Thursday, November 19, 2009

The Basics of the Chinese Deal

In the wake of this morning’s report by Bloomberg news we have to take a moment to lay bear how the game is really played and some of the reasons why Congo is likely to remain dependent and impoverished for at least another generation and maybe more.

As the Paris Club meets (although the affairs of the Congo are being determined, no Congolese official is a part of these talks or decisions in Paris) to decide upon the “forgiveness” of a portion of Congo’s illegitimate and odious $11 billion debt accumulated during the Western-backed dictatorial Mobutu era (1965 - 1997), the United States and Canada are apparently seeking “clarification” on the Freeport McMoran and First Quantum contracts; both of which are a part of the contract review process began by the Congolese government in 2007.

These are part and parcel of the contracts that experts reviewing the contracts on behalf of the Carter Center said that they had not seen such egregiously lopsided contracts in 30 years of assessing such contracts. These are the very same contracts that the United States and Canada have been silent on in spite of the plethora of independent studies that have clearly documented how lopsided and opaque they have been and the degree to which they exploit the people of the Congo.

As a result of the contract review process (2007 – present), the government canceled the First Quantum deal (First Quantum says it is still seeking a negotiated solution) and the Freeport McMoran deal is still unresolved. In our unpacking of the Chinese deal we will compare the Chinese deal with the Freeport McMoran contract in upcoming blogs in this series.

Anatomy of the Chinese Deal

The deal was established in the Fall of 2007, finally consummated in the Spring of 2008 and given the green light by the International Monetary Fund (IMF) in October 2009 after the restructuring of the deal to meet IMF terms. It is a mineral for infrastructure swap between the Congolese government and the Chinese government represented by a number of state companies. The basic principle is that the deal would provide the Congo with transport and social infrastructure in exchange for access to mineral resources.

Players: Gecamines, Sinohydro Corporation, China Railway Group, Metallurgical Group Corporation
Type of Partnership: Joint Venture
Equity: China 68 percent Congo 32 percent (Congo only receives 17% equity in its deal with American company Freeport McMoran)
Initial Value of the Deal: $9 billion
Renegotiated Value due to IMF pressure: $6 billion
Duration of Contract: Approximately 30 years

Stated Benefit to Congo:
4,000 KM road network
3,200 KM Rail system
31 Hospitals with 135 beds each
145 Health Centers with 50 beds each
49 clean water distribution centers
4 large universities
A Parliament building

Stated Benefit to China:
10.6 million tons of copper and 626,619 tons of cobalt

Year concessions expected to come into Production: 2013

Primary demand of the IMF: The deal had to be restructured so that the Congolese government would not assume any additional debt. As a part of the initial deal the Chinese had required the Congolese government would guarantee the repayment of the infrastructure investments in case the profits of the mining projects would not be sufficient to offset the costs of the development of the infrastructure projects.

IMF Promises as a result of the renegotiated Chinese deal: Paris Club would forgive most of the Congo’s $11 billion debt. IMF would provide Congo with $600 million for government operations under a new three-year “poverty reduction” agreement (2009 – 2011).

Wednesday, November 18, 2009

China, Congo and the International Monetary Fund

Over the next several days we will deconstruct the Chinese Congo deal and the role of the International Monetary Fund (IMF). Much of the exchanges have played out in rarified air on the pages of the Financial Times. We look to bring the exchange down to the ground so one can fully understand why we maintain that one of the challenges facing Congo since its modern founding is that it has been the subject of geo-political intrigue and battles resulting in the affairs of the Congo being determined by Great powers as opposed to the people of the Congo. Congo's very creation was a result of European geo-strategic interests at the 1884/85 Berlin/Congo conference.

The Paris Club is considering the the retirement of much of Congo's $11 billion debt as a direct result of the Congolese government succumbing to pressure from the International Monetary Fund and restructuring the $9 billion Chinese agreement to $6 billion.

In the upcoming blogs we will analyze four main elements:
1. $9 billion Chinese infrastructure for minerals swap/barter
2. The role of the IMF in shaping Congo's fiscal policies
3. Comparison and contrast between the Chinese deal and the Freeport McMoran Tenke contract
4. The role of the $11 billion debt accumulated under the West's dictator Mobutu Sese Seko (1960, 1965 - 1997)

Friday, November 06, 2009

The Militarization of the Congo: When Will It Stop

The recent Human Rights Watch report and reports from many Congolese have consistently documented the failed nature of the military approach to addressing what is in essence a political challenge.

Human Rights Watch has warned the United Nations that it may be complicit in crimes against humanity due to its support of the Congolese army and its Kimia II military campaign. The armed forces of the Congo (FARDC in French) are for all intents and purposes a hodge-podge of former rebel groups. Even in Human Rights Watch description that the Congolese army is committing atrocities and abuses against the civilian population does not quite get to the root of the matter. What is transpiring is those rebel groups that have been “integrated” into the Congolese army as entire battalions are continuing the same practices they pursued while they were rebels. They are still in control of mines and collecting taxes in regions where they exercise military dominance outside of the purview of the Congolese government. We are talking here primarily about the National Congress for the Defense of the People (CNDP), which is lead by Bosco Ntaganda and sidelined figure Laurent Nkunda, who according to reports is moving freely in Rwanda as opposed to being under arrest as is commnly portrayed.

The central question that remains, is how many more civilians have to die before a comprehensive concerted political process is initiated that lays out a framework that includes the neighboring governments, particularly Rwanda and Uganda but also to some degree Burundi; the Congolese government and FDLR and other rebel groups. Lack of political space in Rwanda and Uganda is a key part of the reason that a war is being fought on the bodies of Congolese women. Very little will change in the region without opening of political space in the countries involved, including the Congo itself. The United States has a critical role to play in addressing this problem in light of its historical support of policies that have perpetuated the conflict. Great Britain also has leverage on the players in the region and can play a constructive role in bringing an end to the atrocities in the Congo. Both countries need to radically change their policies to the point where they throw their weight behind the opening of political space in the region as opposed to their long-held practice of supporting strongmen, authoritarian regimes, military ventures and corporate plundering, all of which have been the difference maker in a region of weak and fragile states.

What Can and Should Be Done:
1. The United States and Great Britain should step up its diplomatic engagement as opposed to the military approach they are currently pursuing.
2. Back a political path to sustainable peace and stability
3. Hold accountable its corporations that are contributing to the fueling of the conflict and the exploitation of the people.
4. Support the strengthening of local institutions as opposed to its current approach of strengthening the military.