US-China Struggle For DR Congo Resources Intensifies

Authored by Conor Gallagher via NakedCapitalism.com,

As the US intensifies its efforts to cut China off from advanced semiconductors, it is also making a run at the world’s most important source of minerals used in tech: the Democratic Republic of Congo (DRC).

The DRC is sometimes called the “the Saudi Arabia of the electric vehicle age” because it produces roughly 70 percent of the world’s cobalt, which is a key component in the production of lithium-ion batteries that power phones, computers, and electric vehicles. Electric vehicle sales are predicted to grow from 6.5 million in 2021 to 66 million in 2040.

The DRC is also Africa’s largest copper producer with some of the mines estimated to contain grades above 3 percent, significantly higher than the global average of 0.6 – 0.8 percent. It also has 70 percent of the world’s coltan, which is also critical to cell phone and computer manufacturing. All in all, it is estimated that the DRC has $24 trillion worth of untapped mineral resources.

On Dec.13, the US signed deals with the DRC and Zambia (the world’s sixth-largest copper producer and second-largest cobalt producer in Africa) that will see the US support the two countries in developing an electric vehicle value chain. US Secretary of State Antony Blinken said the US Export-Import Bank and the International Development Finance Corporation will explore financing and support mechanisms, and the US Agency for International Development, commerce department and Trade and Development Agency will provide technical assistance.

Aside from a Jeff Bezos and Bill Gates-backed copper-cobalt mine in northern Zambia, details are sparse, but it does mark a major turning point for the DRC.

For more than a decade, Chinese companies have spent billions of dollars buying out U.S. and European miners in the DRC’s Cobalt belt, leading to control of 15 of 19 of the primary cobalt mines in the country.

China sources 60 percent of its cobalt needs from the DRC, and about 80 percent of the world’s cobalt processing occurs in China before being incorporated into lithium-ion batteries.The DRC-China relationship is on the rocks, however, and Chinese mining is starting to encounter an increasing amount of bumps in the road.

In July the DRC halted exports from the world’s second biggest cobalt mine amid an ongoing dispute between the Chinese mining company and the DRC state mining company. (China Molybdenum  bought the controlling stake in the project in 2016 from US company Freeport-McMoRan.)

With US encouragement, last year DRC President Felix Tshisekedi began accusing his predecessors of signing lopsided contracts with Chinese mining companies and is now attempting to renegotiate them. In a rare sign of DRC bipartisanship, opposition politician Adolphe Muzito who was prime minister at the time the deals were signed with China, has also come out in support of renegotiating the deals with Beijing.

China defends the deals, saying it has built several projects in the Central African nation despite obstacles, increased tax revenue, created more jobs, and provided investment in infrastructure projects such as roads, hospitals and hydropower stations.

But the spat over the Chinese deals comes at a time of increased Washington pressure on Beijing and when the cobalt supply chain is already under pressure due to increased demand from the battery sector and Covid-19 logistics issues.

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The Financial Times, citing a Goldman Sachs forecast, reported in November that the US and Europe could cut their dependence on China for electric vehicle batteries by 2030 through more than $160 billion of new capital spending. It appears the West is trying to recoup lost ground and erect roadblocks in China’s supply line from Africa.

The West has long criticized China for its loans to African nations, which it claims are designed to seize African assets offered as collateral. (African countries currently owe three times more debt to Western institutions compared to China.)

Deborah Bräutigam, the Director of the China Africa Research Initiative at the Paul H. Nitze School of Advanced International Studies, has written that this is “ a lie, and a powerful one.” She wrote, “our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country.”

Even researchers at Chatham House admit that’s not the case, explaining that the lending has instead created a debt trap for China. That is becoming more evident as nations are unable to repay, largely due to the economic fallout from the pandemic and the US proxy war against Russia in Ukraine.

While China’s initial instinct has been to try and tackle debt repayment issues at a bilateral level, typically by extending maturities rather than accepting write-downs on loans, it’s increasingly getting involved in multilateral talks that include US-backed institutions like the IMF. China (and the borrowing country) are often getting the short end of the stick.

Take the case of Zambia, which got a $1.3 billion loan from the IMF in September. From The Diplomat:

Zambia will shift its spending priorities from investment in public infrastructure – typically financed by Chinese stakeholders – to recurrent expenditures. Specifically, Zambia has announced it will totally cancel 12 planned projects, half of which were due to be financed by China EXIM Bank, alongside one by ICBC for a university and another by Jiangxi Corporation for a dual highway from the capital. The government has also canceled 20 undistributed loan balances – some of which were for the new projects but others for existing projects. While such cancellations are not unusual on Zambia’s part, Chinese partners account for the main bulk of these loans…

While some of these cancellations may have been initiated by Chinese lenders themselves, especially those in arrears, Zambia may not have needed to cancel so many projects. Since 2000, China has canceled more of Zambia’s bilateral debt than any sovereign creditor, standing at $259 million to date.

Nevertheless, the IMF team justified the shift because they – and presumably Zambia’s government – believe that spending on public infrastructure in Zambia has not returned sufficient economic growth or fiscal revenues. However, no evidence is presented for this in the IMF’s report.

The IMF deal also relegates China to the backseat, as it allows for 62 concessional loan projects to continue, only two of which will involve China. The vast majority of the projects will be administered by multilateral institutions and involve recurrent expenditure rather than infrastructure-focused projects.

In August, China announced the forgiveness of 23 interest-free loans for 17 African nations, while also pledging to deepen its collaboration with the continent. Despite that gesture and its efforts to extend maturities, the West continues to hammer home the message that Beijing is engaged in debt-trap diplomacy with the likes of US Treasury Secretary Janet Yellen claiming multiple times that Beijing has become the biggest obstacle to “progress” in Africa.

While Beijing offers imperfect infrastructure-for-minerals deals, the US, as Biden said at the recent US-Africa Leaders Summit, has cultural ties because of its significant population of African Americans.

“I might add that includes my former boss,” he said.

According to the South China Morning Post, the DRC is also under pressure from the IMF to “clean up lopsided mining agreements granted to foreign firms” (i.e., China) as a precondition for a new $1.5 billion credit line.

And so the deals will likely be reworked to the detriment of the DRC, similar to the IMF deal with Zambia. Back in 2009, former Congolese President Joseph Kabila explained to the New York Times why the DRC signed the deals with China despite US pressure:

I don’t understand the resistance we’ve encountered. What is the Chinese deal? We said we had five priorities: infrastructure; health; education; water and electricity; and housing. Now, how do we deal with these priorities? We need money, a lot of money. Not a 100 million U.S. dollars from the World Bank or 300 from the IMF. No, a lot of money, and especially that we’re still servicing a debt of close to 12 billion dollars, and it’s 50 to 60 million U.S. dollars per month, which is huge. You give me 50 million dollars each month for the social sector and we move forward. Anyway, that’s another chapter. But we said: so, we have these priorities, and we talked to everybody. Americans, do you have the money? No, not for now. The European Union, do you have three or four billion for these priorities? No, we have our own priorities. Then we said: why not talk to other people, the Chinese? So we said, do you have the money? And they said, well, we can discuss. So we discussed.

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Washington’s involvement in the DRC stretches back decades. The uranium used to build the atomic bombs that were dropped on Japan was sourced from Congo. The US helped plan the assassination of the first democratically elected DRC Prime Minister Patrice Lumumba for trying to control the DRC’s resources and use them to improve the living conditions of the country’s people. In recent years, Washington has played a role in the ongoing conflicts in eastern DRC, which involve hundreds of militant groups.

Due to US involvement in assassinating its leaders and fomenting insurgencies in the country, relations between the US and DRC have long been frosty. That changed when Tshiskedi took office in 2019. About that election and the US response, according to Foreign Policy:

Independent groups in Congo had detected widespread fraud in the vote, so U.S. officials agreed to condemn the process as rigged and vowed to hold those involved responsible.

But the statement that came out of the U.S. State Department on Jan. 23 caught some of the policymakers who worked on the region by surprise. Instead of condemning the election as “deeply flawed and troubling,” following the language of the original draft, the United States endorsed the results—with minor caveats—and offered praise for the election.

(At the recent US-Africa Leaders Summit Biden pledged to provide over $165 million to “support elections and good governance in Africa in 2023.”)

Tshiskedi’s first trip was to the US, and in 2020 both countries agreed to pursue military cooperation, including Congolese officers being trained in the US. Following Tshikedi’s election, the US began alleging that an ISIS-affiliated group was among the militia’s operating in the DRC (UN experts said they found no evidence of this), and US Special Forces began to deploy to the DRC with the stated goal of fighting the ISIS group.

Aside from the supposed ISIS affiliate, it is widely believed that many of these militant groups operating in eastern DRC receive support and training from the militaries of Uganda and Rwanda. And who supports and trains the militaries of Uganda and Rwanda? The US of A.

One of the biggest militias is M23, which emerged from and is supported by the Congolese army. A brief background from Black Agenda Report:

Back in 2008, the M23’s predecessor, the CNDP, was rampaging through [eastern DRC]. Then in 2009, on Obama’s Inauguration Day, it was announced that the CNDP would be integrated into the Congolese army. Assistant Secretary of State Susan Rice actually came out and applauded that the next day. And then in 2013, those same Rwandan troops that had been “integrated” into the Congolese army emerged as M23, claiming that they hadn’t gotten everything they had been promised in the agreement signed on March 23, 2009. Hence the name M23.

Nixon Katembo, a Congolese journalist and executive producer with the South African Broadcasting Corporation, explains how the US uses Rwandan military/militias as a proxy force:

Recall that the Rwandan and Ugandan militaries have both been built, trained, and funded by the United States. AFRICOM’s first commander, Kip Ward said they were making sure to train them to serve their mutual interests.

But their interests were not peace or development of the region but serving the multinational corporations of the United States and the Bretton Woods institutions and securing the natural resources of the DRC. DRC has the critical mineral resources needed by the industries of the US and Western Europe.

Congo holds 70% of the world’s coltan, which is critical to cell phone and computer manufacture. The same is true of cobalt, which is critical for the manufacture of aerospace and renewable technologies. DRC holds about 80% of the world’s cobalt reserves. That should tell you how critical it is to the US and the rest of the West to keep Congo in a state of disarray so that it can’t control and benefit from its own resources.

However, the US and European nations do not want to put boots on the ground in Africa, so they are using Rwanda as a proxy. And you will recall that tiny Rwanda has become not only the top gold producer but also the top coltan producer in the region, thanks to minerals looted in the DRC.

Rwanda is one of the world’s biggest coltan exporters, despite having few producing mines of its own. And the US is the top investor in Rwanda, representing 13.2 percent of the total investment commitments to the country.

One of the larger US investors, the mining company Bay View Group, is now in an arbitration case with Rwanda at the International Centre for Settlement of Investment Disputes. From The Globe and Mail:

Bay View, one of the biggest investors in Rwanda’s mining sector from 2006 to 2016, is now seeking US$95-million in damages from the Rwandan government, alleging the regime seized the company’s assets because it refused to participate in the “rampant illegal smuggling” of coltan and other Congolese minerals to Rwanda. One company concession was near the Congolese border, which would have made it “an ideal staging ground for smuggling minerals,” Bay View says.

“It is believed that upwards of 50 per cent of all minerals exported from Rwanda originate in the DRC and that upwards of 90 per cent of the coltan exported from Rwanda originates in the DRC,” the company told the arbitration centre in its claim…

The company also said Rwanda’s official mineral exports have increased dramatically since 2013, despite its low levels of mining production. “The only way this could be possible is if Rwanda is smuggling minerals from the DRC, tagging them as Rwandan and exporting them to the world as Rwandan.”

According to Nixon Katembo, this could stop if the US wanted it to stop:

I believe, in no uncertain terms, that if the US told Rwanda and Uganda to back off, the war in the eastern DRC would be over in a week.

However, the US and the West would then have to stop trying to destabilize DRC, so that the Congolese can rebuild state institutions and an effective army to defend its borders.

Such an outcome could be possible, as it looks like M23 may have reached its sell by date in Washington. In June, the DRC turned to Washington for help with M23.

Two days after the US signed its deals with Zambia and the DRC, Blinken called on Rwanda to pull back its troops from eastern DRC and encourage M23 rebels to do the same. The US had previously not publicly accepted Congolese allegations that Rwanda backs the M23 rebellion. European capitals have joined the sudden chorus denouncing M23 and calling on Rwanda to rein in the group.

With the DRC signing a ceasefire with Rwanda, Burundi and Angola, and Kenya, Tanzania, Uganda, Burundi and South Sudan sending forces to stabilize the Eastern DRC, Rwanda and its President Paul Kagame have little choice but to back down and withdraw military, logistical and political support for M23.

Despite (or perhaps because of) Rwanda’s useful militias, it continues to rake in massive amounts of military aid from Washington and Brussels. The West may want Rwanda to redirect more of its militias into northern Mozambique in order to protect Western energy interests there, including a massive natural gas concession held by TotalEnergies SE and ExxonMobil.

Rwanda also just became the first African country to get a loan ($319 million) from the IMF under its newly established Resilience and Sustainability Facility, which is supposedly meant to help poor countries, small states, and vulnerable middle-income countries address climate change and pandemic challenges. The loan will add to the country’s debt that was 73.3 percent of GDP in 2021.