TRANSPARENCY SNAPSHOT

Though management of public finances is improving in DRC's post-war climate, and some progress has been made on both the Extractive Industries Transparency Initiative (EITI), and improved transparency for mining contracts, the failure to open government revenues and spending to public scrutiny undermines the growth of a transparent and accountable mineral sector. Effective and equitable governance of natural resources is a prerequisite to sustaining peace and economic and social development.

Mining accounted for 16% of GDP in DRC in 2006. The main minerals are copper, cobalt, zinc, diamonds and columbo-tantalite (coltan). The DRC is a small oil producer. Output for 2006 reached 7.59 million barrels.

The Democratic Republic of Congo endured a devastating civil and international war from 1998 to 2003, which was itself fuelled by the competition over the nation's mineral resources. The 2006 election of Joseph Kabila has not consolidated the peace, particularly in the strife-ridden eastern part of the country. Though reliable information on the humanitarian situation is limited, the available statistics make it clear that most citizens do not benefit from DRC's mineral resources.

Although the DRC's formal mining sector declined during the war, output from informal mining increased. This includes mining activities without an official government concession—mainly small-scale mining—which are not systematically recorded. There are no credible production statistics for these activities, which are often illegal and can also deprive the state of valuable revenue.

The nation remains in the lowest decile of the World Bank's Governance Indicators. It ranked 168 out of 177 on the United Nations Development Programme Human Development Index in 2007. Per capita income is $144 USD. Life expectancy is about 46 years and 70% of the population has little or no access to health care, according to the World Bank.

The macroeconomic environment in DRC remains uncertain. In 2007, the International Monetary Fund stressed “the weaknesses of revenue mobilization [which] are particularly pronounced in the mining sector. Widespread corruption, lack of controls, and tax exemptions lead to large revenue losses. A sustained approach to managing joint venture contracts would improve government revenue from mining (less than ½ percent of GDP in 2005) and improve transparency.”

Revenue Transparency

DRC's transitional government endorsed the Extractive Industries Transparency Initiative (EITI) and established a multi-stakeholder committee in 2005 with a high degree of civil society representation.

After a difficult start between the EITI Consultative Committee and the new administration, the EITI process has regained momentum. The EITI has created a governance structure and commissioned two studies on copper in Katanga and diamonds in Kasai. The EITI work plan for 2008 emphasizes the decentralized nature of the EITI in DRC and proposes three new provincial EITI offices in Katanga, Kasai and Bas-Congo. The work plan focuses primarily on copper, diamonds and oil. Other objectives include strengthening local EITI capacity, developing a 'responsible partnership' between the State and the extractive industries, the preparation and publication of a non-audited report, and the preparation and publication of the audit itself. The National Committee and the EITI Secretariat are planning a conference in Kinshasa on 8-9 January, to launch EITI implementation, officially open the national EITI Secretariat and discuss the way forward with DRC stakeholders and experts from the region. DRC has been accepted as Candidates to the EITI. The decision was taken by the EITI International Board at its meeting in Accra in February, 2008.

The prospects for decentralization are uncertain and this presents a major risk for EITI implementation. The current debates hinge on sharing between the national and provincial levels and the methods of fiscal redistribution. Resource rich provinces are opposed to the existing system of 'retrocession' which centralizes revenues before sharing them. They would like to collect revenues at the source and send the residual to the national level. The central government is threatening to break the existing 11 provinces into 27. The politicization of the decentralization debate also impedes a useful assessment of the different options or their implications for governance of the extractive industries.

With limited institutional and human capacity at both the national and provincial levels, it is unclear how decentralization would foster more transparent and accountable management of natural resources. The modalities of natural resources revenue distribution tend to focus on sharing plan, without sufficient emphasis on each option's implications for economic policymaking and the political integrity of the country.

A Publish What You Pay Coalition was created in February 2006 by 30 organizations representing all DRC provinces. The coalition has played a central role in raising awareness around the mining code and advocating for the EITI. The strategic plan of the coalition for 2008-09 emphasizes capacity building for civil society and parliamentarians to ensure the implementation of the EITI work plan.

Expenditure Transparency

Government control and transparency over public expenditure management remains very weak. A review from the International Monetary Fund from September 2007 concluded that “improving governance in the management of public resources, especially in the mining sector, would help improve the investment climate and government resources devoted to the social sector and reducing poverty. In that context, perseverance in reforming the civil service, the budget process, and public financial management is critical”

DRC has experienced difficulty reasserting fiscal discipline. Although the new administration is increasing its control over public finances, the IMF has also warned that economic and political gains from 2001 to 2005 are being undermined by fiscal loosening and rising inflation. The rise in government revenues has been more than offset by higher than planned current spending and lower than planned capital spending, leaving an unsound platform increasing productive investment and enhancing economic growth. Revenues for amounted to 13.2% of GDP (excluding grants), covering only 60% of total spending.

Contract Transparency

The inter-ministerial Mining Contract 'Revisitation' Commission was established in Spring 2007 to review approximately 60-63 contracts between parastatals and private companies. Most private companies have cooperated with the commission and selected civil society groups have been invited to observe the process The commission is composed of about 30 members, drawn from the President's office, the Prime Minister's office, the ministries of Mines, Finance, Budget, Justice, Portfolio, and Industry, and other agencies such as the Mining Cadastre

The Commission's final report was submitted to the Minister of Mines in October 2007.  The report has not yet been made public, and there is no indication of when—or if—it will be. The newspaper Le Phare published what they claimed to be a leaked version in early November 2007. Though the government denied its authenticity, there is good reason to believe that the leaked report is genuine, and it is widely assumed that the leak was intended to thwart suspected government plans to withhold the report from the public. However the report remains only a guideline for the government as it pursues the contract renegotiation phase. The ultimate shape of the contracts will almost surely be determined through negotiations.

The secrecy around the final Report of the Commission and silence of the Government on its intentions are fuelling speculation and undermining a rigorous and transparent completion of the review process. This opacity illustrates the difficulty to establish freedom of information in DRC: over 160 violations to freedom of press have been reported in 2007 according to Journalistes en Danger (JED).

Chinese Contract

The opacity of natural resources management is also illustrated by the contract signed in September 2007 between the Ministry for Infrastructure and the China Railway Engineering Corporation (CREC), SINOHYDRO and the EXIM Bank of China. The deal was revealed by the Ligue Congolaise contre la Corruption (Licoco). The information published by Licoco indicates the establishment of a joint venture between Chinese and unnamed Congolese companies, controlling 68 and 32 percent of the new entity, respectively. This joint venture would be responsible for building and rehabilitating rail, road and other infrastructure. Financing would be guaranteed by mining concessions integrated into the joint venture.