Bank plans more infrastructure, mining and forestry projects in DRC
9 April 2008
The new Country Assistance Strategy for the Democratic Republic of Congo, which the Bank has kept secret, suggests a continued emphasis on the natural resource sectors as sources of growth going forward and predicts at least $1.4 billion in new lending over the next three years.
The Democratic Republic of Congo (DRC) has been in the news often of late: from the continuing conflict in the country’s northeast to regular press reports on the government’s review of major mining contracts and heightened attention to the fate of Congo’s rainforest, increasingly viewed as critical to the fight against climate change. But the World Bank has remained relatively silent about recent developments and its own plans for future engagement in the huge, pivotal central African country. After 2007, a year in which the Bank was on the hot seat largely due to concerns about its activities in DRC’s forest sector, the Bank seems to be steering clear of the public eye. The Bank has $1.8 billion in outstanding commitments in DRC, making it the third largest recipient of Bank funds in Africa (behind Ethiopia and Nigeria). It has kept documents about its planned future involvement in the DRC confidential and has not included DRC on the official agenda of the Bank’s upcoming Spring Meetings in Washington, DC.
In December of last year, the Bank’s Board approved a new “Country Assistance Strategy” (CAS) for DRC, laying out its priorities and planned activities over the period FY2008-2011. However, the strategy has not been made public. According to Bank policy, the CAS is supposed to be prepared in consultation with various stakeholders in the country concerned, and the final document is to be released once it has been discussed by the World Bank’s Board. Its publication is to be restricted only in exceptional cases of confidentiality or sensitivity identified by the Bank and/or government. It is extremely rare that a country objects to the disclosure of the CAS. In the case of the DRC CAS, the Bank reports that consultations were held with civil society to gather input for the strategy, but the draft document was not made available for comment nor has the final version been posted on the Bank’s website, more than three months after its approval by the Board. (See the World Bank’s webpage on the DRC CAS.)
A copy of the CAS, obtained by BIC, indicates that the Bank plans to continue its emphasis on the natural resource sectors as sources of growth going forward, and hopes to work with IFC and MIGA to increase infrastructure development and boost private investment. Although the strategy contains few surprises, a closer look at its contents reveals what to expect from the Bank in the coming years in DRC.
The World Bank Group’s (WBG) strategic focus in DRC: Under the new CAS, the DRC will transition from “emergency lending” (much of the Bank’s past financing to the DRC took the form of emergency loans and grants) to standard financing operations and arrangements, which generally have longer preparation periods and more stringent environmental, social and fiduciary standards than do projects approved on an emergency basis. Over the next 3-5 years, the World Bank plans to allocate some $1.4 billion ($1.382 billion during FY08-11) to the DRC, mostly in the form of grants.
17 donors adopted a joint framework for their development assistance to the DRC, called the Country Assistance Framework (CAF). The CAF is part of the recent attempt to increase “donor harmonization” as donors set new standards for “aid effectiveness.” The CAF lays out broad, shared donor objectives, under which the Bank’s CAS falls. The Bank plans to take the lead on three of the five core areas of activity outlined in the CAF: good governance, shared and sustainable growth, and improved social services. However, the Bank’s own CAS is still organized around five strategic “elements”: 1) good governance and consolidation of peace; 2) macroeconomic stability and growth; 3) improved social services and reduced vulnerability; 4) the combat against HIV/AIDS; 5) promotion of community dynamics.
While not all donors have confirmed their funding commitments under the CAF yet, the key donors in the DRC appear to be the World Bank Group, European Commission, the African Development Bank, China, and the U.K. The World Bank is working harder to coordinate its own activities with those of China, which has significantly expanded its engagement in the DRC over the past two years.
A large amount of the Bank’s proposed future funding will support reforms and investments in the extractive industries, the power sector and roads: “IDA [the Bank’s facility for low-income countries like DRC] will focus first on the physical rehabilitation of roads to major urban centers, and on export corridors from mining areas; and then on reforming the transport state-owned enterprises.”
Among the largest planned Bank projects in the coming years are grants for water sector rehabilitation ($150 million in FY09), transport sector reforms ($180 million in FY10), increased agricultural production ($120 million in FY09) and power sector expansion ($150 million FY11).
Employment generation and job growth are conspicuously absent from the list of indicators and results against which the Bank will assess the impacts of its activities. No accurate employment statistics are available for the DRC. In a country of over 60 million people, where more than half of the population lives on less than $1/day and the central and provincial governments lack the capacity, resources and infrastructure to effectively deliver services to all residents, it is surprising that job creation does not figure more prominently among the Bank’s chief development objectives in the country.
Private sector engagement: The World Bank Group’s private sector arms are expected to increase their engagement significantly in the DRC over the next several years. The majority of the projects under consideration by the Multilateral Investment Guarantee Agency (MIGA), the Bank’s provider of risk insurance, for example, are in the extractive industry sector – although the CAS acknowledges that “experience to date in this sector is mixed.”
The Bank’s private-sector lending and investment affiliate, the International Finance Corporation (IFC), plans to prioritize support for improvements to the business environment and investments in the energy, mining and telecommunications sectors.
Corruption: The Bank considers over 70% of the DRC portfolio “at risk”, and more than half of the projects in the World Bank’s DRC portfolio have 3 or more “risk flags,” according to the Bank’s internal risk-rating system. The Bank’s CAS underscored concerns about fiduciary problems in the DRC, citing irregularities uncovered in a May 2007 investigation report by the Department of Institutional Integrity. Further investigations are reportedly underway, including a portfolio review being done in early 2008.
Natural Resources: will donors and the DRC government deliver on stronger commitments to transparency?
The extractive industries (mining and forestry) currently represent 13% of DRC’s GDP. Among the aims of the Bank’s new strategy in the DRC is to increase the contribution these sectors make to economic growth and enhance transparency. The results framework which accompanies the Bank’s CAS suggests that donors plan to support government commitments to “publish all future mining and forestry contracts to which the Government or public enterprises are a party,” “publish key elements and analysis of existing contracts in the mining sector and revise relevant agreements in line with international standards,” and “develop and adopt adequate and transparent procedures for the award of new mining rights for both exploration and production.” Many welcome these commitments to support increased transparency in what has been one of the most opaque and corruption-fraught sectors in the DRC. Whether they will be fulfilled, however, remains to be seen.
In April of 2007, the government of the DRC announced that it would convene an inter-ministerial committee to review the legality and fairness of 64 major deals that had been signed in recent years with private mining companies. Although the work of the commission was supposed to be completed last fall, it suffered repeated delays, due in part to the complexity of the contract analysis, resistance from the mining industry, and controversy over the implications of canceling or demanding revision of contracts. The government finally issued the commission’s report in March of 2008, calling for the revision of nearly all the contracts reviewed. Negotiations with the companies are reportedly underway.
The government did not request the World Bank’s participation in the review process, but the Bank has been heavily engaged in the reform of the mining sector and restructuring of public mining enterprises in recent years. Early statements from Bank staff suggested that they were concerned that the review might deter investment in the sector, but it is unclear what their perspective is on the now-public outcomes of the process or what role they might play, if any, in the renegotiation or implementation of revised contracts. (See BIC’s update on the DRC mining sector review)
The Bank expects growth in the mining sector to be led by three products, copper, diamond and gold, but foresees less growth for cobalt, production of which has already returned to 1990 levels. Copper production is expected to increase by 200,000 tons over next 2-3 years. The CAS suggests that the Bank’s involvement in the mining sector in the coming years will focus on implementation of the regulatory framework and a pilot program to deal with artisanal mining, as well as ongoing efforts to restructure Gecamines – the formerly state-owned copper company.
In January 2008, the World Bank Inspection Panel published the report of its investigation into a complaint filed by indigenous peoples’ representatives in the DRC who claimed their communities were adversely impacted by the Bank’s forest sector operations. The Panel report validated the majority of the complainants’ claims, finding that the Bank had violated many of its own policies and procedures, including those designed to protect the rights of indigenous peoples and prevent environmental harm.
In the meantime, an ongoing review of the legality of logging titles in the DRC, supported by the Bank, has been fraught with problems. Incomplete access to tax records and other documentation on company activities, inadequate assessment of social conflicts and environmental impacts of logging activity in title areas, and long administrative delays, have led many observers to question the integrity of the process and have fueled doubts about whether the review will effectively reduce illegal logging activities and protect the rights of local communities.
The CAS mentions the Inspection Panel case briefly, but does not describe its findings in depth or highlight lessons learned. It also mentions that two internal investigations were conducted into MIGA’s support for a mining project in the Katanga region, including an audit conducted by the Compliance Advisor Ombudsman in 2005, and another (unnamed) investigation that is still ongoing. (Read BIC’s past update on the investigation into MIGA’s guarantee for the Dikulushi copper silver mine)
In the forest sector, the WBG expects to support the following outcomes: “Moratorium on new forest concessions is maintained and illegal concessions are cancelled; increase in the proportion of illegal logging operations prosecuted; …number of contracts and pilot initiative based on payment for carbon storage, biodiversity conservation and other biodiversity services by 2011.” While many welcome innovative ways to generate revenues from non-timber forest uses, some are concerned about the Bank’s emphasis on securing payment for the carbon stored in the rainforest and what it may mean for forest-dependent communities. The Bank has committed to help the DRC government access funds from the Forest Carbon Partnership Facility (FCPF) – a new Bank-managed financial mechanism designed to help forest-endowed countries secure payment for reducing carbon dioxide emissions from deforestation and forest degradation. However, there are many outstanding concerns about the FCPF, including its reliance on international carbon markets and price signals to combat deforestation, and the lack of involvement of forest-dwelling communities in the design and governance of the FCPF. Entering into international agreements for the purchase of forest-related carbon ”credits” could have adverse impacts on forest-dependent communities, given that their land tenure rights are often not recognized legally and that they have no voting power in the governance structures of the FCPF nor ready access to the trading floors and board rooms where forest-carbon contracts may be signed.
Battered by criticism of its approach to the DRC’s forest sector to date, the Bank has changed its tack. Now, it is downplaying the potential revenues that can be generated through logging and choosing its words carefully as it describes its plans for deeper engagement in the forest sector: “The focus on forestry will be to strictly limit and regulate logging activities (which will inevitably restart), to promote participatory processes, to ensure benefits are equitably shared with the local including the indigenous, people, and to enforce forest management plans and environmental protection.”
The CAS goes to some length to describe the Bank’s past and present efforts to engage with and protect the rights of Pygmies, painting a picture that is somewhat at odds with that presented in the Inspection Panel report or by many indigenous organizations working in the DRC. However, the Bank has reportedly undertaken in 2007 “a special study” to support the integration of Pygmy concerns in to their Bank’s overall program.
Energy: While “Grand Inga” – the proposal to build a massive 40,000 MW hydropower complex at the Inga Falls on the Congo River – is not mentioned by name in the Bank’s CAS, there is considerable emphasis on energy sector investment, and the technical annex to the CAS indicates that the Bank and other donors will prioritize support for further development of Inga. The annex states that donors will, “promote regional power trade by supporting government efforts to further develop the Inga site and to strengthen its role as a trading partner and sponsor of regional development efforts in the electricity sector,” in addition to supporting expanded generation, transmission and distribution assets.
However, it remains unclear whether energy investment decisions will ultimately be guided by the needs of the Congolese people (93% of whom lack access to electricity today) or those of industry in the DRC and neighboring countries. Already, South Africa, Botswana, Angola, Namibia, and other countries in the region are angling for a portion of the energy expected to be generated by further development of Inga. Investors are busy making plans to tap the country’s hydropower potential in order to power mines and smelters, and export electricity throughout the region. A conference, organized by the World Energy Council, is scheduled to take place in London this April, to discuss plans to develop the “Grand Inga” project – reputed to be the largest hydropower site in the world – and to export its energy throughout Africa, and potentially beyond. NGOs have complained that representatives of Congolese and international civil society have not been invited to the meeting. The exclusion of community representatives from the planning process only reinforces suspicions that, despite the rhetoric about “lighting up Africa,” the Inga project may leave the Congolese people, literally and figuratively, in the dark.
Health and education: Citing recent studies on poverty in the DRC, documents accompanying the CAS suggest that chronic under-funding of education and health sectors is the primary cause for the poor quality of and low rates of access to social services in the country.
Only 9% of the national budget goes to education currently. While the Bank states that the aim is to increase spending to 20% of the budget by the end of the CAF period and to ensure free primary health care for all, the Bank states that “removal of all fees [for primary education] will require significantly more resources in the sector than are currently projected” from domestic revenue sources and donor support.
In the health sector, the Bank’s poverty profile analysis found that user fees are the main reason people in the DRC do not seek health care. Perhaps even more severely than education, health services have been deprived of funds for more than a decade. In the 1990s, government spending on health care fell to below 1% of the national budget, and although it had risen to 7% of national budget by 2004, because the budget execution rate was only 31%, spending on health amounted to only $0.31 per capita in 2004.
All roads lead to … market? On March 15, 2008, the World Bank approved a $50 million grant for a new roads project in the Democratic Republic of Congo (DRC). However, details of the “Pro-Routes” program are not known because no final project documents are available on the Bank’s website. While there is general consensus on the need for infrastructure in the DRC and particularly for roads linking rural areas, towns and cities, there are concerns about which roads will be prioritized for work, who will benefit, and what potential adverse impacts road construction may have on communities and the environment, particularly in zones where improved road access may increase illegal logging, poaching, and mining activities.
Early project documentation suggests that the Bank is aware of the need to accompany road development with strengthened environmental and social safeguards and protections for indigenous populations. The question is whether these measures will be implemented effectively and in a timely enough manner to prevent harm before it occurs. The poor track record with such mitigation in the DRC, where illegal logging and mining have caused significant environmental, social and economic damage, and fomented conflict, gives reason for concern.
Initial project documents published by the Bank indicated that the project will support the refurbishment or construction of 1800 kilometers of roads in provinces of Orientale (one of the country’s most densely forested provinces), and South Kivu and Katanga (two of the country’s most mineral-rich zones).
Following DRC’s endorsement of a $5 billion deal with the Chinese government late last year, under which China promised to provide infrastructure in exchange for access to minerals and other natural resources, the Bank has had to reframe projects like “Pro-Routes” and coordinate them with Chinese plans.
Watch this space
There is no doubt that the Democratic Republic of Congo will remain a key destination for donor funds and private investment over the coming years. Indeed, it may be set to become a battleground for competing commercial and diplomatic influences from Washington to Brussels to Beijing, angling for a share of the country’s resources and its market. Heightened attention to the DRC’s mineral resources, which are fetching record prices on the market today, and new interest in the potential “carbon assets” contained in its forests, hold out the possibility of generating revenues for the cash-strapped government, but provide few assurances that the living conditions of the millions of Congolese will improve. With a new country director and a new strategy for the Bank’s program in the DRC, focused on infrastructure and private investment in the coming years, the Bank is poised to deepen its engagement in the country. Civil society must be equally poised to ensure that that engagement benefits Congo’s people.
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