetite for the African resources needed to fuel China's manufacturing sector, but big Chinese companies have quickly become formidable competitors in other sectors as well, particularly for big-ticket public works contracts, like the ones now proposed for DRC.

China is building major new railroad lines in Nigeria and Angola, large dams in Sudan, airports in several countries, and new roads almost everywhere.

One of the largest road builders, China Road and Bridge Construction, owned by the Chinese government, has 29 projects in Africa (many financed by the World Bank or other lenders) and offices in 22 African countries. So China's money may be going to Chinese companies to provide these big projects.

Skepticism in the West
The Chinese deal was signed at a time when an IMF mission landed in Kinshasa to review progress towards the resumption of budget support for Congo. IMF, World Bank and African Development Bank officials seem to have been caught offguard by the scale and timing of China’s plans.

The agreement comes at a delicate stage in Congo’s negotiations towards forgiveness of debt accumulated under the dictator Mobutu Sese Seko, who died in 1997, totalling about $8 billion, or equal to 800 per cent of current national exports.

Western mining groups, awaiting the results of a government review of about 60 contracts signed during the recent civil war, were also seeking more details from the Kinshasa government.

IMF and World Bank officials have acknowledged the scale of Congo’s infrastructure needs. But they are seeking to ascertain whether the Chinese loans are in line with Kinshasa’s commitment under the financial institutions’ heavily indebted poor countries debt reduction initiative not to contract new debt on anything but concessional terms.

In a best-case scenario, the IMF would restart a lending programme – the last one stalled in 2006 because of poor implementation – and Congo would stand to benefit from an 80 per cent write-off of its external debt in mid-2008 at the earliest. “If the terms of the deal do not meet the concessionality issue, that would be a concern,” said an IMF official.

Most of the mining activity in the country is being carried out by smaller, more entrepreneurial companies. Large western mining groups are keen to gain access to these resources to replace their dwindling deposits but have largely held back from investing in the country – put off by continuing unrest, widespread corruption and the lack of infrastructure.

Alex Gorbansky, managing director of Frontier Strategy Group, a political risk consultancy, said China’s $5bn draft agreement with Kinshasa would put pressure on both the large mining companies looking to get in and the small miners already there. “It will give China a distinct advantage in the Congolese copper belt,” he pointed out.

He said large western mining groups, such as Anglo American and Rio Tinto, were spending increasing amounts of time and money weighing opportunities in Congo. But China’s move might mean they had left it too late to secure the best assets. Gorbansky added that there was a risk that some of the mining licences held by smaller companies could be transferred to Chinese investors but Victor Kasongo, the country’s deputy mines minister, insisted this would not be the case.

Map: rough overview of Congo's transport infrastructures and China's projects. Credit: Biopact 2007, cc

References:
Financial Times (via Onet): Alarm over China’s Congo deal - September 20, 2007

BBC: China opens coffers for minerals - September 18, 2007

BBC: Congo's cable revamp world record - July 31, 2007

World Bank: feature page on the DR Congo, with a good overview of the state of the country's economy.

Biopact: Energy to produce biofuels, from the world's largest dam - September 04, 2006

Biopact: New Congo government identifies bioenergy as priority for industrialisation - May 03, 2007

Biopact: DR Congo: Chinese company to invest $1 billion in 3 million hectare oil palm plantation - July 28, 2007

Biopact: International roundtable looks at building the world's largest dam in Congo - October 04, 2006