China has no plans to change a $9 billion investment accord with the Democratic Republic of Congo, after the International Monetary Fund threatened to withhold debt relief unless it is altered.
“For the moment, it’s advancing very, very well, there is no problem,” Chinese ambassador Wu Zexian told reporters today in the capital, Kinshasa, when asked whether the accord would be changed.
The deal, signed last year, gives China’s state-owned Sinohydro Corp. and China Railway Engineering Corp. rights over deposits containing more than 10 million metric tons of copper and 600,000 tons of cobalt. In exchange, they will help President Joseph Kabila deliver on his 2006 election pledges by building roads, railways, hospitals, schools and universities worth $6 billion and investing a further $3 billion in the mining project.
IMF Managing Director Dominique Strauss-Kahn said last week Congo wouldn’t receive $10 billion in debt relief and a further $500 million in financial support until the agreement is changed. The accord adds to Congo’s national debt because the contract states that the country is the guarantor of the full amount if the deal fails, the Washington-based lender says.
The dispute marks the first time the IMF has been in a position to try and influence China’s investments in Africa, said Gregory Mthembu-Salter of the South African Institute of International Affairs. Similar deals have been done with Angola and Nigeria, both oil-producing nations that are less dependent on aid money, he said.
“I think it’s pretty significant internationally,” Mthembu-Salter said in a phone interview from Cape Town. “It’s a confrontation between the Western donors and China in Congo. The fall guy in this will be the Congolese who don’t get debt relief.”
Congo, a Central African nation the size of Western Europe, needs financial aid to help rebuild an economy destroyed by two civil wars between 1996 and 2003. The country has 4 percent of the world’s copper reserves and the largest cobalt deposits.
In 2008, the copper price dropped 55 percent, the most since 1987, as recessions in the U.S., Europe and Asia reduced demand for industrial metals. The price has risen 64 percent so far this year and was trading at $5,035 a metric ton by 2:40 p.m. on the London Metal Exchange today.
Mining accounts for 14 percent of Congo’s economic output, according to the African Development Bank’s Web site. Last year, 300,000 miners were put out of work after 40 companies closed their doors in the southeastern Katanga province.
Economic growth in Congo is expected to slow to 2.7 percent this year, from 6 percent in 2008, according to the IMF. The government also plans to reduce the annual budget from 2.9 trillion Congolese francs ($3.6 billion), Prime Minister Adolphe Muzito said on May 25, without saying by how much.
The country faces a $360 million interest payment this year on its outstanding debt, which stands at about $11 billion, according to the IMF.
Wu said the agreement creates no new debt for Congo because the Export-Import Bank of China, which is funding the deal, is taking the risk.
The IMF says “it’s a problem and I say it’s not a problem,” he said, adding that China may consider adapting the deal if the IMF provides a “good” reason to do so.
”I think what Mr. Strauss-Kahn said isn’t new,” Wu said “The discussion hasn’t changed.”
Congo holds a 32 percent stake in Sicomines, the state- owned mining venture that will own and mine the deposits, while China owns the rest. A geological study by the entity will determine the value of the assets the Chinese companies control. Those amounts will be known this year, Wu said, without being more precise.
Sinohydro and CREC have already invested hundreds of millions of dollars in Congo and have started upgrading infrastructure including three road-building projects and a Kinshasa hospital, Wu said. Chinese companies are also seeking alternative investment opportunities in Congo, Wu said.
Telecommunications-equipment supplier ZTE Corp. is developing a palm oil plantation, while Sinohydro is interested in building the Zongo 2 hydropower plant in the western Bas- Congo province, Wu said, without giving further details on the projects.
“Surely the story is going to turn on the Western donors,” Mthembu-Salter said. “When one party is building a hospital and the other is withholding debt relief to the poorest of the poor, that’s not going to look so good.”
Source: Bloomberg
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