Reposted from The Globe and Mail
By Geoffrey York
AFRICA NEXT: A SIX-PART SERIES
PART 1: What is gained and lost as investment outpaces aid
NOW: Russians building luxury homes in Congo? Get used to it
PART 3: The hotel magnate who used to hide from rebels
PART 4: Weary of handouts, Africans try enterprise
PART 5: The impact of the new land grab
PART 6: How the boom can transform Africa
In this second of a six-part series, Globe and Mail Africa correspondent Geoffrey York investigates how Africa’s growth is changing its future.
Driving north in Africa’s copper belt, Mark Crandon marvels at the new factories and offices along the highway. “It’s crazy,” he says. “None of this was here three weeks ago.”
It’s an unlikely place for a foreign investor to be raving about. The Democratic Republic of the Congo is one of the world’s most corrupt, impoverished and war-torn countries. Millions have died in the military and political chaos of recent years. Yet even here, the lure of the Africa boom is proving irresistible.
In the copper-belt city of Lubumbashi, the nouveaux riches of the mining industry can be spotted at upscale businesses such as La Plage – a glitzy suburban mall with a gelato shop, high-priced supermarket and cafés, not to mention a swimming pool and an artificial sand beach with parasols and volleyball nets.
Mr. Crandon’s employer, Renaissance Partners – a unit of leading Moscow-based emerging-markets investment bank Renaissance Group – is making an aggressive gamble on the future of Congo: It is investing $50-million in the first phase of a hugely ambitious 4,000-hectare property development. Luxury homes and retail shops will soon be springing up in the planned “satellite city” of Kiswishi on the outskirts of Lubumbashi.
In both its boldness and the nationality of its creators, Kiswishi (which means “there is wealth”) represents the new face of African economic development.
The dramatic rise in trade and investment from the BRIC countries – Brazil, Russia, India and China – provides a crucial source of capital for African countries, new markets for African commodities, and cheap new technology besides.
Annual trade between Africa and the BRIC nations, led by China, has already climbed past $200-billion and is expected to reach $530-billion by 2015. Direct investment in Africa by the BRIC nations is forecast to reach $150-billion by 2015, compared to about $60-billion in 2010.
The sources of foreign investment are changing partly because BRIC investors can more easily tolerate the political risks in African countries than their counterparts in the West.
Renaissance Partners, with its long experience in the rough-and-tumble “wild east” of post-Soviet business, has an instinctive understanding of the hazards of Africa – including the widespread corruption.
Its executives don’t blink twice at the unofficial payments they are obliged to give to Congolese soldiers at checkpoints along the road to its property.
“I think the Russian experience has made us more ballsy,” says Arnold Meyer, director of African real estate at Renaissance. “What we looked at in Lubumbashi, almost any other company would have walked away from.”
The company’s appetite for risky ventures is helpful in a country where, apart from the culture of bribery, war still simmers and company assets have been expropriated by the government. Its rivals from Europe and North America face pressure to stay out of conflict zones, as well as a trend among their governments to penalize companies that engage in corruption abroad.
Renaissance Partners, which manages a $750-million investment portfolio, has property developments under way at eight sites across Africa, from Ghana to Zimbabwe, including a planned $5-billion project called Tatu City on the outskirts of Nairobi. The project in Lubumbashi could be the most challenging – and rewarding.
“The political risk is probably the highest in Africa,” admits Mr. Crandon, an energetic young South African who is overseeing the satellite city project.
“There’s a lot of cash in the city, but it doesn’t sit in the formal sector. The middle class is often a lot bigger than you realize from the outside. They’re desperate for quality homes and quality infrastructure. It’s a city of three million people, with almost zero infrastructure, so the opportunity is just enormous.”
But in an age-old pattern, much of the BRIC investment flowing in to Africa is benefiting the political and business elite, rather than ordinary Africans. In Ethiopia, for example, China built a gleaming new $200-million headquarters for the African Union – and supplied surveillance technology to the state telecommunications company. In oil-rich Angola, China spent $600-million to build four new soccer stadiums for the authoritarian government, allowing it to host a prestigious African soccer tournament.
In Congo, many of the villagers who live on Renaissance’s development site are worried about the project. They’re afraid they could be evicted from the land that Renaissance is now leasing from the government. Even when the company began digging boreholes to provide water for the villages, some were nervous.
“Maybe you’re digging the borehole so that you can come here and take water for yourself,” a young mother named Mwape Salome told Mr. Crandon in the village of Kintu.
“We’re living in fear every day,” said Gadi Sept, a farmer in the same village. “We’ve been informed that we live on someone else’s land.”
Mr. Crandon tries in vain to reassure them. “There’s definitely an air of skepticism here,” he admitted later.
If the poorest Congolese are distrustful of the Russian real estate project, they are equally unimpressed by the billions of dollars in foreign investment in the mining industry. They feel that the foreign investments – including those from BRIC countries – are benefiting only a narrow elite.
Congo boasts an estimated $20-trillion in natural resources. But many of its most lucrative assets have gone to mysterious shell companies, often registered in the British Virgin Islands, which have acquired valuable copper and cobalt mines (including former Canadian-owned mines) at a small fraction of their value. Congo has lost $5.5-billion in potential revenue from these shadowy deals, according to an investigation by British MP Eric Joyce.
One of those Canadian assets was the massive Kolwezi tailings project, valued at up to $2.5-billion, which was owned by a joint venture between Vancouver-based First Quantum Minerals, the World Bank and the state mining company, Gecamines. It was seized by the Congo government, and 70 per cent of the asset was secretly awarded for $60-million to four shell companies based in the British Virgin Islands, according to Mr. Joyce’s research. Those companies later flipped a majority of their interest to a Kazakhstan firm for $175-million. (First Quantum eventually received $1.25-billion from the Kazakh company in an out-of-court settlement that covered several mining assets.)
In Lubumbashi, some of the harshest criticism has been directed at BRIC investors – including an Indian company, Chemaf, which processes copper and cobalt in several factories around the city.
Since arriving a decade ago, Chemaf says it has created 3,000 jobs here. But the air around its main factory is thick with sulphur and dust, and many Congolese are worried it is endangering their health.
Dominique Sango, a 23-year-old bus ticket seller, lifts his shirt to show the scars from the burns he suffered in an acid spill near one of Chemaf’s factories this year. A tanker truck, filled with sulphuric acid from a Chemaf plant, flipped over on a road outside Mr. Sango’s small house. When he heard the crash, he went outside and fell into the spilled acid.
“It was like a fire inside me,” he says. “It was as if the flesh would come off me.”
He says he was treated for six weeks at a Chemaf clinic, but was never compensated. The acid flowed into his house, which had to be abandoned, and he was left unemployed.
The foreign investment, he says, is “good for those who get jobs.” But most people get nothing, he says.
Company officials confirm that the acid came from a Chemaf factory, but they blame the spill on the trucking company involved. They also blame the neighbours for building their houses too close to the factory.
“People living beside a mining company will always complain,” says Jo Katembo, deputy manager of the Chemaf plant. “It’s like someone whose room is next to the kitchen – he’ll always complain of the smell.”
The government rejects Chemaf’s argument. Moise Katumbi, Governor of Katanga province, where the city is located, says he will shut down Chemaf’s operations if it fails to reduce its pollution.
“Their big mistake was to put their plant in the middle of town,” he said in an interview. “We can’t allow people to die because a company wants to make money on the lives of the people. If they don’t take care of this issue, we’ll dismantle this factory.”
Foreign investors always promise to be good corporate citizens in Congo, but their actions often fail to live up to their pledges, the Congolese say.
“They have a tendency to reduce their standards in Congo,” says Katanga’s Mines Minister, Barthelemy Mumba Gama.
“They’re coming with nice words about what they’ll do. But when they start working, you see the opposite face.”