Special Update: As of August 1999, GECAMINES is involved in a massive labor dispute. Kabila's Government wants to lay-off more than 16,000 workers as part of some type of economy-move and production cut-back. The Congolese Workers' Union is balking at this decision and trouble is brewing. These destabilizing labor problems are clearly an outgrowth of the chain of events described initially in this paper over two years ago. / A. Madsen, M.Ed.

CLICKABLE January 2000 Article in French from LE SOIR (Brussels) on the Out-Going Zimbabwean PDG of Gecamines, and his 'replacement' by a Kabila Appointee

La Générale des Carrières et Mines

GECAMINES

A State-Owned Mining Enterprise in

The Democratic Republic of Congo

Art Madsen, M.Ed.

Transnational Research Associates

The Case of Gecamines, located in Shaba Province of the newly renamed Democratic Republic of Congo, is of special interest to corporate administrators and students of international management. The shift in this colossal mining firm's industrial policies, managerial strategies and organizational structure since its creation by the Belgians in colonial times is certainly worthy of examination in detail. The best of European thinking and the most insightful of African and multinational expertise are surely available, within the vast history of GECAMINES, for analysis in a Case Study focusing on fostering of markets, industrial policy and public / private sector relations.

The primary objective of this Case Study will be to describe the history of Gecamines, trace its managerial policies under (1) the Belgians, (2) the Mobutu Government and (3) its present prospects under the new regime currently in power. Examined will be some of the major policies adopted throughout the decades, strategies to deal with price fluctuations, concepts related to the creation of markets overseas, and some of the personalities who influenced decisively the direction which one of the world's largest producers of copper has taken. Attention will also be devoted to the relationship of the Private Sector to Gecamines which is, and has historically been, a state-owned enterprise.

The Union Miniere du Haut-Katanga (UMHK), the forerunner of Gecamines, was founded by the Belgian Colonial Government in the early days of the Belgian Congo. When copper ore deposits of considerable magnitude were discovered in the south of the Congo, specifically in ex-Katanga Province, attention was concentrated on the creation of a mining enterprise which could economically exploit these massive deposits. In the area just to the northwest of Elizabethville (today called Lubumbashi, the Congo's second largest city), a major copper extraction project was initiated. During the operation of this colossal open-pit mine at Kolwezi, the Belgians also discovered other minerals of significant value in the main ore body and adjacent to it. Cobalt, zinc and manganese, notably, were considered minable in profitable quantities.

As demand for these strategic minerals developed in the years prior to World War II, markets worldwide sprang up, attracted by the colonial price structure and by the large volumes of ore being mined and processed. In the early days of extraction, the Societe Generale of Belgium refined the ore in the Mother Country, and re-exported it for considerable profit. In fact, almost all mining operations were conducted in this fashion during colonial times. The Colonizer was able to realize massive profit on minerals refined at home, but generated thousands of miles away in Central Africa. The Belgians added value to the raw ore and set higher world prices for copper, in conjunction with the London Metals Exchange (LME).

This aggressive repricing policy built the Belgian firm today known as SGM, La Societe Generale Miniere, an off-shoot of the original parent firm which deals, even today, with a broader range of products. It can be readily seen that the old UMHK, among the world's largest producers of copper both now, as Gecamines, and earlier, and the Societe Generale, as well as SGM, worked hand in glove during pre-Independence days. Together, they supplied the world with copper and zinc. Cobalt deposits were not exploited until later to any meaningful degree. The Belgians created the logistical infrastructure for removal of these, and other, strategic minerals from the Congo during World War II. This mineral evacuation route, known as La Voie Nationale, still operates essentially as it did in the earliest days. Interestingly, the Belgian system of transporting and marketing non-refined and/or refined copper lasted long after Independence of the Belgian Congo in 1960.

Ex-UMHK -----------> Societe Generale Miniere -----------> World Markets

Source: Adapted from M'bendi, Jonathan Kwitny, and Transnational Research Associates

Figure I

Figure I displays the straightforward linear relationship of ex-UMHK, SGM and World Markets. This simple arrangement, with incremental "value-added" price increases built into each stage of refinement, worked well for all Belgian purposes, but did not work well for the Africans whose mineral wealth was being depleted and whose people were not benefiting in proportion to their exhaustive efforts on behalf of the colonizer. It was clearly the Belgians who determined the wage and price structure for these products during this pre-independence period.

Under the colonial government, the President-Director-General of UHMK was invariably Belgian, and price and wage policies were established in compliance with standard Industrial Legislation designed and promulgated in Belgium. In effect, the President-Director-General of UMHK reported to the colonial Governor General and received instructions essentially from Brussels, i.e. from the Ministry in charge of Colonial Administration. When the Belgian Congo gained independence in 1960, but only after a five year Civil War lasting until 1965, the prize of which was the Copper mine in Katanga being run by the UMHK, Joseph Desire Mobutu assumed control of the country. He successfully avoided the secession of Katanga, by exiling his opponents (notably Moise Tshombe), seized control of the copper mining operation and renamed it GECAMINES.

The managerial hierarchy within Gecamines in the initial years of Mobutu's regime was comprised largely of Belgians. These men were aware that, at the slightest whim, Mobutu's troops could seize control of GECAMINES' production facilities. But Mobutu was too shrewd to destroy an operation which had such vast potential to enrich him and his ruling clique. By negotiation with Belgium from a position of strength, Mobutu was able to arrange a heavy percentage of revenues from Gecamines for use by his military regime. However, with some of this profit he built on-site refining facilities in Katanga, now renamed Shaba, and enhanced his leverage over Belgium. SGM's share fell from a major portion of proceeds to less than 35%.

Mobutu's network of technocrats and administrators, implanted in upper echelons of Gecamines in the 1970s, kept him informed of the Belgian PDG's plans and strategies. Gradually, a newly trained class of Zairean "cadres" emerged who were essentially loyal to the Mobutu regime. In 1982, Mr. Krem was the last Belgian PDG of Gecamines. He had ensured efficient operation of this state monopoly for several years, perfecting the centralized command structure so that it could respond to all contingencies.

Gecamines remained competitively intact under the new PDG, Mr. M'Bo, and his staff, all of whom were newly approved by the increasingly confident and autocratic Mobutu Government. This new arrangement was able to remain viable, because technical personnel were still Belgian and because of subcontracting agreements with private firms. Such was the extent of private participation that it could be said that, at times, it verged on virtual privatization of Gecamines.

Figure II, below, illustrates some of the major foreign firms which cooperated with Gecamines from 1970 to 1995 under the Mobutu Government.

Source: Adapted from Transnational and M'bendi.

FIGURE II

As President Mobutu consolidated power and tightened control of his nation's industrial output and priorities, Gecamines was affected to some degree by these changes. It is crucial to note, however, that Mobutu's government limited direct interference in the operation of Gecamines during the first two decades of his regime. As long as his personal and governmental requirements were being met, he was satisfied with remaining at some distance from day-to-day managerial decisions. This allowed his Belgian administrators a certain degree of autonomy.

With management of Gecamines essentially under control of mid-echelon Belgian administrators for the years 1965 to, arguably, 1995, the production of copper stabilized at levels lower than total potential output, but was satisfactory for maintaining the regime in power and for paying Belgian technical cooperants for their services. Eventually, Gecamines copper production reached 50,000 tons in 1996, even though the firm's Management, and the Regime, wanted to produce additional tonnage. World prices and the desire to avoid a glut of copper kept production at below-capacity levels.

The national debt of Zaire was on the order of five billion dollars during this period, and debt service obligations were just barely being met satisfactorily, with occasional delays and defaults.

The industrial policies of Gecamines during the initial years of the Mobutu Government fluctuated as a result of several factors. The price of copper plunged during the 1970s, for example, throwing caluculations of expected revenue into chaos. But management was able to keep Gecamines afloat and meet all essential financial responsibilities during this period, minimally but adequately.

As was previously emphasized, the last Belgian administrator to control Gecamines was Mr. Krem who trained Zairean replacement personnel to assume his functions. He made major decisions in the mid-1980s concerning the firm's internal administrative hierarchy and established a realistic price structure for products (cathodic copper and a range of bars, rods and ingots) mined and manufactured on-site by Gecamines.

At a crucial meeting in Kinshasa in 1982, he decided NOT to assist financially in the transporting of electric power, via transmission line, to Shaba from Inga. He also interacted with Bank of Zaire officials on a regular basis attempting to put some order into the fiscal confusion which characterized Zairean finance at the time. Mr. Krem provided a sense of stability to the administrative structure of Gecamines and ensured the company's on going operations in conjunction with Belgium. His attempts to expand the market for copper ore produced in Kolwezi were successful in the sense that new customers were found in the western nations, notably in the United States and in Europe, under his guidance.

Gecamines essentially retained its Belgian administrative order after Mr. Krem's departure. However, President Directors General M'bo and, later, Umitala-Unutakaya (spelling uncertain) modified the chain of command noticeably, and shifted the balance of privatization and subcontracting which had been traditionally held to a minimum under the Belgians.

As prices and markets underwent changes periodically, the types of sub-contracting varied. Actual ownership of Gecamines was not affected under sub-contracting, of course, but profit-sharing was subject to contractual agreements. On balance, sub-contractors in Zaire were paid equitably and in accordance with "conventions" or mutually beneficial agreements. The Italians were frequently available for such arrangements and, indeed, seldom did they actually enter into higher level "purchase agreements" with Gecamines.

Such outright "purchase agreements" were later necessary as economic conditions in Zaire deteriorated. Later, they were more than subcontracting accords; they involved the actual purchase of mineral rights from Gecamines and all profits derived from them.So, there were essentially three types of arrangements into which Gecamines entered intermittently during the Mobutu years. These distinct types of agreements are noted in Figure III below:

Source: Derived from unpublished Transnational Research Associates accounts.

Figure III

As post-graft revenues of the Republic dwindled (down to 5.2 Million U.S. Dollars per month in 1982 according to TRA's Corporate Diplomacy in the Third World), desperation grew in Kinshasa and new agreements were frequently negotiated. The parties involved were those essentially listed on Figure II. The Mobutu government moved more often to the third type of agreement, shown above. When entering into these privitization agreements, Mobutu, his self-appointed PDG, and Gecamines (partially controlled by Belgian influences, but not dominantly so) would frequently exclude certain nations from bidding on activities controlled by Gecamines and would favor other nations with which he had special interests.

During these final dictatorial years, actual production of the world's fifth largest copper ore facility, Gecamines, varied annually. Sometimes it did not achieve expectations, and at other times it exceeded them. Funds for expansion of Gecamines facilities were always in short supply. In Shaba, there were so many ore deposits of cobalt, manganese, copper and zinc that it was difficult to exploit all of them simultaneously. The major decisions of Gecamines were therefore always carefully considered.

As foreign companies approached Messrs. Krem , M' Bo or Umitala, during these years, they met with a variety of responses. Usually, sums of money to be invested were required "up front", before rights would be granted to the foreign firm. One foreign firm that successfully bargained with the Mobutu government and with Gecamines was Tenke of Vancouver, British Columbia. The Canadians were always astute negotiators in Zaire, often using their French Canadian personnel, originally recruited in Quebec, to enter into direct talks with governing officials. Language was an important element in establishing trust and strengthening ties. Tenke's final agreements under the Mobutu government, shortly before the collapse of his regime, were profitable to all parties and judiciously negotiated. Tenke is still among the most respected of operators in Zaire and its financial backing in Canada is quite adequate by world standards. Although details are held in confidence, it is thought that Tenke today operates a large portion of Gecamines holdings.

The Japanese were also successful in dealing with the Mobutu government. Japanese interests in Zaire were focused on the extraction of raw ore and mineral wealth. Mobutu dealt with them frequently and Gecamines entered into the discussions upon his orders. As loan defaults and cross-defaults proliferated, there was considerable banking pressure exerted on Kinshasa's finances by the world community, among whom figured Japan.

During the Mobutu years, often tenuous Belgian administration of Gecamines was further affected by extraneous factors, such as unpredictable decisions on the part of the Dictator. In order to understand the background of managerial and industrial problems in Zaire, it is useful to examine, as a simple case in point, the following chain-of-events:

Later, as financial chaos swept Zaire in the mid-1990s, and Mobutu's hold on power diminished, although he attempted to hire mercenaries to shore up his regime, the fate of Gecamines -- as was the fate of the Kilo-Moto gold mine and the Mbuji-Mayi diamond fields-- was, in fact, dramatically affected.

Gecamines' management by Belgium was a feature of the distant past, and after three successive PDG's of Zairean nationality, the financial structure of Gecamines was seriously weakened. There were problems with skimming of profit, embezzlement and other forms of graft. The last PDG of Gecamines under Mobutu is now in exile, living with stolen funds in South Africa.

The government of Laurent Kabila came to power in 1997 on a wave of popular support, as Mobutu fled the country and died, surrounded by a close entourage of family and supporters, in Morocco. As Kabila's troops moved closer to Kinshasa, they secured areas of the country behind them and Kabila gradually established a power base not only among his people, but also among foreign firms vying for control of the vast mineral resources of Katanga (formerly Shaba).

Kabila used this leverage to gain support from international businessmen representing America Mineral Fields , Anglo-American, and Tenke. He promised to reform the managerial structure of Gecamines and enter into privatization agreements. Some of these accords are in effect today; others are not. As is the case with their diamond concession (ex-MIBA), the new Democratic Republic of Congo is interested in keeping Gecamines as a State-Owned Enterprise, occasionally assigning segments of its activities to private firms for exploitation, feeding revenue back into the government .

A recent agreement between Gecamines and the Haranbee Corporation was signed, according to which mineral rights will be extended to this firm in exchange for further development. The same is true of another promising development scheme known as the "Kipushi Copper Ore Tailings Project" which will be further pursued by America Mineral Fields, once international litigation is settled between AMF and Anglo-American.

As of this writing, Gecamines seems to adhere closely to the policies of Kinshasa and the new President of Gecamines is demonstrably linked to the government, taking his orders from Kabila himself, according to news releases and dispatches emanating from AMF and from other foreign sources, such as LE SOIR of Belgium.

A. Madsen, M.Ed.

Transnational Research Associates

November 1998