Sicomines Agreement

By 12 april 2021No Comments

To some extent, China`s positive attitude towards business such as the Sicomines agreement is based on the same logic as the infrastructure credits that Japan received in the 1980s. These have been beneficial for both parties: they have promoted the development of Japan and have been very lucrative for Japanese companies. At the same time, the terms of the agreement should create the conditions for the transfer of know-how in a way that helps local businesses move towards higher value-added activities. However, in practice, RFI agreements include complex contracts that combine several conditions to account for the significant risks they entail. Loans are usually paid directly to contractors responsible for making infrastructure available. The revenues used to repay loans are usually paid directly by oil companies to financiers, often a decade or later. Loan conditions depend on the time required to develop concessions, the level of investment and the expected return. During the 1980s and 1990s, the Angolan government secured dozens of loans that used their oil reserves as collateral, and major Western financial institutions such as Standard Chartered Bank, BNP Paribas and Commerzbank were among the suppliers of this credit. While resource-use loans – similarly granted by Chinese and Western creditors – remain relatively common in Africa, RFI agreements have been mainly used by Chinese political banks. (These banks were originally created by the Chinese government in 1994 to resume lending activities.) RFI`s agreements have captivated analysts since China Eximbank expanded this type of credit to the Angolan government in 2004, but RFI agreements are not much different from the resource-based loans that preceded them in Angola. This discussion paper discusses the Sicomines agreement, which deals with rFI agreements and examines their pros and cons. It would appear that RFI agreements carry considerable risks for their signatories because of their long horizon. The infrastructure agreement gave Chinese partners mining rights for cobalt and copper in the Democratic Republic of Congo (DRC).

These minerals are used in electric and electronic vehicles, including smartphones and laptops. In exchange, China said it was ready to build much-needed infrastructure projects, such as urban roads, highways and hospitals. More than a decade later, the Sicomines agreement did not meet expectations. There have been delays in infrastructure projects and unexpected costs. There have also been problems related to poor roads and infrastructure and inadequate environmental and social impact studies. Economically, mineral exports from the Democratic Republic of Congo have increased sharply. But strong cyclical fluctuations show that the country is highly dependent on the Chinese market and the price of certain minerals. In addition, the Sicomines agreement was exempt from taxes until infrastructure and mining credits were fully repaid. This means that the Democratic Republic of Congo will not receive substantial revenue from the agreement in the near future.