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Gacamines: between pit and pendulum

In African Business, January 1995

Gecamines, the Zairean state mining company, is in trouble. Despite a projected 100% increase in cobalt production by 1996, theft, local violence, isolation from international donors and confusion over its future ownership has left the company without the investment it desperately needs. Francois Misser reports.

Atungu Liongo, the Managing Direcctor of Zaire's Gecamines Commerciale, believes the company has become the victim of a politically motivated international boycott that threatens its very existence.

Since the 1991 riots in Zaire, pressure for 'democratisation' from the country's Western donors has squeezed aid and loans to such an extent that nothing short of emergency aid has been made available.

Gecamines has been repeatedly refused loans for what Mr Liongo sarcastically terms 'Pseudo-technical reasons'. He complains that when European Investment Bank officials say that Zaire already owes them money, they ignore the fact that Gecamines has always paid its debts. It seems donors are not willing to make the distinction between the state and companies controlled by it.

Despite being hamstrung by shortage of funds, the company has responded positively to the challenge. Firstly, Gecamines decided to boost cobalt production over copper in order to increase revenues from this highly valued mineral. At the same time it was decided to produce cobalt from hydrates and cobalt rich sludges and slags. It is easier to process cobalt waste and transportation costs are much lower.

Gecamines predictes a doubling of cobalt production, up to 6000 tonnes, in 1994-95. But Gecamines has also stepped up its fight against smuggling which, according to Mr Liongo, represents 30% of Gecamines' output. The Managing Director claims that most of the smuggling takes place across the South African border. Last October, he urged the Government to discuss the matter with the South African authorities. A Johannesburg-based Chinese trader allegedly involved in the traffic is being prosecuted bv the company. But high profile cases are few and far between and do little to stem the tide of smuggling. One of the primary causes in the increase in theft and smuggling is the fall in mine worker's wages. This has driven mining staff into stealing minerals - often with the complicity of high ranking officials.

The fairly dramatic fall in wages has been caused by several factors, including the lack of foreign investment. Taxes have also hit the company hard as they are levied according to mining output rather than export revenues. In addition, Gecamines has been forced into a social role - funding schools, hospitals and farming projects that would normally be the preserve of the state.

Compay funds have also been used to maintain the Presidential Guard, according to a French engineer, Olivier Bonsel, and there are rumours of widescale bribery in the purchasing of equipment.

As if this were not enough, the company suffered a severe loss of skilled workers as politicians from the Lunda tribe initiated a xenophobic movement against the Luba people, who constitute a considerable part of the labour force, on spurious racial grounds. The resulting 'pogroms' left Gecamines in chaos, unable to operate efficiently and hence generate sufficient income to sustain wage levels.

The resultant drop in production was exacerabated by a potentially disasterous new situation on the world market. The combined Zairean/Zambian world market share fell to 30% as strategic stocks held by the United States and former Soviet countries were released.

Faced with this situation Gecamines was forced to abandon most of its long term contracts and sell on the spot market.

Fortunately for Gecamines, however, world demand has been rising over the past 12 months. Cobalt prices have risen so much that both Gecamines and ZCCM decided in October to raise their reference price to $25/lb. as against $12/lb. on the London markets one year before.

But the most pressing problem for Mr. Liongo is that without the finance to open new mines within the next few months, the projected increase in cobalt production for 1994-95 will tail off dramatically shortly after. Once all waste sludges have been processed and exhausted there will be no more room for manoeuvre.