Business Environment Will Deter Investment

BMI View: Claims that Anglo-Swiss commodities giant Glencore bribed a politically well-connected Israeli businessman highlight the personal nature of business and politics in the DRC. We doubt that the country's business environment, one of the world's murkiest, will improve over the coming years.

In what is the latest of a series of allegations surrounding Dan Gertler, a controversial Israeli billionaire and friend of Congolese President Joseph Kabila, a non-governmental organisation (NGO) report has claimed that Gertler is profiting from corrupt deals in the Democratic Republic of the Congo (DRC). The latest allegations surround almost USD70mn in payments made to Gertler by Glencore (now Glencore Xstrata) between 2007 and 2010.

Global Witness, a London-based anti-corruption NGO, alleges that the Anglo-Swiss commodities giant knowingly made loss-making deals with Gertler in order to gain influence with Congolese politicians. Both Glencore and Gertler deny these accusations.

Among The Worst
Selected States - BMI Business Environment Rating, 0-100

Business Environment Will Deter Investment

BMI View: Claims that Anglo-Swiss commodities giant Glencore bribed a politically well-connected Israeli businessman highlight the personal nature of business and politics in the DRC. We doubt that the country's business environment, one of the world's murkiest, will improve over the coming years.

In what is the latest of a series of allegations surrounding Dan Gertler, a controversial Israeli billionaire and friend of Congolese President Joseph Kabila, a non-governmental organisation (NGO) report has claimed that Gertler is profiting from corrupt deals in the Democratic Republic of the Congo (DRC). The latest allegations surround almost USD70mn in payments made to Gertler by Glencore (now Glencore Xstrata) between 2007 and 2010.

Global Witness, a London-based anti-corruption NGO, alleges that the Anglo-Swiss commodities giant knowingly made loss-making deals with Gertler in order to gain influence with Congolese politicians. Both Glencore and Gertler deny these accusations.

Sometimes It Is Who You Know

While BMI is unable to comment on the specific allegations, which have not been proven in court, we believe that the case highlights the important role that personal relationships and political connections play in the DRC's murky business environment.

The country's weak institutions make individual politicians crucial in the allocation of mineral rights and the writing of state contracts. Officials, especially those tied to the presidency, face few institutional checks on their authority and are able to reallocate mining rights with little oversight. Deals that are signed are frequently revised subsequently.

The fluidity of contracts in the DRC has led to a number of disputes, notably the multi-year campaign by First Quantum to regain control of the Kolwezi Tailings project, a copper and cobalt prospect that was seized by the government in 2009 and transferred to Eurasian Natural Resources Corporation (ENRC) in 2010. ENRC eventually agreed to pay a USD1.3bn compensation deal in 2012.

Among The Worst
Selected States - BMI Business Environment Rating, 0-100

The importance of personal ties is one reason why the DRC performs so poorly in BMI's proprietary business environment ratings and our mining Risk/Reward Ratings. We believe that the web of personal and business connections that link many key political figures will deter investment by many firms. The country's geological wealth will ensure that the DRC's mining sector experiences rapid growth over the coming years, but investment will be driven by risk-tolerant firms with experience of dealing with extreme frontier markets.

Change Unlikely

While some Congolese officials - notably reformist Prime Minister Augustin Matata Ponyo Mapon - seem committed to improving the DRC's legal institutions, BMI doubts that much progress will be made over the coming years. The country's legislative process is opaque, and laws that are passed are often poorly enforced (see 'Gertler Deal, Hydrocarbon Law Highlight Murky Business Environment', January 23).

Political tensions in the lead-up to 2016 presidential elections are likely to slow any existing reform momentum, and we expect that the DRC's poor business environment will be a major drag on efforts to diversify the country's mining-focused economy (see 'Economic Diversification Unlikely', August 14).

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