Central Africa and the DRC: A New Economic Frontier
With the House of Representatives passing the Financial Choice Act, effectively pursuing a course to repeal large parts of the Dodd Frank Act, and the Trump administration refusing to enforce regulatoryprovisions against companies importing “conflict minerals,” it seems that the repeal of the Dodd Frank act is imminent.
While the bill will free up the marketplace for investment, it will also provide a seemingly small, but impactful change: a chance to partake in the development of earth’s final economic frontier: Central and East Africa.
Central and East Africa, unfortunately, have a shaky history. European administrators, in the absence of European colonial garrisons, left Africa in turmoil.
In the wake of such an outflow, political chaos ensued. Nigeria, six years after independence, entered a bloody civil war between ethnic Muslims Hausas in Northern Nigeria and Christian Igbos in Southern Nigeria, resulting in the deaths of over 1 million civilians. Sudan, also after six years of European departure, collapsed into a multitude of civil wars that have resulted in numerous genocides, and still have yet to be resolved.
Worst of all, the previous colonies of Belgian Central Africa, such as Rwanda and the DR Congo, have been hubs of civil war, violence, and genocide, with the DRC descending into a nearly endless civil war that cost the lives of over 5 million people, and the state of Rwanda committing a genocide against ethnic Tutsi peoples.
This history, of course, is fraught with infighting over Africa’s extremely lucrative mineral trade. According to an estimate by the United Nations, in the Democratic Republic of the Congo (DRC) alone, mineral wealth that has yet to be exploited is worth over $24 trillion.
Under the Obama administration, American companies refused to engage with vendors from the DRC on ethical grounds, labeling such materials as, “conflict minerals,” or, “blood diamonds.” This, however, has done nothing to prevent the violence and genocide taking place. Indeed, in the absence of US and European companies, Chinese enterprises have replaced their leases, now operating as a virtual monopoly.
In fact, since 2000, Chinese investment in the DRC increased from $1 million to over $1.6 billion per year, with the DRC exporting over $2.61 billion to China per year. But China has done more than impose indirect economic pressure. Instead of working with local workers, China has negotiated treaties with the DRC to allow over 4000 Chinese nationals to work on mining operations in the region.
This, unfortunately, has infuriated local political groups. Indeed, Congolese nationalist forces have opposed these operations, with rebels in 2007 attacking Chinese installations, forcing these companies to withdraw. 2009 represented an even worse year for Chinese business, with rebel groups openly firing on Chinese projects in East Congo, killing Chinese nationals, and looting over 40 chinese owned companies.
Worse, even though Chinese companies have paid over $3 billion in infrastructure investment in exchange for mining leases, production has yet to begin due to power outages, corruption, and failed railways.
Massive protests have compounded this problem, with the current president of the DRC, Joseph Kabila, refusing to hold elections. With these problems growing, rebel groups in the Eastern basin, controlled by Christian and Muslim extremists, have made another civil war almost inevitable in the region, one that would likely drag neighboring countries into the mix. This, in effect, has prevented Chinese companies from successfully unlocking the door to African commodities.
However, the United States is now presented a remarkable opportunity. President Trump, under his new powers, should deregulate trade to the DRC and use UN peacekeepers, aided by US troops and aircraft, to force equitable change, ones that would provide the grounds for renewed US centered investment.
To replace previous Chinese investment, the US could implement the 2015 IMF goal of privatizing the Congolese mining industry, effectively avoiding the very problem Chinese companies face in government corruption.
Furthermore, forcing the DRC to withdraw from these state-run industries has legal implications, with the IMF and World Bank withholding vital funding from the government in lieu of accountability reports. This is because IMF debt relief remains a vital asset to the country, with the DRC government relying on debt packages of over $12 billion from Western institutions to maintain financial solvency.
This irreplaceable fund provides the US the necessary leverage to enforce legal obligations that China never had; indeed, by investing in the abstract of government bonds, instead of the gambit of mining operations, western investors have the ability to directly hold the government responsible.
While it is possible for the DRC to turn to China for debt assistance, it is unlikely that they could provide immediate solvency given that the Chinese government faces both a decline in economic growth and corporate debt exceeding 170% GDP.
Furthermore, by forcing the government, in a time already marked by instability, to pay debt they cannot possibly repay by withholding future aid packages, the US can effectively leverage this debt to force privatization of the industries necessary to protect US interests.
Finally, unlike the reliance on state organizations for infrastructure emphasized by Chinese investors, privatized institutions, whom have been consistently proven to have empirical success in unstable African regions, can mitigate the instability of these investments by eliminating state corruption while providing the necessary experience, personnel, and resources to create boundaries to protect international investments.
This effectively alleviates the problems faced by Chinese investors, allowing for an open and competitive marketplace.
Finally, the necessary territorial control in the DRC is negligible compared to the potential profits. As highlighted from the map above, the Eastern basin, one which is scarred by war and famine, contains large amounts of materials needed for profitable exports.
More specifically, the $24 trillion in minerals in the DRC is largely based on a material known as coltan, to which the DRC controls over 80% of the world’s supply. Coltan is vital as it provides the one of the primary resources needed to create electronic circuit boards, making the resources vital to the US tech industry.
Thus, by using already existing Chinese infrastructure, the US can easily exploit these resources and create a competitive market in the region, allowing for better access to the region’s vital materials, and more importantly, mitigating our dependence on Chinese coltan commodities.
Regardless of the outcome of the conflict, one which has existed since the inception of the country’s independence, the US must change our economic policy in the region. For too long, have we been held in restriction by unnecessary ‘escalation norms’ arising out of principles that have no grounds.
Economic development, spurred by privatization and combined with US-UN security forces, will provide the haven necessary to renew the calls for a better Africa. In essence, unless we forgo the past, we cannot embrace the future.