January 17, 2019
The Democratic Republic of Congo’s 30 December election has attracted a lot of attention from the international community as the nation looks set to have its first peaceful transition of power since gaining independence from Belgium in 1960.
The front-runners were Martin Fayulu, Emmanuel Ramazani and Felix Tshisekedi. Fayulu was seen as a favorite to win the presidential poll after emerging as the opposition’s pick to contest against Kabila’s Ramazani. More importantly, two of Kabila’s staunchest opponents, Jean-Pierre Bemba (former Vice President) and Moise Katumbi backed the outspoken Fayulu.
For many the 62-year old presented a perfect balance of Anglophone and Francophone Africa – educated in the USA having risen to Director General at US oil giant Exxon Mobil. The other face of the opposition was Felix Tshisekedi, son of Étienne Tshisekedi who in 1982 founded the country’s first opposition party.
To this day he is revered as the man who had the nerve to go toe to toe against President(s) Mobutu Sese Seko, Laurent Kabila, and Joseph Kabila. Lastly, there was Emmanuel Ramazani who was personally handpicked by Kabila to succeed him.
While both Felix Tshisekedi and Fayulu agreed to be part of an opposition coalition that initially agreed to front a single opposition candidate for the December poll, Tshisekedi backed out of the coalition agreement just two days after Fayulu was announced the opposition’s unity candidate. The result was that neither Tshisekedi nor Fayulu emerged the overall winner, and Fayulu has challenged the results.
But why should you care what happens in a country which to this day does not have a tarmac road connecting the Eastern City of Goma to the Western capital Kinshasha?
Congo’s Cobalt and your smartphone
The DRC accounts for two-thirds of global production of cobalt, which is a primary ingredient in rechargeable batteries, used in smartphones.
It is safe to assume that your smartphone is running a battery with cobalt from the mines in the “copper belt” of the South Eastern provinces of the DRC. With the exponential demand for the resource, cobalt prices have gone up over 200% in the past two years.
The fast emerging electric vehicle space has also driven up demand as car makers race to develop an affordable battery that recharges in the shortest time possible.
Following the disputed poll many political commentators have dispelled ideas of hasty policy reform in the DRC, specifically in its mining sector. “It is anticipated that Tshisekedi will not change the mining code as DRC’s mining sector has largely been shielded from political turmoil so changes to current cobalt output in the country are not anticipated,” says Ryan Cummings, director of Africa Management Consultancy at Signal Risk. “This could however change based on the prevailing contestation of the election result.”
Cobalt demand surge in the past three years. Image: Glencore Plc.
If more than 60% of the world’s supply of cobalt is mined in the Congo, then civil unrest of any kind would affect global tech stocks ranging from Apple, Huawei and Samsung. However Apple is reported to have secured a cobalt sourcing agreement with local miners in the DRC late last year.
Back in the Congo, the Kabila government last year surprised many when they determined that cobalt was a “strategic” substance meaning the mineral will attract nearly three times the royalty than before. (The rate is now at 10%).
The question is, will a new government review this steep royalty? “Given that president-elect Felix Tshisekedi will face a legislature which as per most recent election results will be dominated by the ruling Common Front for Congo, any attempts at amending legislation which was passed by the Common Front for Congo prior to the vote will be difficult to pass through Parliament,” reasons Cummings.
“Moreover, if it is indeed claimed that Tshisekedi’s victory in the election was due to the brokering of an agreement between the Union for Democracy and Social Progress and FCC, it is more than likely that Tshisekedi will maintain the socio-political and economic framework employed by Kabila during his tenure.”
The latest 10% royalty rate will also apply to coltan, which is used to power electronic devices, and more importantly, germanium, which is a vital ingredient in transistor manufacturing. Following the announcement of the strategic tax, Glencore was quick to air its displeasure and threatened to contest it through international arbitration.
Some believe that a Fayulu presidency (a former ExxonMobil executive) would offer mining companies a laxer mining code.
“Glencore and Randgold Resources have criticised the revised code but they are the biggest winners here if Fayulu manages to get the top seat. A particular source of anger is the cancellation of a 10-year stability clause, present in the superseded 2002 law, which would have protected miners against fiscal modifications until 2028,” says Jean Pierre Chande, a commodity trader with Cobalt Congo. “A new president like Fayulu who has worked for a global oil company might be softer on the mining companies.”
Meanwhile, Glencore would be the most affected if the cobalt royalty rates are not amended as its Mutanda unit remains the world’s largest cobalt miner, mining north of 23 000 tons per annum.
picture courtesy of Al Jazeera