This is one of a series of country briefings produced by NRGI to summarize the evolving situation with respect to the pandemic and its economic impacts. The analysis it contains is subject to change with circumstances, and may be updated in due course.
In October, the government confirmed that the 2020 budget had been revised downward from $11 billion to $5.7 billion. The original budget had been considered unrealistic even before the onset of the coronavirus pandemic. The 2021 budget was set at $6.8 billion, with pressure from the IMF for a credible budget cited as a factor in government decision-making.
The pandemic appears to have affected DRC’s mining sector less severely than originally anticipated. Copper production defied pandemic-related forecasts of a drop in production, with demand boosted by China’s economic recovery. According to the DRC central bank, mining companies produced 1,041,445 tons of copper and 51,235 tons of cobalt between January and August 2020, both higher volumes than recorded for the same period in 2019. Copper production was up by over 13 percent. Other sources indicate a different production picture however, with S&P Global Market Intelligence forecasting that DRC’s total 2020 production of copper and cobalt will fall 12 percent and 11 percent, respectively, from 2019 levels.
In August, Ivanhoe confirmed that development of its Kakula Copper Mine continued to exceed expectations, with initial production on track for the third quarter of 2021. Other miners also reported positive news. In October, China Molybdenum, which operates the Tenke Fungurume mine, reported a 21.2 percent increase in cobalt production in quarter three of 2020, compared to the previous quarter’s figures, meaning the company is back on course to hit its full-year production target. Copper production at Tenke Fungurume also rose with third quarter output reported to be up 19.6 percent compared to the same period in 2019.
In the gold sector, the Kibali mine exceeded 2019 production (750,000 ounces) with record production of 814,027 ounces of gold.
Impact on extractive sector revenues
The DRC is highly dependent on mining for foreign currency. The mining sector is responsible for approximately 30 percent of GDP and, according to IMF data, has accounted for more than 90 percent of total exports over the last five years.
The DRC‘s original 2020 budget assumed $2.4 billion in revenue from the extractive sector, of which $2.15 billion was expected to come from the mining sector and $262 million from oil producers. However, extractive revenues will be lower. (For comparison 2018 government revenues from the sector were $1.5 billion.) In June, the minister of mines forecast a 20 percent decrease in mining revenues in 2020, due to the pandemic and delays in certain projects. As noted above, while the pandemic has seemed not to have significantly affected production of key minerals, pandemic-linked price drops for several key minerals in the early part of 2020 could reduce revenue. Restrictions that limited exports, particularly the closure of Durban port in South Africa, may also have an adverse effect. In particular, during the first five months of 2020, international copper prices averaged around 13 percent lower than during the same period in 2019, while cobalt prices were around 8 to 9 percent lower (depending on the benchmark used). Since then, prices have recovered significantly– for the year to date, copper have soared to a seven-year high of $3.33 per pound, while cobalt prices are 6 percent lower. Gold prices are 27 percent higher.
In the short term, the pandemic could more directly affect customs duties, which are, according to an NRGI study in progress, the mining sector’s most important contribution to the state budget.
Impact on natural resource governance issues
The Extractive Industries Transparency Initiative (EITI) process in the DRC is facing structural and funding challenges. EITI is a global good governance standard for oil, gas and minerals, and in October 2019, the EITI International Board gave the DRC 18 months to carry out thirteen “corrective actions.” In July 2020, a new EITI coordinator was appointed by presidential decree and the EITI multi-stakeholder group (MSG) adopted a roadmap of priorities for 2020. However, despite these positive actions, the EITI process lacks the necessary funds to implement the 2020 roadmap.
To address the financial constraints, mining companies participating in the EITI process committed to provide 40 percent of the MSG’s budget. The remaining 60 percent should come from the government and donors. However, this has not happened. Donors are keen to support the EITI process in DRC and require a signal from the government that demonstrates commitment, notably the signing of a series of decrees including a beneficial ownership decree and the revised EITI decree. The beneficial ownership decree bill and the revised EITI decrees have been pending for more than one year.
Beyond EITI, the DRC continues to face a range of governance challenges in relation to the extractive sector. The current government’s refusal to abide by requirements to disclose all mining-related contracts has become an issue within DRC’s negotiations with the IMF for a new three-year program. The government has maintained that it is only responsible for publishing contracts entered into since it took power in 2019. This position runs contrary to a 2011 decree which made it mandatory for DRC to publish all exploration or exploitation contracts in the areas of mining, oil and forestry within 60 days of their signing. The 2011 provisions are reiterated in the 2015 hydrocarbon law and the 2018 mining code. Despite this, in September the Congolese government, during IMF negotiations, reiterated its decision to not publish all the missing extractive contracts. However, the question of contract transparency was once again front and center when, in October, the state-owned mining company Gécamines published a 2017 agreement which gave controversial businessman Dan Gertler the right to royalties from one of the world’s largest cobalt projects.