CBS Overlooks How Congolese Criminals Fund FDLR

January 30, 2010

The 60 Minutes report on how illicit gold mines support the FDLR was worthwhile and timely, but it barely grazed the surface of the issue. For another, more in-depth view of the way mineral exploitation is destroying the Congo, read the recent special report to the UN Security Council on MONUC’s support of anti-FDLR military operations in North and South Kivu. The report bears close analysis on many issues. Most of the media coverage of the report excoriates (justly) that operation for its abject failure to defeat the FDLR (widely identified as remnants of the Rwandan Hutu genocidaires) while destroying the civilian communities it is supposed to protect.

What I found fascinating and even more damning, however, were the reported details of the convoluted relationships between the many groups profiting from the conflict. It should be noted that, while elements in Rwanda, Uganda, Burundi, Kenya, Tanzania, and other nearby countries are reaping the rewards of the continuing conflict, none of those profits would be possible without the substantial participation of Congolese elements in the illicit sale of minerals, arms, and even agricultural products.

I hope to comment on the report in several posts (and will post a link to the full report when I find one online), but let me begin with one section that demonstrates how pervasive the criminality really is. The authors of the report and MONUC both report that FDLR and various Mai Mai units have formed an alliance to exploit significant gold reserves in Lubero and Walikale territories. The operation is led by General Kakule Sikula Lafontaine, military commander of the Mai Mai alliance known as PARECO. The report says:

“…trading sources as well as a former Mai Mai leader interviewed by the Group reported that Gen. Lafontaine, who has several kinship ties to the Nande traders in Butembo, acts as an intermediary between the FDLR and many traders in Butembo, organizing the delivery of general goods to the FDLR in exchange for brokering gold deals.”

The traders in question are Congolese also:

“The gold from Kasugho and Oninga is principally sold to Kahindo Muhiwa, Katina Kambale Mbayahi and Kambale Vikalwe, three Nande gold traders based in Butembo who the Group cited in its December 2008 report”

Their company is known as Glory Minerals, which was formed in 2008 and received approval from the Centre d’Expertise d’Evaluation et de Certification (CEEC) in Kinshasa to operate as an official gold exporting company. The investigators confirmed, however, that

“…Glory Minerals continues to source gold from FDLR-controlled areas.”

The three Congolese businessmen are reported to travel regularly to Kampala and Dubai to sell the gold they’ve purchased from the FDLR. They deal largely with Indian businessmen based in Kampala who in turn sell the gold to the United Arab Emirates. The gold itself is smuggled to Kampala by road or by commercial flight to Entebbe and finally to Dubai.

This is but one example of the sad state of affairs outlined in the report, dated November 9, 2009, and known officially as the Final Report of the Group of Experts on the Democratic Republic of the Congo. It reveals many unfortunate facts, not the least of which is that crime knows no nationality. Until the government of the DRC enforces its own laws and moves against the indigenous criminals on its own soil, all the blockades, embargoes, and conflict mineral resolutions in the world aren’t going to end the rape of the nation.

Dave Donelson, author of Heart of Diamonds a about in the

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New Report From Congo

January 30, 2010

My associate Joseph Mbangu recently returned from a fascinating, productive trip to his native Congo. His observations are not only cogent but make good reading as well. Check them out at his new blog, The Congo Solution.

Dave Donelson, author of Heart of Diamonds a about in the


Provacative Reading On African Democracy

January 25, 2010

I just finished one of the most thought-provoking books I’ve ever read. It’s Wars, Guns, and Votes: Democracy in Dangerous Places

Paul Collier, professor of economics at Oxford and Director for the Center for the Study of African Economies, contends that our obsession with democracy as the be-all and end-all of governance for every nation in the world is a big mistake. He points out that voting is good but far from a panacea for developing countries who lack the social structure, legal systems, stability, and economic prospects to make the results of their elections work. Collier’s contentions aren’t based on guesswork, either, but rather on statistical studies that examine not our beliefs about developing countries but the reality of them.

I was particularly intrigued by his comments about the Democratic Republic of Congo, which provides numerous examples of the situations he explores. Here’s one passage that neatly sums up the current status of the legitimate Congolese mining industry:

“Is democracy the key to peace in these societies?….The recent record is not entirely encouraging….

“Take the transitional government of the Democratic Republic of Congo. Knowing that they had only three years in power before facing elections and the possible loss of office, ministers set about plundering the public purse. But the public purse was pretty small because tax revenue had withered away: as you will see, low taxation is part of the strategy of misgovernance. But plunder can extend beyond tax revenue. One strategy would be to borrow: saddle future citizens with liabilities and run off with the proceeds. Unfortunately for the new leaders of the DRC, this strategy was not feasible: President Mobutu had already used it to the hilt so that the country was beyond its neck in debt. No bank was going to lend.

“But there was an alternative. The Congo is mineral-rich. Much of these resources are unexploited because under President Mobutu it would have been folly for a company to incur investment necessary to sink a mine. The president was stuck in what economists call the time-consistency problem: because he could not bind himself from confiscating investments, no sane company would make them. But by the time of the transitional government the global boom in commodity prices had changed the calculus of risk: it was worth paying a little something for the exploitation rights that the transitional government could legally confer. And so the ministers of the transitional government of the DRC mortgaged the future of its citizens as surely as if they had issued debt, by selling off national assets at bargain prices. A few months ago I had lunch with one of the shrewd purchasers of these rights: a good lunch it was too. He became a little upset when I told him that the rights ought to be renegotiated.”

While I found most of Collier’s observations highly believable, I can’t say the same for his proposed solutions, which I found mostly impractical or even totally impossible except in theory. Still, the solutions he proposes are like the rest of the work–very tasty food for thought.

Dave Donelson, author of Heart of Diamonds a about in the


Sad Flip Side To China-Congo Deal

January 15, 2010

I’ve taken a very cautious attitude toward the $6 billion deal between China and the Democratic Republic of Congo. My hesitation to endorse it has been based on the economics of the deal, which calls for Chinese companies to build infrastructure in the DRC in return for large copper concessions. This isn’t a gift–the DRC is paying for those projects by not collecting royalties for the copper the Chinese will be mining. The projects will also be completed by Chinese companies, so the profits from the road building, etc., will go not to Congolese companies for further circulation through the DRC economy, either. Those objections aside, however, there is a positive flip side to the structure of the deal.

It actually lies in the way the DRC is paying for the infrastructure projects. Under a normal mining concession, the company, Chinese or otherwise, would pay royalties and fees into the national treasury based on the amount of material the mines produce. They would also pay taxes (albeit usually very small amounts) based on their profits. This cash is a significant source of revenue for the government. It is also a significant temptation.

There is no guarantee that the funds would be used by the DRC government to build roads, hospitals, or schools. There are no assurances that the funds used for military payrolls don’t end up in the off-shore bank accounts of corrupt officers. It is almost as likely that the money will go for buying votes in the next election or vacations on the French Riviera for bureaucrats as for training nurses or maintaining roads so farmers can get their goods to market.

In other words, by keeping the Congolese people’s share of the mining revenues out of the hands of the government, the deal accomplishes the quite worthwhile goal of rebuilding some of the infrastructure that was destroyed in the war and subsequent on-going conflict. That approach doesn’t say much for the ability of the Congolese to govern themselves, but it puts trains back on the tracks.

Dave Donelson, author of Heart of Diamonds a about in the


Nitty-Gritty Of Congo – China Reconstruction Deal

January 14, 2010

One of the more interesting chapters in Paul Collier’s thought-provoking work, Wars, Guns, and Votes, discusses the economic effects of armed conflict and the nitty-gritty of post-conflict reconstruction. He talks not about the horrors of rape and the disruption of societal services, but the more mundane but no less disastrous destruction of infrastructure and, perhaps even more importantly, the collapse of industries like construction, which he explains is one of the hardest hit.

Collier points out that while aid agencies rush about setting up conferences on reconciliation and lining up financing for big construction projects in the post-conflict period, they overlook the fact that the civil conflict has most likely decimated the skilled labor force. In a normal economy, the construction industry is a key provider of jobs for unskilled youths who learn from the older workers who have been on the job for a while. When armed conflict disrupts that educational process, the capabilities of the labor force atrophies, creating an impediment to development.

The shortage of skilled labor creates a bottleneck that pushes up construction prices, further undermining government and donor efforts to rebuild the country. Many countries turn to outside contractors like the Chinese to rebuild their infrastructure. As Collier says:

“…the Chinese face no bottlenecks because they routinely bring in absolutely everything, including the entire workforce. But resorting to the Chinese throws out the main short-term benefit from the recovery of the construction sector, which is to generate jobs for young men”

Without those jobs, the young men don’t learn the skills necessary to build their country over the long term. The lack of jobs also makes them more inclined to look for employment with rebel groups and armed gangs preying on the civilian population, thus further undermining the possibilities of peace during reconstruction. Collier continues:

“Post-conflict situations need squads of bricklayers, plumbers, welders, and so forth, who set about training young men. Unfortunately, it is too mundane for the development agencies to organize it. We need Bricklayers Without Borders.”

Such drawbacks aren’t necessarily inherent in development-for-minerals deals with the Chinese like the $6 billion deal the Democratic Republic of Congo is in the process of negotiating. If the deal follows the patterns of other Chinese projects in Africa, however, it is a likely side effect.

That is not to say that there are no advantages to the controversial DRC-China pact. I’ll discuss one of the biggest tomorrow.

Dave Donelson, author of Heart of Diamonds a about in the


Heart of Diamonds Promotes Congo Aid

January 11, 2010

Heart of DiamondsI happily started the new year with the release of the second edition of Heart of Diamonds. The revised edition corrects a few typos and slightly updates the text.

Most significantly, perhaps, the new edition recognizes four organizations whose work helps the people of the Congo. A couple of these organizations are large, the other two are small, but the work they all do contributes to the well-being of the citizens of the Democratic Republic of Congo.

HEAL Africa

Women For Women International

Georges Malaika Foundation

Doctors Without Borders

The new edition of Heart of Diamonds is available from the publisher or Amazon.com. You can also find (or order it) from your favorite local bookseller. If in doubt, use the ISBN 9781449919924.

Do you prefer e-Books? You can now put the new edition of Heart of Diamonds on your Kindle, Sony Reader, Stanza, Palm, or just about any other e-Book reader with just a couple of clicks.

Check your favorite online bookseller, or go to Smashwords.com for a comprehensive listing of available versions. For the Kindle edition, visit Amazon.com.

Dave Donelson, author of Heart of Diamonds a about in the


Banro Teams With Kinshasa To Rob Congo

January 10, 2010

They won’t begin opening the presents until Christmas 2011, but the shareholders of Canadian mining concern Banro received a whopping gift from the government of the Democratic Republic of Congo last year. It was final agreement allowing the company to develop gold mines worth some $13 billion in return for a token royalty of one percent of revenues. The agreement has to go down as one of the worst ever for the DRC, where the bankrupt government of a nation the size of Western Europe can’t provide even basic services to its 65 million citizens.

Banro has been granted a 25 year license (with rights to renew for another 25 years) to develop four gold mining concessions on 2600 square kilometers of land along the Twangiza-Namoya gold belt in the South Kivu and Maniema provinces of the DRC. They also have the right to explore on another 3,100 sq km. The company crows that the four properties hold over 11 million ounces of gold, worth over $13 billion at current prices.

The most advanced of the four is Twangiza, a 1,164 sq km concession which Banro has owned under one agreement or another since 1996. The company expects to begin shipping gold from there in the fourth quarter of 2011. The other three concessions, Kanituga, Lagushwa,and Namoya, have been essentially inactive for over a decade.

The agreement with Joseph Kabila’s government would be laughable if it weren’t such a crime. The company is to pay a one percent royalty on revenues, which, if amortized over the 25 year term at current spot gold prices, will amount to a much-less-than-whopping $5 million per year. That’s also assuming the company reports all revenue–a big assumption given the recent estimate by the DRC Senate that 80% of mineral exports from the eastern provinces of the country are never reported.

An additional four percent of net profits (after the company recoups its total investment) are to be funneled through Kinshasa for local development projects. The key term in the latter clause, of course, is “net profits” which will probably amount to zero if the company’s accountants are even minimally competent.

What about taxes? Banro will pay none for a good long time. The agreement gives the company a ten-year tax holiday.

The final kicker is that the parastatal mining company Gecamines has no stake in the operation. Banro owns 100% of the equity in the concessions, so if the company decides to flip the deal to another operator, the DRC gets nothing.

So what does the DRC get in return? The company estimates that it has created approximately 1,300 jobs in the DRC in the last three years. It has also funded several schools, hospitals, water projects, and other humanitarian efforts. It is unclear how much of that is funded by royalties or other payments that are required under previous agreements.

I find it astounding that Kinshasa essentially gave away this lucrative mining concession. Many of the other deals I’ve examined have not been good ones–Freeport’s Tenke project and the recent China copper-for-infrastructure deal come to mind–but the Banro concession is far beyond the pale. The company made a great deal for its shareholders at the expense of the people of the Congo. There are two parties to the contract, however, and the other one is the government of the DRC that agreed to it.

Dave Donelson, author of Heart of Diamonds a about in the