While natural resources have the potential to bring development to the poorest countries in the world, realizing that potential is often a challenge. Opaque allocation of rights to extract oil, gas or minerals; secrecy around who really owns the companies doing the extraction; and non-disclosure of contracts often conspire to prevent average citizens from benefiting from their country’s resources.
In the Democratic Republic of Congo (DRC), the combination of these elements and others has led to poor management of the mining sector, especially during the late 1990s and early 2000s. In order to finance the second Congo war, President Laurent Kabila used his country’s most valuable assets—including copper, cobalt, coltan and diamonds—as collateral to secure loans and weapons.
One particularly illustrative case involved the Zimbabwean businessman Billy Rautenbach, with whom the Congolese government, in total opacity, formed a joint venture for the exploitation of important mining concessions—with estimated mineral reserves of USD 1 billion. Kabila also made Rautenbach president of the DRC’s state-owned mining company, Gécamines. This appointment constituted a flagrant conflict of interest—Rautenbach acted both as head of Gécamines and managing director of the joint venture.
In 2000, the Congolese government revoked Rautenbach’s licenses because of alleged payment defaults and transferred them to John Bredenkamp, an alleged Zimbabwean arms dealer. Many asset consolidations and license transfers were subsequently made in the late 2000s, resulting in the involvement of Israeli billionaire Dan Gertler. In addition to opaque licensing processes, Gertler was involved in systematic undervaluation of state-owned mining assets and sales to offshore companies that led to a loss of $1.36 billion for the DRC, an amount equal to almost twice the DRC’s combined annual budget for health and education in 2012.
This same period saw the rise of several joint ventures and privately owned mining companies now active in the DRC—namely Boss Mining, Katanga Mining and Mutanda Mining. These companies contribute to the government about 40 percent of its mining revenues, according to the 2013 Extractive Industries Transparency Initiative (EITI) report.
While complex ownership structures do not necessarily mean wrongdoing, the fact that arms dealers were involved in critical mining contracts without any public disclosure about the type of deal that was made or potential fiscal returns for the country definitely raises concern—especially in the DRC, where 60 percent of the population lives below the poverty line.
The good news is that the country is strategizing a fight against these kind of practices. As part of an EITI pilot project, the DRC is, for instance, one of the rare countries to disclose some identities of beneficial owners—that is, the individuals who ultimately control or profit from a company. The DRC’s Extractive Industries Transparency Initiative (EITI) multi-stakeholder group (MSG) could still improve the quality of the information—by lowering the threshold of ownership at which beneficial owners must be declared and adding details to the names disclosed, for example. But the MSG in the DRC should be commended for its efforts thus far. The DRC is also one of the better performers among the dozen countries in the EITI beneficial ownership pilot project.
Extractive companies play a crucial role in turning a country’s natural resources into revenues that can serve development. However, if authorities award licenses based on political connections rather than competency, it is unlikely that the country will partner with the most qualified companies or obtain the best deals. Likewise, country benefits depend on effective tax collection, which extractive companies can evade by using complex ownership structures. The African Union and UNECA estimate that Africa loses more than $50 billion every year from fraud and tax avoidance. Publishing information about the individuals who ultimately profit from a company can help deter the syphoning of public money, conflicts of interest and tax evasion.
Disclosure of beneficial owners and transparent rights allocation mechanisms do no good unless vigilant members of civil society monitor and scrutinize the disclosed names. To that end, at a workshop organized in December by NRGI in Kinshasa, national and local NGO leaders identified their EITI-related priorities, including better information around beneficial ownership, and developed an action plan for the next three years.
As always with EITI, the aim is to connect disclosure to impact. One hope is that civil society’s work in highlighting the importance of these issues in the EITI context will strengthen advocacy at the country level. This will strengthen civil society’s role in the ongoing legal reform process around the mining code, a requirement for beneficial ownership disclosure, and an effective restriction on ownership of mining assets by politically exposed persons.
Marie Lintzer is a governance officer with the Natural Resource Governance Institute.