Time to re-engage in DRC
Suppliers need to understand the market before entering the DRC, writes Duncan Bonnett of Africa House.
The elections have come and gone, and a new president has
assumed office and has his share of issues to deal with. Many
companies scaled back operations over a turbulent period in an
already turbulent country as they feared the fallout of a stalled
and contested electoral process. However, many of the mining
companies in the southern regions that previously constituted
Katanga Province, continued to increase output and forged ahead
with projects.
In 2018, copper production rose by around 12% to reach 1.2
million tons, whilst production of cobalt rose 44% to reach
106 000 tons. Further north, gold production rose by 23%
to reach 28 540kg, according to the Chamber of Mines in
the DRC. In addition, new mines, including copper, tin, and
gold, are on the horizon. In southern DRC, an estimated 54
companies are producing copper, although many are relatively
small compared to the big players. This is excellent news for
suppliers of goods and services from South Africa, with the
domestic mining industry still in the doldrums despite some
renewal of faith in recent weeks.
On the face of it, the increased output, expansion of existing
mines, and building of new mines is a great opportunity for South
African suppliers. However, it is a complex market and requires
suppliers to understand a number of different issues before
entering the country. These include understanding mine ownership,
procurement processes and sources of procurement, local content
and procurement regulations, and also understanding that the
logistics of supplying into the region have changed — and not
necessarily for the better for South African suppliers.
A couple of decades ago, a very strong South African mining
presence existed in the Katanga region, as South African mining
companies, contractors, and suppliers made strong inroads into
the market. Gradually, however, the presence of South African
or South African-based mining companies has dissipated as
Chinese buyouts and entrants from India, Central Asia, Australia,
and Canada have made their mark. As such, the opportunity to
piggyback on our ‘champions’ has diminished. In addition, these
new entrants have introduced their own supply chains into the
market, as they use suppliers that they are comfortable with. Thus,
understanding who owns particular mines and how they source
products and services, is key to gaining access to major operations
in the country.
www.africanmining.co.za
Some of the major mining operations still retain buying offices in
South Africa despite changes in ownership, and these can be very
useful to South African suppliers — but they are often not easy to
contact and tend to keep a relatively low profile in the country. Yet,
they exist in South Africa because the goods and services needed in
DRC can be readily found in South Africa and this is a key entry
point for foreign goods and services as well. We thus maintain
the ability to service many of the mines in Southern DRC. The
perception that ‘the Chinese own and supply everything’ is far from
the truth, even if supply from that source is increasing.
As a counterpoint to this, is the growing connectivity of
Lubumbashi, Likasi, and Kolwezi to the Atlantic and Indian
Ocean coasts outside of South Africa: shipments of ores and
cathode have restarted through Angola’s Port of Lobito, and
apart from being roughly half the distance to Durban, there is
also only one border to cross, making this an attractive route
— assuming the rail connectivity is adequate. Moreover, Dar
es Salaam is a major supplier of goods into Lubumbashi and
beyond, with fuel, cement, consumer goods, and mining supplies
entering Lubumbashi from Tanzania. Walvis Bay too is providing
alternatives to South Africa’s ports into the broader Copperbelt.
A recent visit saw truckloads of copper heading for the port
and backhaul of items such as mining spares, OTR tyres, and
chemicals. Ultimately, this means that backhaul from these ports is
unlikely to be goods from South African suppliers. This obviously
represents a threat to our companies, as they are frozen out of
shifting supply chains.
Finally, recent changes to the mining code in the DRC stress the
need for local supply and content into the mines. This is difficult in
a country that has a limited industrial base, but it does mean that
local agents and distributors can be a key link for foreign suppliers.
Mines in the country (as elsewhere in Africa) are under growing
pressure to source locally and this can be achieved through local
partnerships — partners who also understand the complex import
procedures and processes.
It is possible that within the next five years, the DRC will double
output of copper, cobalt, and other strategic minerals (assuming
commodity prices remain decent), and this will see the opportunity
in the country increase significantly as well. However, companies
need to be aware of the supply chains, methodologies, and
challenges of this fascinating market. b
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