RPT-FEATURE-Does Congo mean business with rush of reforms?

* Over 30 business reforms by mid-2010

* Questions whether civil service will implement them

* Congo eyes double-digit growth in 2012

By Mark John and Thomas Hubert

KINSHASA, Feb 18 (BestGrowthStock) – PricewaterhouseCoopers’ Congo
office was winding down for the weekend one Friday when a call
came through from an international mining firm hit with a $10
million tax bill.

“Get someone here for Monday — we have a meeting with the
taxman,” pleaded the client before sending a private jet to the
capital Kinshasa to rush an adviser to their outpost in the
Kolwezi mining district, 1,300 kilometres (800 miles) south.

By the end of the meeting that Monday afternoon, the demand
had shrunk to a more digestible $300,000.

“Tax law here leaves a lot of room for interpretation. It
can be used to intimidate you,” said local PWC partner Benjamin
Nzailu.

Such frights are familiar to investors in the Democratic
Republic of Congo, the central African country of about 65
million people whose mineral wealth is matched by its reputation
as one of the world’s toughest business venues.

Only the Central African Republic fared worse in this year’s
World Bank ranking of the ease of doing business in 183
countries. But the stakes are so much higher in Congo than in
its tiny northern neighbour.

Home to the world’s biggest reserves of cobalt — used in
batteries, ceramics and dyes — Congo has gold, silver and
diamond mines, and holds some of the world’s largest stores of
copper, tin and metals such as tungsten, a component of many
mobile phones.

http://graphics.thomsonreuters.com/0210/AF_CNGMN0210.gif

Despite news headlines focused on the rebellions that simmer
across Congo’s east, Europeans, Americans, Asians and others
need no convincing of Congo’s potential. Their firms have sought
to increase their foothold since 2003, the official end of a
five-year civil war that sucked in neighbouring countries and
led to an estimated 5.4 million deaths.

2,000 TAXES

Last year’s surge in the price of copper — which at around
$6,800 a tonne (MCU3: ) is double its value a year ago — bodes
well for recent deals such as a $3 billion copper and cobalt
mine backed by China’s Sinohydro Corp and China Railway
Construction Corp.

But widespread corruption — and business laws in some cases
dating back to the 19th-century rule of Belgium’s King Leopold
II — mean only a fraction of the peace dividend has been
tapped. The social cost is such that 75 percent of Congo’s
population live on less than a dollar a day.

Inflated tax demands are far from the worst risk. In a
review of 61 mining projects, Congo last August stripped
Canada’s First Quantum Minerals (FM.TO: ) of its permit for a $550
million copper and cobalt project, accusing it of missing
production deadlines.

That dispute is now before international arbitration. The
fate of another copper and cobalt project, majority-owned by
U.S. miner Freeport McMoRan (FCX.N: ), is still in the balance.

Red tape is a national disease. The World Bank calculates
that starting a business in Congo takes about 150 days — three
times the norm for the rest of sub-Saharan Africa and over 10
times the average of developed economies, which is 13 days.

http://graphics.thomsonreuters.com/0210/AF_CNG0210.gif

The local business confederation (FEC) estimates that any
company wanting to build a nationwide presence will face 300
basic taxes, a figure which can rise to a total of 2,000
including various local, provincial charges and other levies.

Land disputes are common. One developer’s pitch for a
planned luxury development in Kinshasa boasts that it will be
built on an artificial island in the River Congo — the location
aimed at ensuring there are no historic claims to the land.

Keen to show a new face by June 30, when the country plans
festivities to mark its 50th year of independence — and with
one eye on persuading donors to grant debt relief — President
Joseph Kabila has launched an unprecedented drive to revamp
business, labour and fiscal law [ID:nLDE61C04X].

The unofficial target is to jump 20 places in the World Bank
rankings, putting Congo in contention with frontier economies
such as Gabon or Senegal which have enough credibility to have
launched Eurobonds to international investors.

“No one can doubt the political will behind this effort. The
entire government machine is involved,” said Congolese Planning
Minister Olivier Kamitatu, the official in charge of the
reforms, in an interview.

Congo is due soon to offer assurance to investors by
adopting a set of harmonised business laws agreed by 16 Western
and Central African states known by its French acronym OHADA.

GROWTH DASH

OHADA in itself is no guarantee of progress: as with
European Union directives, many countries drag their heels about
turning its initiatives into national law. But investors welcome
it as a step towards a more a predictable environment.

“It’s a good sign,” said Regis de Oliveira of French
logistics group Bollore SA (BOLL.PA: ). “Everything here is still
to do — water, energy, transport. But the lack of commercial
security is a brake. There is no judicial framework.”

For Minister Kamitatu, an ex-rebel leader who brought his
Alliance for the Renewal of Congo (ARC) into Kabila’s coalition,
private investment is key to a dash for growth that authorities
hope to set in motion before a presidential election in 2011.

“The (2008/9 global economic) crisis sent our growth rate
down to two percent. This year I am hoping it will come back to
around seven percent and in 2012 I hope we reach double-digits,”
he said.

But Kamitatu acknowledges Congo’s real challenge is to
ensure the reforms are implemented on the ground by poorly
trained and paid civil servants, local prosecutors and judges
who make up the country’s one million public sector workers.

Matipa Mumba, coordinator of the committee charged with
proposing reforms, said some sections of the civil service are
resisting carrying out tax cuts as they see them as a threat to
their office’s intake and, ultimately, to their own income.

“It scares them because they have budget targets to meet,”
said Mumba of receipt targets that help shape their salaries.

KICKBACK TEMPTATION

For others, the reform effort is condemned to fail because
it does not strike at a Congolese affliction which spread during
the three-decade rule of dictator Mobutu Sese Seko and remains
rife 13 years after his death: graft.

“In this country you can become a minister with $100,000
worth of assets and leave with a $1 million. No one bats an
eyelid,” fumed Jean-Lucien Mbusa, vice-president of the National
Assembly’s economic and finance committee.

“As long as corruption and embezzlement of public funds is
not fought tooth and claw, there is no point in having any of
these laws,” said the opposition deputy, noting that ministers
were not obliged to declare their assets when leaving office.

The complaint chimes with perceptions among both ordinary
Congolese and business people, who in the latest ranking by
Berlin-based graft watchdog Transparency International placed
Congo as the 14th most corrupt country out of 180 surveyed.

“Article 15” — a Mobutu-era joke about a supposed article
of the constitution urging Congolese to resort to theft to make
ends meet — still gets a laugh on the streets today, emblazoned
as an ironic motto on the hood of one Kinshasa taxi.

Often, the kickbacks needed to grease the wheels of business
are temptingly small. Speaking on condition of anonymity, a
manager of one import firm said the bribes needed to win import
approvals for a $2.5 million equipment order placed by a leading
aid agency came to just $60,000 — barely scratching his margin.

“At the port of Kinshasa, you can pay to have your shipments
unloaded first,” said one business consultant in the capital,
“Or you can wait.”

Most businesses profess to want the level playing-field that
complying with predictable laws would bring. But for now, few
believe the government drive will be enough in itself.

Poupak Bahamin of Canadian law firm Heenan Blaikie,
representing the Canadian miner First Quantum, welcomed the
reform effort. But she suggested Congo should go further and
sign treaties with home countries of investors “to give them
comfort that if they go to international arbitration, their
rights will be respected”.

PricewaterhouseCoopers’ Nzailu forecast real progress will
be hard without a shake-up of the civil service, conceding:
“That would take huge political courage.” For now, he said he
could only urge entrants to tread carefully.

“Think hard before taking any shortcuts with regulations,”
he advised. “Take your time tying up a contract — and make sure
there are no holes in it.”

Investment

(Editing by Sara Ledwith)

RPT-FEATURE-Does Congo mean business with rush of reforms?