Wednesday, December 2, 2009

Sad Flip Side To China-Congo Deal

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

No comments: