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Longer, analytical article.  Gabon/DRC: Chinese companies in the extractive industries

Summary & Comment: This paper identifies how Chinese stakeholders look at African operational environments, transparency in general, and the Extractive Industries Transparency Initiative in particular. The research indicates that the majority of Chinese companies currently engaged in the DRC and Gabon are not aware of EITI. However, they are willing to comply with local rules and respond quickly to demands from local authorities. They show a positive attitude toward the principle of transparency in general and EITI in particular when informed about the initiative. DN

Author: J. Jansson, C. Burke, W. Jiang, Stellenbosch Date Written: 23 November 2009
Primary Category: Resource Extraction Document Origin: Centre for Chinese Studies
Secondary Category: -none- Source URL: http://www.ccs.org.za
Key Words: DRC, Gabon, extractive industries, Chinese companies, EITI,

African Charter Article #21: All peoples shall freely dispose of their wealth and natural resources for their exclusive interest, eliminating all forms of foreign economic exploitation. (Click for full text...)



Printable Version
Chinese companies in the extractive industries of Gabon and the DRC: Perceptions of Transparency

http://www.ccs.org.za/wp-content/uploads/2009/11/
Chinese_Companies_in_the_Extractive_Industries_of_
Gabon_and_the_DRC._CCS_report_August_2009.pdf
 

Johanna Jansson, Christopher Burke, Wenran Jiang

Contents

List of Figures i
List of Acronyms ii
Executive Summary iv
1. Introduction 1 
    1.1 Structure of the report 2 
    1.2 Conceptual remarks 2 
    1.2.1 Governance, corruption and transparency 2 
    1.2.2 Corporate Social Responsibility (CSR) 3 
    1.2.3 Civil society 4 
    1.2.4 Enterprise categories 4 
    1.2.5 ‘Western’ companies 4

2. Research Methodology 5
    2.1 Size and nature of Chinese companies consulted 6

3. Gabon 8 
    3.1 Introduction 8 
    3.2 Economy and development 10 
    3.2.1 Oil 10 
    3.2.2 Mining 11 
    3.2.3 Timber 11 
    3.3 Sino-Gabonese relations 12 
    3.3.1 Overview 12 
    3.3.2 Sino-Gabonese trade 13 
    3.4 China’s involvement in Gabon’s extractive industries 16 
    3.4.1 Oil 16 
    3.4.2 Mining 17 
    3.4.3 Forestry 19 
    3.5 Chinese companies’experience of operating in Gabon 19 
    3.5.1 Governance: Western advantage 21 
    3.6 Chinese companies’perceptions of EITI 22

4. The Democratic Republic of the Congo 24 
    4.1 Introduction 24 
    4.2 Economy, development and governance  26 
    4.2.1 Governance in the mining sector 28 
    4.3 Sino-Congolese relations 29 
    4.3.1 Overview 29 
    4.3.2 Sino-Congolese trade 30 
    4.4 Chinese involvement in DRC’s mining sector 33 
    4.4.1 Sicomines - the US$ 9 billion deal 33 
    4.4.2 Chinese micro, small and medium sized enterprises in the DRC 
    4.5 Chinese companies’ experience of operating in the DRC 38 
    4.6 Chinese companies’ perceptions of CSR, transparency and EITI 42

5. Analysis 44 
   5.1 Chinese companies per se no challenge to transparency in Gabon and DRC 44
   5.2 ‘China Inc’ in Gabon and the DRC? 45 
   5.3 Concluding remarks 47

Endnotes 48
Profile of the CCS 61
Researcher Profiles 62
********************** 

Executive Summary

This report builds on field research conducted in the Democratic Republic of the Congo (DRC), Gabon, South Africa and China through September - November 2008; in Lubumbashi, DRC in June and July 2009; as well as telephonic follow-up interviews during November 2008-June 2009. The aim of the research was to ascertain perceptions held by Chinese stakeholders of African operational environments and transparency in general, and the Extractive Industries Transparency Initiative (EITI) in particular. The research findings indicate that the majority of Chinese stakeholders currently engaged in the DRC and Gabon are not aware of EITI. However, Chinese company representatives show a willingness to comply with local rules and respond quickly to demands from local authorities. They showed a positive attitude toward the principle of transparency in general and EITI in particular when informed about the initiative.

The findings of this study suggest that there are, in fact, few differences in the operating procedures between Chinese corporations per se and other international actors engaged in Africa. Discernable differences instead pertain to factors such as company size and culture. The research shows that language barriers, cultural differences and misunderstandings arising from these are impediments to communication and interaction between Chinese, African and Western stakeholders in Africa that should not be understated.

The research reinforces the notion that China’s engagement with Africa is highly diverse and varies from country to country. It is clear also that Chinese corporations engaged in Africa are subject to an unprecedented level of scrutiny by the international community and believe they are being singled out for particular attention. In fact, as newcomers to African markets, the Chinese companies in Gabon and the DRC do not have the pervasive market presence that has often been portrayed. Instead, most Chinese stakeholders are at a disadvantage in terms of market access and understanding the unique operating environments in these countries and regions in comparison to Africa’s traditional partners from Western economies.

3. Gabon

3.1 Introduction

Gabon is a small, tropical West African country located on the Equator, with enormous natural resources. Approximately 85 percent of the country’s surface (the equivalent of 200,000 km²) is covered by rainforest, making it the second largest forest potential in Africa.23 Gabon is also rich in oil, manganese, and iron ore, and its economy is highly dependent on export of these resources. Gabon was a French colony from 1885 to independence in 1960. France still maintains an important influence in the country with a considerable military and economic presence. Gabon is a member of the African Financial Community (Communauté Financière Africaine, CFA) zone comprised of former French colonies.

The French embassy in Gabon has separate economic, military and political branches and the French Ambassador to Gabon is a very influential political figure.24 Apart from France, the United States also exercises influence in Gabon, importing a significant proportion of Gabon’s manganese and crude oil and exporting aircraft, machinery and heavy construction equipment to the African country.25

The country’s first leader at independence was Léon M’ba. He passed away in 1967 and was succeeded by Omar Bongo Ondimba, who remained Gabon’s head of state for 41 years and was Africa’s longest serving head of state when he passed away on the 8th June 2009.26 On the 10th June, Rose Francine Rogombe, the leader of the Gabonese Senate, was sworn in as Gabon’s interim president. According to Gabon’s constitution, elections have to be held within 45 days to select a new head of state.27 In 1968 President Bongo declared Gabon a one-party state. Violent demonstrations and strikes for political liberalisation in 1990 forced the introduction of a multiparty system, preceding the first multiparty elections in 30 years in September-October that year.28

Attempts to challenge President Bongo were unsuccessful, however. In 2003 the Gabonese constitution was amended, making the President eligible for an unlimited number of terms. In the latest presidential elections in 2005, regarded largely free and fair by the international community, he received a 79.2 percent majority. President Bongo’s party, Parti Démocratique Gabonais (Gabonese Democratic Party, PDG), won 80 out of 120 seats in the National Assembly in the 2006 parliamentary elections.

The country has relatively strong institutional capacity and enjoys relative political stability due to the strength of the executive. During his rule, President Bongo was accused of undemocratic tendencies and unfair election methods as well as corrupt practices. In Transparency International’s Corruption Perceptions Index (CPI) of 2008, where 10 represents highly clean and 0 highly corrupt, Gabon ranks 96 out of 180 with a score of 3.1.29 Freedom House rates Gabon as merely ‘partly free’.30 In January 2008, twenty-two NGOs were suspended after having criticised the social and economic policies of the country.

However, the ban was lifted one week later in response to protests from the international community.31 On the 31st December 2008, a group of civil society leaders and journalists were arrested on claims that they had been in the possession of a letter32 from the journalist Bruno Ben Moubamba to President Bongo, dated the 8th December 2009. The letter allegedly served to disseminate propaganda seeking to incite rebellion against the Gabonese authorities. The activists were however provisionally released on the 12th January and as of July 2009, the trial has not yet taken place.33

3.2 Economy and development

Gabon’s GDP is four times the average of other Sub-Saharan countries and the country has a small population of only 1.5 million of which roughly half reside in Libreville. Despite this, the country’s relatively high Gini coefficient indicates that inequality is substantial in the country. The World Bank notes that for Gabon, “social indicators are barely higher than SSA averages”34 and the 2007/08 Human Development Report estimates Gabon’s Human Development Index (HDI) to 0.677, which gives the country a rank of 119 out of 177 countries.35 Although 60 percent of Gabon’s population are economically active within the agriculture sector36, it remains a neglected sector and almost all domestic foodstuffs are imported from neighbouring countries such as Cameroon as well as from France.

The revival of the agriculture sector is an important priority for the Gabonese government, and talks have been held with the China-Africa Development Fund (CADFund) to start up agricultural projects. The projects would be CADFund financed joint ventures between Chinese and Gabonese entrepreneurs. Moreover, private Chinese investors have already bought farms in Gabon and have started to produce primarily for the domestic market and then, if possible, for export to neighbouring African countries.37

3.2.1 Oil

Oil is currently Gabon’s single most important natural resource and a key driving force behind the Gabonese economy. Oil was discovered in 1926 by the French oil company Elf and accounts today for 77 percent of exports, 45 percent of GDP and 60 percent of budgetary revenue.38 In January 2008 estimates indicated proven reserves of 2 billion barrels and oil production in 2007 was 248,000 billion barrels a day making Gabon the seventh largest oil producer in Sub- Saharan Africa.39 Gabon’s oil consists both of ‘sweet’ and ‘heavy’ crude.40 Since the country has no national oil company, it depends on foreign investors to do all the drilling. According to a senior Gabonese government official, offshore oil in Gabon is not yet well explored, particularly the ultra deep sections.41 Around 40 companies are currently active in Gabon’s petroleum sector with the United States and France being the most important investors.

Four distributors are active in the country: Total, Mobil Oil, Pizo and Shell. Approximately 30 oilfields, both onshore and offshore, are currently in operation and many more are under exploration. Furthermore, associated activities such as logistics, off-shore and on-shore construction, drilling operations, maintenance and supply in the trade hub of Port Gentil also represent a significant part of Gabon’s economic activity.42 It is feared that the country’s oil reserves might become depleted soon, and since oil production peaked in 1997 with an output of 370,000 barrels a day (18.5 million tonnes per year) it has gradually declined primarily as a result of the declining yield at the Rabi-Kounga site and an absence of new important discoveries.43
3.2.2 Mining

Gabon is the world’s second largest producer of manganese. The most important deposit is located in Moanda in eastern Gabon with estimated reserves of 200 million tonnes. Annual output in Gabon’s total manganese production was 1.9 million tonnes in 1997, 1.7 million tonnes in 2000, 2 million tonnes in 2003 and 3.25 million tonnes in 2008.44 In the wake of declining oil output and need for economic diversification, hopes are that mining in general and manganese in particular will become Gabon’s new leading resource. According to the Minister of Mines, Energy, Oil and Hydraulic Resources, Richard Onouviet, “900 mineral deposits and potential sites have already been identified throughout the country […] all of which bodes well for a brighter future for a mining industry undergoing profound changes”.45

Compagnie Industrielle et Commerciale des Mines de Huazhou (Huazhou Industrial and Commercial Mining Company, CICMH), a joint venture between the two Chinese companies Ningbo Huaneng Kuangye and Huazhou, has been awarded manganese concessions at a deposit in the Bembélé mountains close to the town of Ndjolé. Iron ore exploitation also forms part of attempts to diversify the Gabonese economy and the untapped iron reserves in the Bélinga region have been allocated to a Chinese consortium, Comibel. The Bembélé and Bélinga projects are outlined further section 3.4.3.

At one point, Gabon also produced uranium. In 1956 the French Atomic Energy Commission discovered uranium deposits in the South-eastern parts of the country. From these deposits a total of nearly 28,000 tonnes of uranium were mined from 1960 to 1999 by Compagnie des Mines d’Uranium de Franceville (Franceville Uranium Mines Company, COMUF), a joint venture between the French Government-owned nuclear group Cogema and the Gabonese government. After 1999, exploitation came to a halt as it was no longer economically viable and has not resumed since. Gabon is party to the Nuclear Non-Proliferation Treaty and signed a safeguards agreement in 1979, although there is currently no comprehensive safeguards treaty in force.46

3.2.3 Timber

Timber is a highly important sector which provides employment for as much as 28 percent of Gabon’s population – second only to the public sector in providing employment. The country has over 22 million hectares of forest, of which 12.5 million has logging potential. The most important species, representing more than 25 percent of the resources, is okoumé which is a hardwood used to manufacture plywood and railway sleepers. In 2005, timber exports contributed 2.5 percent of Gabon’s GDP. While this number is relatively modest, forestry remains an important sector for Gabon. Asia currently receives over 60 percent of Gabon’s timber exports, of which more than 80 percent goes to China. The lion’s share of the wood exported to China from Gabon consists of raw wood.47 Many foreign companies are active in Gabon’s forestry sector which is dominated by French companies but also comprises companies from Lebanon, China and Malaysia.48 Please see below for more information on Chinese forestry companies in Gabon.

3.3 Sino-Gabonese relations

3.3.1 Overview

At independence in 1960, Gabon established diplomatic ties with the Republic of China (Taiwan) which lasted until 1974. Since formal relations were established between Gabon and the People’s Republic of China in 1974, more than 20 high-level visits have taken place. Having personally met several generations of Chinese during his long period in power, President Bongo has developed longstanding relations with China.49 Gabon has received support from China in the form of clinics, schools, the National Assembly building (2003) and the Senate building (2005) in addition to medical teams dispatched from China.

The latest development is the 10,000 m² George Rawiri Maison de la Radiodiffusion Télévision Gabonaise, the new headquarters for the Gabonese broadcaster financed by Chinese concessional finance, built by the Chinese company CMEC and inaugurated by President Bongo on the 1st December 2007.50 China has also supported Gabon with agricultural projects, with the provision of agricultural experts as part of the UN Food and Agriculture Organisation (FAO) South-South Cooperation initiative.51

A Gabonese delegation headed by Jean Ping, then Gabonese Minister of Foreign Affairs and Cooperation, currently Chairperson of the Commission of the African Union (AU),52 visited the Ministerial Meeting of the Forum for China-Africa Cooperation (FOCAC) in 2000. In December 2002 the two countries signed an agreement whereby China committed to provide Gabon with non-interest loans. Moreover, since 1975 China has provided a growing number of Gabonese students with Chinese Government Scholarships for higher education. In 2004, 13 full scholarships were awarded, in 2006 and 2007 the number was 20 and 31 respectively and in 2008, the number was 15.

Currently, a total of 74 Gabonese students are studying in China by means of Chinese government scholarships.53 According to Burke et al, a joint committee within the Gabonese parliament is in charge of Sino-Gabonese relations. It is presided over by the Minister of Communications and each time a proposed investment project is submitted by Chinese stakeholders, it is discussed by the Committee and over the course of implementation the project is continuously monitored by the Committee. Moreover, the process is supported by a Bi-National Commission which meets every two to three years and was reinstated after the Chinese President Hu Jintao’s visit in 2004.54

There are a variety of Chinese entrepreneurs in Libreville. The Association of Overseas Chinese in Gabon has approximately 2,000 members and around 20-30 Chinese businesses are active in Libreville; some in restaurant and retail, others are doing ‘big business’ in Gabon’s extractive industries.55 As in most other African countries, there are also small scale Chinese traders in Gabon. Several Chinese small scale traders at Libreville’s Léon M’Ba market consulted for this research explained that the profit margins in Libreville’s markets have dropped over the past few years and competition is tough. There is also substantial competition between Chinese traders. The Chinese traders at the market had not joined the Association of Overseas Chinese as they perceived it to be more of a “club for the rich”.56
3.3.2 Sino-Gabonese trade

Gabon’s exports to China have been greater than its imports from the Asian country over a long period of time as the graph below indicates. In 2008, a remarkable increase in Gabon’s exports to China was noted, comprised largely of increasing crude oil and manganese exports. Between 2007 an 2008, the value of crude oil exported from Gabon to China increased from US$ 417 million to US$ 717 million. Manganese exports to China increased from US$ 274 million in 2007 to US$ 602 million in 2008.57 Gabonese imports from China mainly consist of textiles, mechanical and electronic products while its major exports comprise of timber, crude oil and manganese ore.

In 2007, the most important exporter to Gabon was France, closely followed by the United States. The U.S. is also by far the most important buyer of Gabonese exports, followed by China, France, Trinidad and Tobago, and Malaysia.
Looking at the 2008 trade data for 2007’s top trading partners, it is interesting to note that China has now passed France and become Gabon’s second most important trading partner. The gap between Gabon’s number one trading partner, the USA, and China is still substantial – the former’s trade with Gabon was worth US$ 2.7 billion in 2008 whereas the latter’s trade with Gabon amounted to US$ 1.9 billion that year. Please note that at the time of writing, data for trade between Japan and Gabon was not available in UN Comtrade’s database, hence it is not included in the figure for 2008.

3.4 China’s involvement in Gabon’s extractive industries

Gabon’s extractive industries can be divided into three main sectors; mining, oil and forestry. A number of large state-owned and private Chinese companies are active in all three sectors.

3.4.1 Oil

The main Chinese company operating in Gabon’s oil sector is Sinopec. The company has fully owned exploration blocks as well as joint exploration and production blocks, as outlined below. Sino-Gabon Oil and Gas, a subsidiary of Sinopec, was established in March 2005 and is, together with Transworld, conducting the exploration of the Salsich block.59 Another subsidiary of Sinopec, Sinopec International Petroleum Service (SIPSC), has been carrying out exploration work for Sino-Gabon Oil and Gas.60 A senior manager of a foreign oil company confirmed that a subsidiary of China National Petroleum Corporation (CNPC) is conducting a seismic study for the block that his company is exploring.61

In the bidding process for the seismic study, SIPSC also participated but came in second, suggesting that there is a certain level of competition between Chinese entities operating in Gabon. Sinopec’s own blocks are the Lotus, GT-Est and DT-Est blocks. Sinopec’s experience in Loango is now well known worldwide. Having been awarded the Lotus exploration block located in the Loango National Park, Sinopec started their seismic exploration activities. The environmental impact assessment (EIA) was conducted by a Dutch company, but had not been approved by the Ministry of Environment before Sinopec started its operations.

The Gabonese National Park service ordered exploration to stop in September 2006. Conservation groups had pointed out that oil exploration threatened rare plants and animals and the environmental impact study had not been approved by the environment ministry.62 Eventually the Dutch company that had conducted the original EIA redid it in conjunction with EnviroPass, a Gabonese organisation and the WWF. They have since resumed activities and are currently exploring for oil in the Loango National Park. Several Gabonese, Western and Chinese respondents interviewed regarding this stated that the EIA that was subsequently conducted was of high quality.63 Communication difficulties seem to have been one of the reasons why the problems emerged in the first place.

One well-placed observer argued that before the incident, the Gabonese government had not been enforcing regulations particularly well. The respondent argued that Sinopec was in fact not even informed that the area they were going into was a National Park.64

A senior Chinese government official interviewed explained to the research team that it has to some extent become a strategy for Chinese companies operating in Gabon to contract Western firms to conduct EIAs in order to improve credibility and anticipate criticism.65 The joint ventures in which Sinopec is a partner in Gabon are two onshore concessions, Ozigo and Awoun, both contain ‘heavy’ crude oil.66 Shell Gabon is the operator in both these joint ventures. In the joint venture of the Ozigo permit, Sinopec has 5.75 percent, Shell Gabon has 44.25 percent and Amerada Hess has 50 percent. Ozigo has been in production since 2005 and is currently producing at 18-20,000 barrels a day.

However, these output levels are likely to decline over the next few years according to a very well informed observer.67 Sinopec entered the Ozigo joint venture after oil had already been discovered. In the exploration phase, the stakes were as follows: Shell 44.25 percent, Amerada Hess 44.25 percent and the Gabonese state 11.50 percent. As the State’s share was to be sold, Amerada Hess was allowed to buy 5.75 percent and the other 5.75 percent was sold to Sinopec. According to the senior manager quoted above, several other companies, including the ones participating in the exploration phase, were interested in buying the Gabonese state’s share in the Ozigo permit.

However, it was sold to Sinopec which had not participated in the risk of the exploration phase. A senior private sector representative respondent suggested this was a political move to facilitate China entry into Gabon’s oil market in order to access Chinese capital and reinforce bilateral ties between the two countries.68 At the Awoun deposit, oil was discovered in 2003. Production facilities are currently being built and the concession is forecast to enter into production late 2009 or early 2010. The joint venture setup in the Awoun permit is comprised of: Shell Gabon with 40 percent, Addax with 40 percent and Sinopec with 20 percent. According to a well informed observer, Sinopec entered into the Awoun joint venture in a similar fashion to the venture with Ozigo once oil was already discovered.69 Other companies also showed interest when the State’s share was to be sold, but the share was given to Sinopec.

Chinese stakeholders, Gabonese government officials, representatives of other companies and civil society representatives all confirmed that the Chinese presence in the oil sector remains limited. The traditional actors, Shell Gabon and Total Gabon, continue to dominate, with Shell Gabon operating the country’s largest deposit, Rabi-Kounga, which produces 150,000 barrels per day accounting for 40 percent of national output.70 The majority of respondents, including the Chinese themselves, believe that Chinese firms are unlikely to gain significant market traction in the medium to long term.

3.4.2 Mining

Gabon’s mining sector only recently started to become productive, with the one exception of Comilog, a French company that has been exploiting manganese in Moanda since 1953. It is currently the second largest producer worldwide, with an annual production of 3.5 million tonnes projected in 2008.71 As the mining sector is not well developed yet, there is not much processing capacity in Gabon. The minerals extracted by Chinese companies in the country are processed in China, according to the Chinese respondents interviewed. Interestingly, this is the case also for the French company Comilog, who has two processing factories in Guangzhou province.

Over the last few years, several Chinese companies have entered Gabon’s mining sector. The Chinese company Sinosteel is currently exploring for manganese but no firm commitment to begin mining has been made. The joint venture CICMH has been awarded manganese concessions at a deposit in the Bembélé Mountains, located 36 km from the town of Ndjolé. CICMH originally comprised the two Chinese companies Huazhou, China’s most important manganese producer with offices in Guangzhou, Beijing and Shanghai, and Ningbo Huaneng Kuangye. In August 2008, Hong Kong-listed CITIC bought a 51 percent stake of the joint venture.72

The deposit is estimated to hold 30 million tonnes of manganese with a mineral purity ranging between 30-40 percent, considerably lower than the mineral purity of the manganese extracted by Comilog in Moanda.73 In September 2008, CICMH finalised the feasibility study for the Bembélé concession and is currently the first Chinese company to have moved into production of manganese in Gabon.74 Their production facility has a 500 tons annual capacity and a 30 year exploration span. Huazhou appears to be aiming at hiring highly skilled Gabonese workers and the research team was shown photos by a senior Gabonese government official of Gabonese graduates visiting China for management training before taking up positions in Huazhou.75

The iron ore concessions of the Bélinga Mountains in north-eastern Gabon, 500 km east of the capital of Libreville, have been allocated to a consortium named Comibel (Compagnie Minière de Bélinga, Bélinga Mining Company) for 25 years of exploitation. The concession was awarded to Comibel in September 2006 after they won a controversial and opaque bidding process against the Brazilian company Companhia Rio do Vale Doce (CVRD).

The Comibel consortium comprises the Gabonese state, China National Machinery & Equipment Import & Export Corporation (CMEC) and Panzhihua Iron & Steel Group. The mine will be operated by CMEC, the main contractor of the project, and when the mine reaches full production its yearly output of iron ore is expected to be 20-30 million tonnes.76 The total value of the project is US$ 3 billion and the project is financed in its entirety by China Export Import (EXIM) Bank. Burke et al notes that “[t]he project was welcomed by the Gabonese government because a fear that most of their oil fields were maturing precipitated a pressing need to diversify the economy”.77

The award of the contract to Comibel has been hotly debated and speculations range from rumours of millions of CFA francs delivered every week to Gabonese government officials and intervention by former French President Jaques Chiraq on the side of the Chinese, to the Gabonese official version that the Chinese offered more infrastructure in their bid and that access to Chinese Government backed capital was perceived as more reliable as it remains unaffected by fluctuations in the capital market.78

The Bélinga deal is designed according to the barter trade format for which China has become known in Africa – the so-called concessional finance model.79 Comibel will invest in infrastructure developments necessary for the exploitation of the iron ore deposits as they are located in a remote area where a lack of infrastructure has inhibited their exploitation ever since 1955, when they were discovered. According to the agreement, Comibel will build a special purpose deep-water port at Santa Clara, a 560 km railroad from Bélinga out to the coast, and a hydro-electric plant.80 China Railway Engineering Corporation (CREC) is to build the railway. Through its subsidiary China Harbour, China Communication and Construction Company will build the port, for which the feasibility study was finalised in December 2008.

It was announced in January 2008 that China will extend a US$ 83 million loan on concessional terms to Gabon to extend their Grand Poubara hydroelectric dam scheme linked to the Bélinga project.81 The foundation stone for the power station was laid by President Bongo on the 14th November 2008.82 The same month, the feasibility study for the hydro plant was concluded.83 The site selection for this hydro project has been heavily criticised by NGOs because of its potential environmental impacts,84 and in response to the criticism a delegation in charge of monitoring the Bélinga project was established by government to which NGOs were also invited.

However, the NGOs have argued that the meetings of the delegation were held in the absence of the NGO representatives and thus did not fulfil its purpose.85 The final agreement, “Mineral Property Right Agreement on the COMIBEL Iron Ore Project of Gabon” which signals that exploration will start, was signed on the 24th May 2008 between Comibel and the Gabonese government.86 Gabonese NGOs were critical, arguing that the agreement had been signed without proper participation or consultation with civil society, particularly with regards to the above mentioned delegation initiated by government where the NGO community had been invited to joint monitoring of the project.87 It has been argued that the Bélinga project is delayed as a result of the financial crisis;88 however, according to a very well informed observer consulted by the research team, Comibel is currently completing an EIA and technical studies for the mine itself, after which exploration activities will commence. 89

3.4.3 Forestry

According to a senior Gabonese government official, the total number of companies operating in Gabon’s forestry sector is approximately 80. Only about 30 are active in logging with the remaining 50 companies active in wood processing. One third of the logging companies are Chinese companies, both privately-owned and subsidiaries of Chinese parastatals. Other companies in the sector are of Indian, Lebanese, Moroccan and French origin, amongst others. Chinese influence has according to the respondent grown exponentially over recent years. French companies, which have traditionally had a very strong position in Gabon’s forestry industry, are now facing strong competition from Chinese companies. Some smaller French companies have reportedly been annexed by Chinese entities. The respondent also confirmed that a number of Chinese companies are definitely among the most advanced companies with regards to environmental standards and general operational behaviour.90

3.5 Chinese companies’ experience of operating in Gabon

All respondents - Chinese, Gabonese, Western and others - agreed that Western companies, predominantly the French, have a firm grip on Gabon’s extractive industries, particularly in oil. This is simply due to long standing historical ties and cultural similarities. Chinese companies have started to gain market inroads in recent years and their market share in forestry has increased markedly. However, their involvement in Gabon’s resource extraction sector remains very small. The widely held perception that China is somehow “annexing” Africa’s resources seems to have little basis in reality, at least in the case of Gabon.

The Chinese respondents were relatively content with Gabon’s operating environment. Gabon was seen by the respondents as a good place to operate and many suggested it was probably one of the best in Africa. The Gabonese state and the relevant government ministries were considered by the Chinese respondents to be highly accommodating to foreign investors, particularly the ministries that deal with extractive industries (oil, mining and forestry). These were seen as more internationalised and considered efficient. The extraction of Gabon’s natural resources, particularly oil, manganese and iron ore, require large scale investments and long term plans.

Accordingly, most of the Chinese company representatives interviewed for this study represented medium and large companies determined to create sustainable businesses with long-term visions for the future in stark contrast to many of the smaller operators interviewed in the DRC who sought quick profits for minimal investment.

All of the company representatives consulted stated that part of being competitive is to comply with all legal requirements and regulatory initiatives and explained that they are more than willing to abide by these. In fact, complying with the rules as well as possible was seen as a way to gain a competitive advantage. The commitment of Chinese company representatives to comply with local rules and regulations was confirmed by a cross section of Gabonese government representatives from the departments of mining, petroleum and forestry.91 The latter stated that in their experience, Chinese companies are very serious in their endeavours in Gabon and the Chinese companies who have made mistakes in their operations have rectified these as soon as they were alerted to them by the Gabonese authorities.

Both Gabonese and Western respondents agreed that in situations such as in the Loango National Park (see section 3.4.1) and other similar incidents, the Chinese stakeholders have been swift in their response to the critique and improved their practices noticeably. The Chinese are thus seen by these respondents as mostly agile actors with a willingness to learn from their mistakes and to operate correctly.

Generally speaking, the overall findings from the Gabon field research suggest that Chinese companies are seen by the Gabonese respondents as no different per se than other corporate actors in Gabon; they are looking to secure fair return on their investments. The differences that were brought up instead relate to culture. The Chinese were often quoted as being meticulous and “suspicious” to such a degree that business negotiations drag out for an unreasonably long time before the Chinese party is satisfied. However, this was merely attributed to cultural differences and language difficulties and was not seen as a major problem.92

The Chinese respondents were well aware of the attention devoted to their activities in Gabon. They stated that it becomes a challenge to learn about an operating environment whilst competing with far more established actors in the market and at the same time being particularly scrutinised for being Chinese. A manager of one of the more successful Chinese companies stated that their compatriots who try and make a quick buck by cutting corners ruin the reputation for the other, more serious Chinese companies.93

The vast majority of Chinese company representatives reported that they feel genuinely welcome in Gabon, but at the same time they must live with being in the spotlight. All thefuelled suspicion towards the Chinese, but the spotlight directed towards them is perceived to be unfair at times. “Western companies are not exactly models themselves”, one Chinese respondent stated.94 A number of respondents, both Chinese and Gabonese, suggested that the operations of Chinese companies in Gabon are often misunderstood. They explained that the reason why Chinese companies are so competitive is that they in the same company often integrate several phases of production and are thus able to lower their costs, but that this is often overlooked.

One Chinese respondent pointed out that the fact that not all Chinese companies active in Gabon are successful is often forgotten. Depending on management, some companies thrive while others develop more slowly or even fail.95 None of the large private company representatives interviewed had any state support for their activities. It was either not available, or the procedure when applying for it from the Chinese government was overly complicated.

3.5.1 Governance: Western advantage

The Chinese respondents stated that they, as newcomers in Gabon, are still learning how to operate in the country. One Chinese company representative explained that since Gabonese laws are based on the French legal system, French actors have a competitive advantage in terms of negotiating contracts. According to this respondent, all other actors come in after the French in terms of ability to master the Gabonese regulatory environment.96 The French were also cited to have operational advantages in other ways. Even though a functioning statutory system is in place, Gabonese regulations are definitely seen as negotiable.

All Chinese company representatives interviewed stated that there are parallel ‘unspoken’ local rules which one also has to know in order to operate. Local connections are imperative in this regard; the more high-level within government the better. Several Chinese and Gabonese respondents argued that because the French know the Gabonese system the best, they also have the best ability to operate in the existing environment. Several Gabonese respondents suggested that most probably there are no differences per se between Chinese and Western actors when it comes to the matter of corruption. Instead, it comes down to a difference in method – Chinese actors may not have the cultural competency to operate in a covert fashion in situations where Western companies would know how to manoeuvre in a ‘smooth’ and discrete way.97

One Chinese respondent with considerable experience operating in France explained that he definitely sees the difference between himself with his knowledge of the French system, and other Chinese operators that have recently arrived.98 Interestingly, a representative of one Chinese company, confirmed by the relevant Gabonese government counterparts to be something of a ‘model company’, stated that one of their strategies is to fill all management positions with French expatriates born in Gabon.99 Thus, a major strategy for success that Chinese companies in Gabon use seems to be learning from the French.

A cross section of Chinese respondents in Gabon reported that the only illegitimate payments Chinese respondents interviewed were aware of Sinopec’s Loango debacle and how that has they are requested to pay are by local officials at the border; however, several respondents stated that these petty bribes can be avoided once they become familiar with the situation and that not everyone is approached. Overall, the governance situation in Gabon was not cited by the Chinese respondents as an impediment to operating in the country.

The research team discussed issues of transparency and EITI in relation to Chinese actors with representatives of Gabonese civil society groups during the field research. The main concern expressed was that so long as the Gabonese government and its representatives remain open to corruption and/or arbitrary enforcement of applicable rules and regulations, some companies from China, the West and elsewhere are likely to engage in corrupt behaviour. Whilst instances of non-transparent and corrupt behaviour involving Chinese companies were mentioned, other examples were brought up where other foreign companies had engaged in similar activities.

However, as a result of Western companies currently facing more scrutiny from domestic civil society and media than is the case for Chinese companies, Western companies are more likely to be aware already from the start of the need to follow rules and regulations in order to project a positive image of their operations. Chinese companies, particularly micro-, small- and medium sized entities with little experience of operating outside of China, may be less attentive in this regard. However, the findings of the Gabon case study indicate that Chinese companies are perceived as quick learners who correct their behaviour rapidly when mistakes are pointed out to them, whether these mistakes originated from ignorance or from deliberate neglect.

3.6 Chinese companies’ perceptions of EITI

Gabon became a candidate to the Extractive Industries Transparency Initiative (EITI) in 2005 and has until 9th March 2010 to undertake validation. The country has produced three country reports (in December 2005, April 2007 and March 2008) and the initiative has to date enjoyed support from the Presidency. However, it remains to be seen whether or not the imminent leadership change in Gabon following President Bongo’s passing in June 2009 is going to affect the Gabonese leadership’s commitment to EITI. EITI in Gabon currently covers oil and mining, while forestry – which continues to be the country’s most economically important industry – has not yet been included in the EITI report.100

In Gabon’s oil and mining sectors, the Chinese actors interviewed were well aware of EITI, welcome it, and comply willingly. This was confirmed by representatives of EITI in Gabon who stated that no company, Western, Chinese or other, has displayed any resistance to participation in EITI.101 One Chinese respondent stated that his company was happy to participate since they have nothing to hide. However, the Chinese representatives from these two sectors stated that the whole initiative is very new, they do not have much experience of participating in it yet and they do not really know what it will mean in the long run; they are part of it, but thus far it is driven by government.

Only some of the Chinese forestry company representatives in Gabon were aware of EITI, as the initiative is yet to be implemented in this sector. The research team explained the principles of EITI to those not acquainted with it and all the respondents involved in the forestry industry, without exception, whether previously aware or not, stated that they were willing to participate if the initiative was extended to forestry.

For these Chinese respondents, EITI does thus not represent a demanding obligation and would merely become a part of the general regulatory framework that they are already following. One respondent of a medium sized forestry company suggested that if EITI could help them to be perceived as a serious company and thus benefit their business, it would be an added rationale for them to participate.102 Overall, the Chinese respondents did not seem to regard participation in EITI as anything more than simply a part of the general regulatory environment in Gabon. Most of the Chinese respondents suggested that they have been singled out for unfair and biased attention by the Western media on China’s engagement with Africa.

In some cases this perception may have coloured and negatively affected the perceptions of Chinese stakeholders toward CSR initiatives such as EITI – one of the respondents explained that such initiatives come across as mainly targeting Chinese companies. 103 There is thus considerable support for EITI among Chinese company representatives in Gabon, although most respondents suggested their knowledge of the initiative is limited simply because it is so new.

4. The Democratic Republic of the Congo

4.1 Introduction

The vast central African country of the Democratic Republic of Congo (DRC) is the third largest country in Africa after Sudan and Algeria. It is home to one of the world’s largest reserves of untapped natural resources including copper, cobalt, diamonds, platinum, gold, oil and gas. Up to 62 percent of the country is covered with tropical forests.104 The DRC has experienced protracted conflict associated with these resources and is ravaged by poverty, ranking 177 out of 179 countries included in UNDP’s Human Development Index.105

After 52 years as a Belgian colony, the Belgian Congo gained its independence on the 30th of June 1960.106 The first leader of the independent Republic of the Congo, Patrice Lumumba, ruled the country for only a short while before being assassinated in 1961.107 His successor, the US-backed Mobutu Sese Seko assumed power in 1965 and became an important Cold War ally for the United States. Mobutu remained Congo’s leader for three decades. His one-party state is widely seen as having ruined his country’s socioeconomic and administrative capacity as he plundered and practically ran the economy, including the mining sector, into the ground.108 During the 1960s, China provided limited support to some of the rebel groupings that were seeking to overthrow Mobutu. For more info on this, see the next section on the history of Sino-Congolese relations.

In 1997, Mobutu was toppled by Laurent Kabila in what is known as ‘the First Congo War’. The country’s name was then changed to the current ‘Democratic Republic of the Congo’ (DRC). Shortly after Kabila was instated, relations between the President and his allies in Rwanda and Burundi deteriorated rapidly. The expulsion of Rwandan troops in 1998 triggered a series of events that eventually led to the reigniting of war, a conflict that has been termed ‘the Second Congo War’ or ‘Africa’s World War.’ The conflict lasted from 1998 to 2003, involved armies from six African countries and claimed the lives of around 5 million Congolese. It has been argued that access to and competition over natural resources for personal enrichment and military funding prolonged the conflict vastly. The involvement of Rwandan, Ugandan, Zimbabwean and Congolese army officers, various militias, rebel forces and Western corporates in illicit extraction is well documented. 109

Unrest currently plagues the eastern parts of the DRC. A number of peace agreements have failed and over the past year fighting has involved a range of rebel formations, including the Tutsi led rebel group Congrès National Pour la Défense du Peuple (the National Congress for the People’s Defence, CNDP), the Hutu Forces Démocratiques de Libération du Rwanda (Democratic Forces for the Liberation of Rwanda, FDLR), Mai-Mai militias and the Ugandan Lord’s Resistance Army (LRA). The overstretched United Nation’s (UN) peacekeeping force Mission de l’Organisation des Nations Unies au Congo (United Nations Peacekeeping Mission in the Congo), known under its acronym MONUC, is supporting the poorly trained and organized government forces FARDC (Forces Armées de la République Démocratique de Congo, the DRC’s Armed Forces).

A month-long Congolese-Rwandan joint military operation launched in January 2009 did not yield the expected results in terms of fighting Rwandan Hutu rebels and integrating CNDP soldiers into FARDC, and the FDLR has subsequently intensified its retaliatory attacks against civilians. Such attacks have also been perpetrated by FARDC, LRA and other rebel formations.110 In January 2009, 1.4 million people were internally displaced in the DRC according to UNHCR (United Nations High Commissioner for Refugees) estimates, and since then at least another 150,000 have been displaced as a result of the fighting.111 Sexual violence perpetrated by all warring parties against civilians has been a serious problem in the DRC for many years with countless women raped, mutilated and killed.112

4.2 Economy, development and governance

After so many years of war and exploitation, the Congolese economy has little momentum to develop and relies mostly on subsistence agriculture. In 2006, approximately 70 percent of the population was dependent on agriculture for their livelihood,113 a sector which makes up 55 percent of the country’s GDP.114 Artisanal mining is a key area of informal economic activity, often described as ‘the backbone of the Congolese mining economy’. Before the economic crisis hit the artisanal mining sector in the second part of 2008, approximately 67,000 people were working as collectors of cobalt and copper-infused stones in Katanga Province alone.115

Countrywide, a total of up to 2 million Congolese were working as artisanal miners, digging for minerals including gold, tin and diamonds. Approximating five dependants per worker, it is estimated that 12.5 million Congolese or 20 percent of the DRC’s population depend upon artisanal and small scale mining for their livelihood.116 It is widely reported that their working conditions are appalling. For example, Clark et al note that child workers are commonly present in the mines.117

However, with the downturn in the global economy and the drop in commodity prices (the effects of this on the mining sector is outlined further below), the opportunities for artisanal miners to eke out a living have been reduced drastically. It was reported in April 2009 that up to 300,000 jobs had been lost in the informal mining sector.118 The full socioeconomic effects of the economic downturn are yet to be seen but are expected to be devastating, with state revenues coming down and unemployment rates rising rapidly.

The lack of infrastructure – in terms of roads, railways, and electricity – poses a major challenge for Congolese reconstruction and economic development and in particular, the country’s resource extraction industries. Many Congolese mines currently generate their electricity from small scale diesel generators, a solution which is unviable with ever-increasing fuel prices. Large scale hydroelectric power generation could be a solution, especially since the mighty Congo River has vast potential in that area. However most of the country’s hydroelectric generation capacity is in ruins following decades of neglect.119

The Congolese government is, with the help of funding from the African Development Bank (AfDB) and the World Bank, currently making efforts to refurbish the faltering Inga 1 and 2 hydroelectric plants on the Congo River.120 In June 2009, bidding opened for funders interested in funding the construction of the US$ 7 billion 4 320 MW Inga 3 plant. BHP Billiton has expressed interest in contributing US$ 35 million towards the construction of the plant as it seeks to establish an aluminium smelter in Bas-Congo province.121 In terms of governance, the situation in the DRC is bleak. Problematic patterns of large scale corruption were perpetuated during the Mobutu years and patronage is still a very important feature of Congolese economic and societal life.

Curtis notes that “[t]he economic sector is highly personalised and closely linked to politics and security issues.”122 Garrett notes that “[i] n the DRC, patronage networks continue to provide social cohesion and economic opportunity, but they also create difficulties for those in official employment, who have to take care of their extended circle of relatives”.123

In Transparency International’s Corruption Perceptions Index (CPI) of 2007 (where 10 represents highly clean and 0 highly corrupt), the DRC ranks 171 out of 180 with the low score of 1.7.124 The country was ranked as ‘not free’ in Freedom House’s Freedom Index in 2008,125 and according to Human Rights Watch, political repression occurs in the country.126 Accordingly, the business environment in the DRC is judged as among the worst in the world. In the World Bank’s Doing Business 2009 report, covering the period of April 2007 to June 2008, the Democratic Republic of Congo’s regulatory environment and its enforcement was the least conducive to the operation of business of all countries assessed worldwide.127 Curtis notes that “[t]he DRC’s banking sector is unreliable, the judiciary is not independent, and key local, regional and international actors benefit from continued uncertainty and insecurity”.128

Yet, after the end of the country’s 1998-2003 civil war and particularly after the country’s democratic elections in 2006, foreign investors flocked to the country’s mining sector. A Chinese owner of several medium sized mining operations in southern and eastern DRC expressed that the DRC is the “last piece of virgin land” in terms of natural resources.129

However, as mentioned, the situation has changed rapidly in recent months as the global financial crisis has hit copper and cobalt prices hard, particularly since the demand from China has dropped. In October 2008, Katanga’s exports of copper cathode decreased 70 percent and during the whole of 2008, no new significant investments have been made in the province.130 Several major mining operations in the DRC such as Central African Mining & Exploration (CAMEC), Katanga Mining, Anvil and First Quantum put their operations temporarily on hold at the end of 2008.131 Currently, there is fairly limited activity in Katanga’s mining sector. Among the exceptions is Freeport-McMoRan’s Tenke Fungurume copper- and cobalt mine, which shipped the first copper cathode produced at its facilities to the South African market in April 2009.132

CAMEC resumed production at its Luita operation in April 2009 in response to rebounding copper prices.133 Katanga’s former provincial Minister of Mines, Barthelemy Mumba Gama, has expressed that the much-needed revival of the DRC’s mining industry may be “in jeopardy due to the slump in global copper prices, coupled to the continued process of reviewing mining licences.”134 The insecurity in the east of the country has also been cited as an impediment for investors to access capital.135 In December 2008 the Congolese government introduced emergency measures to ease the pressure on foreign investors in the country’s mining sector by reducing “mineral export taxes and slash royalties owed to state coffers in an effort to save a struggling mining sector hit by falling prices and waning demand”.

4.2.1 Governance in the mining sector

The main legal frameworks guiding the DRC’s mining sector are the Mining Code (Code Minier), the Mining Regulations (Règlement Minier) and the Investment Code (Code des Investissements). The current Mining Code and Mining Regulations were established in 2002 and 2003 respectively with the help of the World Bank, initiating a transparent and efficient permitting process. In 2006 a new mining plan was introduced. Following this, the DRC reportedly became more attractive for the international mining industry as a destination for investment. However, the new mining code has received criticism for catering only to concessions which actors need substantial financial resources to obtain. One of the reasons for this may be that small actors with little financial capacity to stake a claim may have problems developing the concessions, since smaller players may lack the technical and financial capacity to optimise developments.137

The gap between statutory law and actual mining activities is vast in some parts of the mining industry. Garrett notes that “[t]he Congolese institutions involved in the governance of the [artisanal and small-scale mining] ASM sector suffer from limited institutional capacities, which compromises their organizational efficiency and leaves them vulnerable to corruption”138. While the ASM sector has been labelled by some observers as ‘chaotic,’ it is in fact meticulously organised on the micro level by means of multiple-rule systems comprising of both statutory and customary law.139

A review of major mining contracts signed between the DRC and foreign investors is currently underway. In 2004, a special parliamentary commission, the Lutundula Commission, was established to examine mining contracts signed during the 1998-2003 civil war. The Commission delivered its final report in 2006.140 Subsequently, in June 2007, the Congolese government created an Inter-Ministerial Commission for the Review of Mining Contracts and initiated a review of mining contracts signed during the 1998-2003 war.141 The work of the Review Commission was finalised in October 2007,142 published in March 2008143 and in June 2008 it was announced that the re-negotiation of approximately 60 mining contracts signed during the two wars, 1996-1997 and 1998-2003, as well as during the transition period from 2003-2006, would be initiated.144 Six of these contracts involve Chinese partners.145

In November 2008, it was announced that results from the review process should be made public by the end of December 2008.146 Accordingly, on the 21st December 2008, the Deputy Mines Minister Victor Kasongo announced that the review was finished for all but six companies; First Quantum, Banro, AngloGold Ashanti, Gold Fields, Mwana Africa and Freeport-McMoRan.147 In August 2009, the Congolese government announced that AngloGold Ashanti, Banro, Mwana Africa and Gold Fields’ contracts had been approved, First Quantum’s contract had been cancelled, and Freeport-McMoRan and Lundin Mining’s Tenke Fungurume project had been given another two months to complete the review of its contract.148 The protracted insecurity surrounding the mining contract review has become a major concern for many of the DRC’s large foreign investors, who have cited this as a contributing factor to putting their operations on hold. 149

4.3 Sino-Congolese relations

4.3.1 Overview

Following Belgian Congo’s independence on the 30th June 1960, the newborn Republic of Congo150 and the People’s Republic of China established and subsequently severed diplomatic ties twice before 1972.151 During periods of non-recognition, Mao Zedong provided limited material to support rebels fighting to overthrow the Western-backed postcolonial government.152 Since 1972, when the then Republic of Zaire restored diplomatic ties with China, bilateral relations have been stable.153 President Mobutu visited China five times154 and during his rule eight Chinese leaders visited Zaire. Diplomatic ties remained intact as Mobutu was toppled by Laurent Kabila in 1997. Kabila visited China during his first year in power. The same year an ‘Agreement on Mutual Protection and Encouragement of Investment’ was signed by the two countries.155

In 2000, a Congolese delegation attended the Beijing Ministerial Meeting of the first Forum for China-Africa cooperation (FOCAC). The same year China Zhongxing Telecommunications Co. Ltd (ZTE), in collaboration with the Kabila government, established the China Telecommunications Co. Ltd in the DRC, funded by RMB 80 million China EXIM Bank preferential loans (status). It was reported in April 2009 that ZTE is looking to sell its share of the company, and that South Africa’s MTN had proposed US$ 200 million for the stake.156

After President Kabila was assassinated in 2001, he was succeeded by his son Joseph, who paid his first state visit to China in 2002.157 In August 2008, he attended the opening ceremony of the Beijing Olympics.158 Over the years, Chinese loans have funded the construction of buildings of symbolic importance: the National Parliament, the People’s Palace, and the DRC’s largest outdoor venue, le Stade des Martyrs (The Martyrs’ Stadium).159 China also has provided economic aid for the construction of an agricultural tool plant, a sugar-refinery, a rice-planting technique demonstration centre, a trade centre and a mail distribution centre in Kinshasa.160 Chinese companies and government institutions are currently active in a range of projects in the DRC.

In terms of telecommunications, Huawei and China International Telecommunication Construction Corporation (CITCC) are currently implementing the first phases of two ICT projects funded by China EXIM Bank concessional loans. Both projects are implemented on behalf of the Congolese Ministry of Posts, Telephones and Telecommunications (Office Congolais des Postes et Telecommunications, OCPT) and are worth a total of US$ 63.9 million.161

Moreover, through a barter agreement signed on the 22nd April 2008, discussed at further length below, Sicomines – a joint venture between Chinese and Congolese companies – are to carry out infrastructure refurbishment and extraction of copper and cobalt.

It can also be noted that there is some indirect Chinese presence in the banking sector of the DRC. The Industrial and Commercial Bank of China Limited (ICBC) holds a 20 percent stake of South Africa’s Standard Bank, which has branches in 19 other African countries including two branches in the DRC: one in Kinshasa and one recently opened in Lubumbashi.162 China also provides Congolese students with Chinese government scholarships every year so that they can study in China. From 1985 to 2003, 5-8 students were sent every year. During 2004-2006, 11 Congolese students were sent to China per year, in 2007 the number was 23 and in 2008 it reached 32.163 China has over the years dispatched numerous medical teams to the country. Currently, an 18 member medical team is operating at the Sino-Congolese Friendship Hospital located in N’Djili, Kinshasa.164

As elsewhere on the African continent, there is also a substantial presence of Chinese small scale traders in the DRC. Popular Congolese perceptions of the difference between these Chinese small-scale traders and the state-owned partners to the recent US$ 9 billion Sicomines deal (outlined in section 4.4.1) appears blurred. One taxi driver in Kinshasa exclaimed that ’we have let the Chinese in to build roads, but now they doing n’importe quoi [nonsense] all over the township, selling water, all those things that Congolese should be doing.’ 4.3.2 Sino-Congolese trade Trade between China and the Democratic Republic of the Congo has increased substantially over the last decade and particularly the DRC’s exports to China have seen a remarkable boost.

In 2008, a conspicuous spike in terms of exports from the DRC to China was noted, comprised largely of an increase in cobalt exports from US$ 304.8 million in 2007 to US$ 1.13 billion in 2008. 166 As indicated in the graphs below, the DRC’s imports from China comprise largely of consumer and capital goods such as light industry products and machinery, whereas China’s imports from the DRC largely comprise raw materials; copper ore, cobalt and to a small extent wood.

As shown in the graph below, China was the DRC’s third most important trading partner in 2007 after Belgium and South Africa.

The 2008 trade data for 2007’s top trading partners shows that China, having been the DRC’s third largest trading partner in 2007, rose to the number one trading partner in 2008 with US$ 1.8 billion worth of goods traded, followed by South Africa with US$ 1.1 billion worth of goods traded. Currently, China is thus the DRC’s largest trading partner following a remarkable increase in terms of value of goods traded.

4.4 Chinese involvement in DRC’s mining sector

Chinese investments in the DRC’s mining sector comprise a range of micro-, small-, medium and large scale companies. Among Chinese investments in the DRC, the deal struck on the 22nd April 2008 worth a reported US$9 billion (outlined in detail below) is the most well-known as a result of the enormous media attention generated by the agreement, both internationally and domestically. Thanks to this attention, China’s interest and presence in the DRC’s mining sector is being increasingly scrutinized. However, the presence of Chinese micro-, small- and medium sized enterprises in the DRC has generated far less attention, and the character of their activities is therefore less well known.

As mentioned in the methodology section, the data collected concerning knowledge of and attitudes towards transparency emanate from interviews with representatives of micro-, smalland medium sized enterprises in Katanga and not with Sicomines representatives since they are not yet operational. The following two sections outline the activities of micro-, small- and medium sized Chinese companies in the DRC.

4.4.1 Sicomines – the US$ 9 billion deal

On the 22nd April 2008, a barter deal was struck between the Congolese government and a consortium of Chinese companies. By means of the agreement, a Sino-Congolese joint venture named Sicomines will provide the DRC with much-needed infrastructure investments in exchange for mineral concessions in Katanga province. The debate around the Sicomines deal has been extensive and complex, and the outline below seeks to give a brief summary of the events thus far. Sicomines comprises of the Chinese companies Sinohydro and China Railway Engineering Corporation (CREC) on the one side with a 68 percent stake, and Congo’s mining parastatal Gécamines on the other with a 32 percent stake. Despite a number of announced changes in the stakes,169 these have never materialised and the partnership structure of Sicomines remains the same.170

The original amount of funding to be provided by China EXIM Bank was US$ 9 billion. US$ 6 billion worth of transport and social infrastructure to be provided would include construction of new roads totalling 3,600 km, rehabilitation of another 3,000 km as well as the construction of several hospitals and two universities. US$ 3 billion worth of mining infrastructure investments would largely be devoted to the joint venture’s concessions in Katanga. According to the contract, the allocated concessions Dima, Dikuluwe and Mashamba contain 10.6 million tons of copper and 626,619 tons of cobalt of which 6.8 million tons of copper and 427,000 tons of cobalt are confirmed deposits.

The remaining 3.8 million tons of copper and 200,000 tons of cobalt are probable findings. The total value of the mineral concessions is currently under evaluation in a feasibility study which will be finalized and presented at the end of 2009. The mines will only come into production in 2013 at the earliest.

It is widely agreed upon by Congolese and Chinese stakeholders as well as by the DRC’s other external partners that the agreement with its comprehensive infrastructure package is a positive and necessary initiative for the DRC and that China is currently the only partner that is able to provide funding of the size needed. However, the structure of the agreement and the circumstances in which it was negotiated has been subject to much criticism and debate. The critique has focused largely on four points: transparency in the negotiation process; technical competency of the Congolese team that negotiated the agreement; fairness of the deal; and debt sustainability.

In terms of the negotiation process, Congolese critics have argued that it was carried out in secrecy by a small group of stakeholders that did not necessarily possess the technical capacity to ensure that the value of infrastructure written into the deal corresponded to the value of minerals allocated, and that measures to evaluate the value and quality of each infrastructure component were put in place. Critics argue that as a result of these flaws in the negotiation process, the agreement is skewed in favour of the Chinese party to the deal and needs to be amended in order to become a fair deal for the DRC.171

Lastly, the discussion point that has been the most widely reported upon is the International Monetary Fund’s (IMF) concerns regarding debt sustainability. The DRC currently has interim status – between decision and completion point – in the World Bank Group’s Highly Indebted Poor Country (HIPC) debt relief program. This means that the country must fulfil several performance criteria related to IMF’s programmes before qualifying for debt relief,172 a pressing need for the DRC whose external debt currently amounts to US$ 11 billion.173 Prior to reduction in debt, the country must complete a new three-year Poverty Reduction and Growth Facility (PRGF) program.174

The IMF has argued that in order for the program to start, the value of the Sicomines agreement has to be reduced and the agreement has to be amended so that the loan is not structured as government debt. In essence, the IMF is not willing to proceed with comprehensive debt relief if the DRC is concurrently re-contracting practically the same amount of debt with China.

The Congolese and Chinese side have argued that the financing provided to Sicomines by China EXIM Bank is not to be seen as regular government debt since, as stated in article 10.1 of the contract, it is taken on by the joint venture and is backed by the mineral concessions. The articles 10.3, 13.2 and 13.3.3 of the contract are however the stumbling blocks in the context, stating that the Congolese state guarantees the repayment of the loan.175 However, following IMF’s Managing Director Dominique Strauss-Kahn’s visit to Kinshasa in May 2009, the Congolese government has recently agreed to put US$ 3 billion of the Sicomines agreement on hold to take into account the IMF’s concerns.176

Yet, the contract is only likely to be renegotiated once the feasibility study for the mineral concessions is finalised, which as mentioned will be only towards the end of 2009. Meanwhile, the Congolese government is moving ahead with implementation of the initial stages of the infrastructure investments. Already in August 2008, two agencies dedicated to the management of the Sino-Congolese program were set up under the Ministry of Infrastructure. The Coordination and Monitoring Office for the Sino-Congolese Program (Bureau de Coordination et de Suivi du Programme Sino-Congolais, BCPSC) coordinates all infrastructure and mining activities while the Congolese Agency for Major Construction Works (Agence Congolaise des Grands Travaux, ACGT) is the contracting authority for the infrastructure investments.

Under the supervision of ACGT, infrastructure projects worth US$ 340.4 were in implementation during the first half of 2009. The contractors were Sicomines’ two Chinese partners; Sinohydro and CREC. The projects are:177 Table 1: Sicomines infrastructure projects currently under implementation

The total value of planned infrastructure projects in 2009 is US$ 750 million. Given that the deal goes ahead as planned, infrastructure investments to the value of US$ 3 billion are currently planned for the next four years; $1-billion in 2010, $750-million in 2011 and $500-million in 2012.178 In this context, it can be mentioned that a senior representative of an international mining company interviewed in Beijing in November 2008 claimed that the Chinese parties to the Sicomines deal were, against the backdrop of current global financial turmoil, growing increasingly wary of their engagement with the DRC.179 The respondent suggested Chinese engagement generally is likely to slow down as the Congolese government is reportedly becoming increasingly demanding in the negotiations and as political unrest and insecurity in the eastern parts of the country increases.

Laurent Nkunda, former leader of the CNDP rebel movement operating in eastern DRC, voiced objections to the Sicomines contract in October 2008.180 Nkunda reportedly stated that the deal would “line the pockets of a few politicians while the Congolese people would see no benefit” since the concessions were allocated to the Chinese consortium “without any calculation.” 181 While the Sicomines deal has very little to do with CNDP’s actual agenda and the statement could be seen as a far-fetched populist attempt to raise attention for the movement’s cause in the international community, CNDP’s position has become another worrying factor for the Chinese stakeholders to consider in the light of the already volatile security situation.182

This tendency has been confirmed by reports that Chinese companies generally are now redirecting investments from early stage investments in emerging markets where large scale infrastructure refurbishments are a necessity, to advanced stage mining projects in developed countries since majority stakes in the latter have become more affordable as a result of the economic crisis.182

4.4.2 Chinese micro, small and medium sized enterprises in the DRC

In the Katanga province, and to some extent in the North and South Kivu provinces, Chinese entrepreneurs active in the mining sector can be divided into three main subsections: mining, processing and trading. At the time of the 2008 field research, a number of Chinese nationals were also running micro sized service companies, providing Chinese mining and processing companies with supplies and logistical support. In mining, a number of micro-, small- and medium sized Chinese companies have mining licences in the DRC, mainly in the south-eastern province of Katanga and to a smaller extent in the eastern South and North Kivu provinces. The great majority of these are still in the exploration phase and have not yet started with full-scale extractive operations.

Those who are in the extractive phase of their operations are mostly in early stages. Often, the Chinese investors have formed joint ventures with Congolese that hold mining permits but that do not have the resources to carry out exploration and exploitation. The global economic downturn has affected the operations of these actors, which in many cases have been put on hold awaiting better commodity prices.183

While the research team secured access to certain registers and data pertaining to the number of mining concessions awarded to Chinese companies active in the DRC, the data is not comprehensive. The trade union association La Nouvelle Dynamique Syndicale lists 21 Chinese companies that have invested in joint ventures with the DRC’s state-owned Gécamines, but it is not known how many of these ventures remain dormant.184 In processing, a large number of Chinese micro-, small- and medium sized enterprises ran operations at the time of the 2008 field research. Following a ban against the export of raw ore in March 2007185, more than 70 processing companies (Chinese, Lebanese, Indian, Pakistani and Western ownership) established operations in the south-eastern Katanga Province, around Lubumbashi, the unofficial capital of the central African copper belt, as well as in Likasi and Kolwezi.

These firms were buying minerals (largely copper and cobalt) from the region’s artisanal miners, the creuseurs, which were then smelted, treated and sold onto the market. Whilst 2003-2005 were good years for operations in Katanga according to the Chinese respondents interviewed, the operating environment for the processing companies has drastically worsened with the global economic downturn. In September 2008, at the time of the field research, many of the Chinese processing companies were suffering supply shortages as they did not extract their raw materials themselves and the competition for what the artisanal miners extract was fierce.

Many larger Western companies were shielded to a greater extent from these supply problems since they often run both mining and processing operations and are thus able to secure the raw material supply needed to keep their furnaces going.

The micro-, small- and medium sized production companies’ particular vulnerability has indeed been confirmed by the DRC’s Minister of Mines, Martin Kabwelulu, who stated that most of the companies that have closed are those that buy their raw ore supply from the artisanal miners in Katanga since they do not own mining concessions.186 Since July 2008, most processing operations have scaled back, at least 45 of them have closed due to high costs of production, and the Chinese private players have certainly not been spared.187

In December 2008, a mere five Chinese processing companies were still operating in the whole Katanga province. In Lubumbashi itself, only one remained open while the rest had closed down.188 According to a well informed Chinese observer in Lubumbashi, around 80 percent of the Chinese staff in the Chinese companies had left the country in December 2008 while around 20 percent of them had stayed to look after the processing plants. Among the Chinese factory owners, some have left the country and some have chosen to stay. In terms of company closures, no discernable difference in vulnerability has been noted between small and large scale operations – all companies without exception had been severely affected.189

Complementary field research in June and July 2009 confirms that with a few exceptions, most of these Chinese processing plants remain dormant. Many of the Chinese investors in Katanga now find themselves in a position where they have invested large sums in production facilities in the country that have now lost a great part of their value as a result of the economic downturn and difficulties in securing raw material supply. It has been reported that many Chinese companies in and around Lubumbashi left their workers without paying outstanding salaries as they closed their operations in November 2008.190

The research team discussed this issue with a number of Chinese entrepreneurs in Lubumbashi in June and July 2009. The respondents were indeed aware of the reporting around this issue, which they suggested was not entirely justified. According to the respondents, one out of the 30 Chinese companies that have closed was indeed confirmed to have left for China without paying their workers since their operation had gone bankrupt. A second company is suspected to have done the same thing, although this has not been confirmed.191

In terms of the number of processing operations run by Chinese actors in the Lubumbashi region, the number has been confirmed to around 30.192 As of July 2009, 4-5 of these are in operation on a small scale, 1-2 have gone bankrupt and the majority are dormant awaiting better market conditions. In most cases, the owners of the processing plants are not around and the factories are being attended to by Chinese and local Congolese staff.193 In terms of trading, at the time of the 2008 field research, some Chinese investors ran comptoirs (the trading and exporting companies that buy minerals from middle men and sell onto the market194), for example trading tin in Goma, the capital of the North Kivu province.195

Also, on both sides of the border between the DRC and Zambia, Chinese middle-men buy ore from the local artisanal miners and sell them to the big Chinese-run smelters, both of which are reportedly more comfortable dealing with the Chinese middle-man than directly with each other.196 Indeed, the location of the Chambishi Special Economic Zone (SEZ) in Zambia is ideal because of its proximity also to the DRC’s copper deposits. It is however not yet known how the global economic downturn has affected the operations of these economic actors.

Contrary to popular perceptions of Chinese firms active in Africa, very few companies receive support of any kind from the Chinese Government. Only one of the respondents of this study, the owner of a medium sized company with both mining concessions and recently awarded rights to open a comptoir, said that his company gets support in the form of loans from the Chinese state. The respondent did however neither reveal which bank had extended the loans nor if it was a policy banks or a commercial bank. All of the other companies interviewed stated that they receive support neither from the Chinese banks nor from any of the Chinese funds allocated to private sector initiatives in Africa. For most of the Chinese privateers interviewed for this study, this was their first business venture in Africa.

4.5 Chinese companies’ experience of operating in the DRC

All the Chinese private company representatives interviewed for this study in September 2008 and in June-July 2009 were struggling to keep their operations running in the DRC. The current market conditions and the extremely challenging operating environment are conspiring to force these firms out of business. The global economic downturn has indeed been confirmed as having worsened the operating environment even further.197 Several of the respondents also have operations in Zimbabwe, Zambia and South Africa, and they all stated that the DRC definitely has the worst operating environment of all these countries.

The respondents argued that although there is a formal legal system based on traditional Belgian legal structures, many Congolese officials interpret and apply the rules arbitrarily and all rules and regulations are negotiable if the right amount can be agreed to. All foreign respondents argued that it is a necessity to bribe the local officials for each step when establishing a business in the country, having a dossier approved or getting anything at all moving through the bureaucratic system. The payoffs were termed as “structural requirements” by one of the Chinese company representatives interviewed.198

Once the business is established, running it is no less challenging as corrupt petty officials sanction companies with heavy, random and often illicit fines and demand payouts on a regular basis in order to extend the business’ necessary permits. Several blatantly illicit fines issued and signed by local authorities, termed “phantom fines” by the respondent, were displayed to the research team. One of these fines required payment of over US$ 1 million, which in the end had been negotiated down to US$ 80 000 according to the respondent.199

None of the Chinese entrepreneurs interviewed expressed any reluctance to abide by rules and regulations of the host country, or any intention to take ‘shortcuts’ in this regard. Indeed, several Chinese respondents mentioned that they found corruption of the scale that is seen in the DRC to be unthinkable in China where, they argued, corruption is often punished severely. Procedures for taxation and customs payments were also described as arbitrary and opaque. Central records of companies’ profits and expenses are reportedly limited and the majority, if not all, of micro- and small sized Chinese operations are run on a cash basis due to a lack a lack of confidence in the Congolese banking system.

As a result, tax payments are calculated according to ad hoc estimations. Several Chinese company representatives explained that when these estimations are being made, Congolese officials from la Direction Générale des Recettes Administratives (General Office of Administrative Receipts, DGRAD) regularly take their share and give the company an invoice of a smaller amount for deposit to the Central Bank. Local Congolese taxpayers also confirmed this to be a common practice by DGRAD applied to everyone, not just the Chinese.200 Mthembu-Salter notes that “[t]here are, however, no reliable official statistics that enable one to calculate the combined revenues earned by the country’s many tax-collecting agencies.

The Katanga provincial ministry of mines has admitted it has no idea how much tax the state collects from the mining industry in the province.”201 These practices represent a major challenge for EITI implementation in the country, since it is difficult to ascertain what amounts the companies really pay to the Congolese state in royalties and taxes.

Bribing practices emanate from the need to have one’s dossier pass through bureaucratic processes in a timely manner. Several Chinese and Western respondents argued that it is possible to completely refuse to pay bribes, but in that case, anything that needs to be done takes longer – time that private business can ill afford to waste.202 Therefore, most of the foreign respondents were adamant that no company – Western, Chinese or otherwise – can operate in the DRC without having to resort to bribe paying, and insisted that those who claim they do not indulge in such practices are simply not telling the truth.

The observations made during this field study indicate that there seem to be little to no differences per se between Chinese corporations and other international actors operating in the DRC. Instead, the factors size, time perspective and vision have been identified as more important independent variables determining operational behaviour and capacity. It was mentioned above that the larger companies are expected to be much more likely to survive the current economic crisis without having to close their operations in the DRC.203

Moreover, both Western and Chinese larger companies have often been able to establish extensive personal and cultural connections locally; contacts that enable them to better operate in the opaque Congolese environment. The larger the operation, the better connected the management is likely to be, and with the help of an influential network it is possible to navigate in a business environment rife with corruption without having to interact with low-ranking officials seeking to extract rent whenever possible. One of the Chinese respondents with large scale processing operations in and around Lubumbashi explained that he nurtures his connections with senior levels of the Congolese government very carefully in order to safeguard his operations.204

Even though size may be a determining factor for operational behaviour that is irrelevant to country origin, it also highlights a distinct difference between Western companies on the one side and Chinese, Indian, Pakistani and Lebanese operations on the other, since most of the Western companies are larger entities while the others more often than not are micro-, small- or medium sized enterprises. As such, the Western companies are generally more likely to be well-established and connected.

Furthermore, Western actors and companies may have advantages since many of them have relations with Congolese elites established decades ago. The Chinese companies have only started to enter the DRC over the last decade and the majority have been present for less than five years. While this might not automatically be the case, Chinese investors in the DRC may therefore be less experienced than their Western counterparts in dealing with situations and working through the government bureaucracy. They may therefore be more vulnerable to harassment by rent-seeking officials.

Language and culture are two other factors that may also help newly established Western companies without long standing relations and give them operational advantages relative to their Chinese counterparts in the DRC. Western and Indian actors have the language in common with the African stakeholders – both French and English are common languages for which interpreters are readily available. In addition, Western actors have a cultural frame of reference more in common with the Congolese, which, according to both Chinese and Congolese respondents, prevents misunderstandings and assists in relationship building. Differences in culture and ways to operate a business can, according to many Congolese and Western respondents, often create a considerable distance between Chinese and other actors in the country.

Some evidence from the field research contradicts the above. Several of the Chinese respondents argued that since Western companies have a more mature regulatory approach to doing business, Chinese companies have a competitive advantage since they get faster ‘into the game’ and make decisions based on both statutory law, customary law, personal understanding of the local context and personal contacts with officials. Local respondents working in the mining sector argued in interviews with the research team that the Chinese are indeed fast-moving actors that on the one hand get ‘into the game’ quicker compared to their Western counterparts, which is appreciated since they commence with providing employment opportunities to locals at an earlier stage.

On the other hand, the Chinese actors are seen as more sensitive to market conditions and thus quicker to close down operations and move out of business.205 Another interesting observation made by the research team is that the Chinese stakeholders may be equipped to deal with the Congolese environment to a varying extent depending on where in China they are from. One of the Chinese respondents was from Hong Kong, an internationalised environment where traditions are still of importance. Such a combination – cosmopolitan and yet traditional – seems to make the respondent’s business more successful than those of stakeholders with purely mainland PRC origins.

The PRC embassy in Kinshasa is located at a distance, both psychologically and geographically, from the Chinese nationals operating businesses in the Katanga province. A majority of the Chinese respondents interviewed for this study claimed that they get no support whatsoever from the Chinese embassy in Kinshasa. Several examples were brought up in which the respondents had been in trouble, called the embassy and received no support. This was compared by the Chinese respondents to situations where ethnic Chinese colleagues of Western nationalities call their embassies for help and receive timely assistance.

The Chinese ambassador to the DRC, Wu Zexian, confirmed that the embassy would indeed like to be able to extend more help to Chinese nationals active in southern DRC.206 Another example of rules and regulations affecting particularly micro-, small- and medium sized companies raised by the respondents was the Katanga Provincial Government’s suggested rise in export taxes from 1 to 3 percent or even 10 percent for companies that only process and that do not mine their mineral supply themselves. In response to this, the Chinese companies that run processing plants around Lubumbashi have established a Chinese chamber of commerce whose president is the CEO of one of the major private copper smelters outside of Lubumbashi.207 According to several Chinese respondents, this is the first time collective action such as this has come about.

Another response to the planned rise in export taxes being considered by the Chinese business community at the time of the 2008 field research was to simply stop their operations to demonstrate that they were actually contributing to the employment of local workers. If they could no longer operate due to rising export taxes, these locals would lose their jobs and their income. An interesting possible collaboration opportunity with considerable potential for synergies between transparency initiatives and an existing Congolese institution was identified as the research team met with a senior representative of a Congolese chamber of commerce.208 The respondent, whose organisation had no Chinese companies among its members, described at length the problems experienced by his members whilst operating in the DRC.

The problems described were virtually the same as those described by the Chinese company representatives. The respondent explained that because his organisation knows the mining regulations, they can help their members to deal with challenges facing them. The respondent furthermore argued that it would be advantageous for all involved if the Chinese companies wanted to join their chamber of commerce, but that there had been severe difficulties in reaching out to the Chinese companies. There is thus an interest on all sides to get organised to respond to challenges facing all companies operating in the DRC, and there should therefore be considerable scope for contact building and joint efforts between Congolese, Chinese and Western companies.

The Chinese company representatives interviewed are thus struggling to operate in the DRC economy. They are all very aware of the massive attention devoted by Western media and policymakers to the Chinese presence in Africa, and in the light of the challenges with operating in the DRC, many of the respondents expressed resentment over accusations that their ventures are the major sources of non-transparency and corruption in Africa. In their view, Western prejudiced perceptions of Chinese activities in Africa have little to do with their own reality in the DRC.

A manager of a small processing company described the journalists and researchers that write these things as “fairytale researchers”.209 In terms of Congolese civil society’s perceptions of Chinese activities in the country, two concerns were largely raised in interviews with the research team; treatment of workers in Katanga province and lack of civil society consultation in the engagement between the Chinese and Congolese governments.

First, civil society actors consulted by the research team argued that processing plants and mines run by Chinese and Indian firms in Katanga province do not sufficiently remunerate their workers.210 Observations in this regard made by the research team pertain to the size factor discussed above: larger Chinese-run operations seem to have greater capacity in terms of remunerating workers and providing a safe working environment than smaller ones. However, the research team’s observations regarding this issue are only tentative and the matter requires further structured research.

Furthermore, reports have suggested that non-listed companies – processing plants and mining entities run by Chinese economic actors among others – buy, smelter and sell cobalt and copper ore extracted by local Congolese artisanal miners among which child workers can be found.211 Again, this is a serious issue which needs to be subject to further structured research. Second, civil society actors consulted by the research team argued that formal Sino-Congolese relations are highly centralised around the Presidency and that very little consultation with civil society actors have been made to date, which the respondents deplored. This particularly relates to the Sicomines barter deal, as outlined in section 4.4.1.

4.6 Chinese companies’ perceptions of CSR, transparency and EITI

The implementation of EITI in the DRC has been at a standstill for an extended period of time as a result of various administrative challenges.212 As a result, the implementation of the initiative, including the necessary dissemination campaigns directed towards companies operating in the country’s extractive industries, has not yet been conducted. Consequently, none of the Chinese respondents had heard of EITI and its guiding principles. When the research team explained the principles of EITI to the respondents, all of them suggested that they would be very interested in taking part in the implementation of such an initiative. They were, however, highly sceptical of its implementation under current local operational conditions with the low standards of governance in the mining sector.

A claim made by all respondents was that there are no short-term remedies for the corruption and the lack of overall transparency in the DRC. In the previous section, it was argued that there seem to be little differences per se between Chinese and other companies active in the DRC. The differences instead lie in factors such as size, long-term vision and cultural factors. This was confirmed by a high ranking official in the Katanga provincial government, who stated that most foreign companies – Western, Chinese or other – are disinterested in following up on their responsibilities in terms of CSR. According to the respondent, one larger Chinese company is among a handful of companies that are active in CSR programmes.213 This was confirmed in an interview with a manager of the Chinese company in question.214

Regarding attitudes to and perceptions of CSR and issues of transparency, the size factor is, as mentioned above, of clear relevance. Medium and large Chinese companies with a long-term strategy for their presence in the DRC are according to the observations in this study more likely to be open to CSR issues including worker’s rights, transparency and the implementation of environmental regulations simply because they know that these things are necessary in order to run a sustainable business. Small actors that seek to make a quick profit without committing to long-term investments might seek shortcuts to avoid local regulations.

Most of the micro- and small sized companies that the research team met with did not intend to stay long and establish sustainable operations. The tendency in these cases seemed to be to try to set things up as quickly as possible and at the lowest possible cost. In this process, small-scale actors might tend to pay bribes for two reasons. First to avoid cost (by avoiding expensive implementation of regulation) and second because they are targeted by local corrupt officials. However, the research team observed that this seems to be the case also for non-Chinese foreign micro- and small sized operations. One operator of a foreign, non- Chinese micro sized diamond venture in the country explained that the best, and only, way to operate in the remote area where they were exploring for diamonds, was to keep US$100 bills available to keep local officials ‘off their case’. According to this respondent, 25 percent of the value of the minerals extracted goes to the operators. Much of the rest is siphoned off in informal “tax” to various local officials.215

Another tentative observation from this field research is that the better educated the leaders of a firm are (regardless of the firm’s size), the brighter the prospects of that firm’s commitment to CSR and transparency. However, the sample for this study was too small for any conclusions to be drawn. The research team’s overall conclusion, taking into account the respondents’ views on the matter and the other observations made during the in-country research, is that voluntary initiatives such as EITI are ambitious in their scope given the operational reality of foreign companies operating in the DRC.

The findings indicate clearly that, while seeking to promote transparency in the country, engaging foreign companies is merely one of several necessary steps for EITI. It may be difficult to motivate foreign companies to implement a transparency initiative from a moral perspective if the country they are operating in is corrupt. Factors such as domestic social and economic development will certainly play an integral role in promoting sustainable transparency in the DRC, and further investigation in this regard is needed to fully explore these complexities.

5. Analysis

5.1 Chinese companies per se no challenge to transparency in Gabon and
       DRC

All of the Chinese company representatives consulted for this study in both Gabon and the DRC expressed great interest in the notion of an overarching transparency initiative. This finding should be a crucial starting point when engaging with Chinese stakeholders in the DRC and Gabon with a view to implementing any initiatives promoting transparency. In Gabon, where EITI has been implemented in the oil and mining sectors since 2005, the respondents expressed support, but stated that they do not know very much about it since the initiative is still relatively new. None of the respondents knew about EITI in the DRC where it is yet to be implemented. The Chinese respondents suggested that they would truly welcome and appreciate a transparency initiative as poor governance is the single biggest challenge to their operations in the DRC. However, most respondents expressed scepticism regarding the prospects for success of a transparency initiative in a low governance environment such as the DRC.

On that note, it has not escaped the Chinese stakeholders’ notice that Western policymakers generally perceive the Chinese presence in Africa as a challenge to transparency, a notion that is reinforced by negative reporting from the Western press. The overall opinion amongst the Chinese actors is that a great deal of what is written in the English and French language press is poorly informed and as a result, there is a strong feeling of alienation among Chinese stakeholders. In some cases this has also coloured Chinese stakeholders’ perceptions of CSR initiatives like EITI in Africa – as mentioned, one of the respondents explained that such initiatives come across as spotlighting Chinese companies only.216

The issue of transparency is, however, extremely complicated, and it would be overly simplistic to argue that Chinese entrepreneurs could possibly have a decisive impact. In the case of the DRC, Curtis argues that that “Congolese patterns of political authority and networks are notoriously resilient, and there are no signs that Chinese involvement is going to have a transformative impact on the nature of the Congolese state.”217

As previously mentioned, some Chinese investors believe they are at a disadvantage operating in both Gabon and the DRC in comparison to established Western investors who have been operating in Africa for far longer periods. Chinese companies have only started to enter the extractive sectors in Gabon and the DRC over the past decade and many have been present less than five years. African and Western stakeholders have a long history of association and have language and other cultural frames of reference in common that reduce opportunities for misunderstanding, facilitate cooperation and promote smooth relations. Most of the respondents suggested that differences in culture and business operating procedures between Chinese and other actors in both Gabon and the DRC give rise to considerable distance.

Moreover, Western actors and those from other countries such as India have a clear language advantage – both French and English are common languages for which interpreters are readily available. The Chinese respondents described themselves as disadvantaged as a result of cultural differences and barriers.

Chinese companies in Gabon did not have problems with corrupt officials to the same extent as the respondents in the DRC, but they did acknowledge that they are still newcomers and must compete hard to establish a position in the economy. In Gabon, most Chinese company representatives interviewed argued that Western companies are the ones that have the best oil and mineral concessions available. The common impression that China is moving in to take over Africa’s resources is thus, according to the findings of this study, often exaggerated and largely incorrect.

It is therefore imperative that an EITI strategy seeking to engage Chinese stakeholders in Gabon and the DRC creates a sense among the Chinese stakeholders that they are not being ‘singled out’ as such an approach is likely to lessen their interest considerably.

5.2 ‘China Inc’ in Gabon and the DRC?

The often touted notion of a China Inc – that there is a coherent “going global” strategy for all Chinese actors venturing abroad in the global economy – is not supported by the case studies in this research. Instead, the findings suggest that Chinese engagement with Gabon and the DRC is fragmented and uncoordinated in a policy sense. As such it would be very difficult to implement a uniform strategy designed to reach all Chinese stakeholders in support of transparency. It is important to consider the factors determining behaviour and attitude while considering how to encourage transparency among Chinese stakeholders active in African countries.

Three main observations underpin this position:

First, only a small minority of the Chinese company representatives interviewed in both Gabon and the DRC stated that they receive Chinese government support in some form. Instead, the vast majority of Chinese companies interviewed stated that they had chosen to invest in Africa on their own initiative and have no relationship with the Chinese government. In the DRC, all but one of the Chinese respondents active in the south eastern Katanga Province said that they receive no support at all from the Chinese government representatives.

This was confirmed by the Embassy where a senior representative explained that they would like to establish a consulate in Katanga, to be able to have more contact with and assist the Chinese companies operating there, if Beijing decided to do so.218 It is important to note that as a result of the low levels of interaction between the PRC Embassy in Kinshasa and the Chinese entrepreneurs in Katanga, efforts by EITI to engage with the PRC government in Beijing or its representatives in the DRC is not guaranteed to ‘filter down’ to influence the behaviour of Chinese firms operating in the African country.

Second, the unique characteristics of each African economy appear to have a decisive impact on the nature of its engagement with China. Gabon on the one hand is a small and politically relatively stable country endowed with commodities that require large scale investments for extraction. Accordingly, the Chinese investments in the country are mostly large private or stateowned companies with long-term strategies, good relations with Gabonese authorities and a mostly positive impression of the operating environment.

The DRC by contrast is a large, generally ungoverned country where natural resources are mined both by small scale local artisanal miners and large scale mechanized operations. Consequently, the Chinese investments in the country range from micro-, small- and medium sized companies trading and/or processing raw ore on the ground, struggling to survive in a challenging operating environment, to the recently announced EXIM Bank financed concessional finance project, through which large copper and cobalt concessions have been awarded to a Sino-Congolese joint venture.

Third, the size and degree of establishment in the country were identified as important factors which may determine operational behaviour of companies to a greater extent than the company’s country of origin; whether Chinese, Western or otherwise. The research team found a clear correlation between the size of the firms and the quality of the operations in the areas of transparency, labour treatment, environment protection and long-term planning for cooperation with local government – the larger the size of the firms (both private and public), the higher the operational standards in these areas. The larger Chinese companies have often established extensive personal and cultural connections locally, contacts that clearly enabled them to better operate in the local environment.

Medium sized companies that had not committed to long-term investment and were not very well connected locally were struggling to a greater extent, suggesting that they might be more inclined to pay bribes to avoid harassment from local petty officials and/or circumvent local regulations. This observation is supported by Francisco and Pontara, who in their study of Mauretania note that “[e]conometric evidence on the propensity and intensity of bribes suggests that medium-size firms suffer the most from corruption […]. Larger firms are more established and connected, do not fear exiting the market, and are less likely to be harassed.

Smaller firms are less visible and may be able to escape the control of public officials by operating largely in the informal sector. Medium-sized firms are the most likely to pay bribes and to pay the highest amounts as a percentage of their total annual sales, which places a heavy burden on their ability to grow.”219

5.3 Concluding remarks

The field research conducted for this report clearly highlights two defining characteristics of Chinese companies engaged in Gabon and the DRC.

Firstly, Chinese companies are generally very receptive to improvements in transparency concerning revenues and financial transactions related to the extractive sector and expressed strong positive sentiments toward EITI.

Secondly, there is wide diversity among the Chinese companies engaged in extractive industries in Gabon and the DRC. In addition to the more prominent state-owned and private large scale enterprises there are also many small market vulnerable ventures.

It is imperative to take these two key themes into account in creating a successful and mutually beneficial strategy to create awareness of and promote EITI among Chinese stakeholders in Gabon and the DRC.

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