The DRC at a glance…
In January 2019, the country’s longstanding opposition leader - Félix Antoine Tshisekedi Tshilombo - won the presidential election of December 2018, succeeding Joseph Kabila who had been at the country’s helm for 18 years. Uncertainty persists in the DRC where it is feared that Kabila continues to rule from behind the scenes; these concerns were exacerbated by the announcement in July to appoint Commission Électorale Nationale Indépendante (CENI) secretary general Ronsard Malonda as head of the electoral commission. Malonda was head of CENI during the 2018 elections, which were marred by accusations that the commission had tampered with the results to deny victory to Lamuka coalition candidate Martin Faylulu.
COVID-19 has prompted further uncertainty, with 10,333 cases and 260 confirmed deaths. The virus has hit the country in the midst of its struggle to tackle the spread of Ebola, which continues to spread in the north-west DRC. The investor climate has been hampered by uncertainty surrounding the requirements for subcontracting in the private sector and a global drop in commodity prices.
Last month, Afriwise's CEO Steven de Backer caught up with Thibaut Hollanders, an M&A lawyer and a partner at Liedekerke, an Afriwise contributing firm in the DRC. Thibaut has spent over 4 years in Kinshasa, the country’s capital, and agreed to chat with us about the current political, legal and business environment.
Steven: Thibaut, thank you so much for joining us today. There’s clearly a lot going on in the DRC at the moment, what sectors have you been seeing the most activity in over the last few years?
Thibaut: There is a lot of work being done on hydro-electric projects – small to mid-size projects in particular, from 20 to 150 megawatts. There are also a lot of new mini grid and solar projects coming in. And, unsurprisingly the other sector is the mining sector, specifically the mining contracting service providers.
Steven: Are there any sectors you expect to see increased activity in in the coming 2-3 years?
Thibaut: There are more and more infrastructure projects. Our firm is involved in a major one currently. However, many of the infrastructure projects that firms such as ours wish to be involved in don’t tend to get through internal screening procedures. Largely because many of the infrastructure contracts have not passed through the appropriate public tender process. This is a red flag for our due diligence teams involved in screening new clients. Therefore, despite there being a boom in infrastructure opportunities, they may not translate into opportunities for legal firms such as ours.
I certainly think the hydroelectric sector will continue to develop – particularly because of mining projects and the need for it due to the lack of energy in the country.
Steven: What about agriculture? The DRC has around 80 million hectares of arable land of which only 10 percent are currently exploited. Surely this sector is ripe for investment given the DRC’s reliance on food imports?
Thibaut: You might think so, however, investment in agriculture remains very small, this is largely due to the agricultural act of 2011 – through which the government enacted an agricultural law that set broad guidelines for the sector. At the time it was a source of concern for foreign businesses in the sector and remains detrimental to investors coming into the DRC today. There is a provision in the act which stipulates that at least 51% of shares must be held by Congolese people. Whilst this legislation has never been enforced, it is still in print which puts off new investors. As law firms we can help companies put in place specific structures to allow them to keep hold of the company, but for the time being it has meant we don’t really see agricultural projects.
Steven: Do you see any changes on the horizon to existing laws such as these, or any significant new laws being introduced?
Thibaut: Since the new president came into power in December 2019, some work has been done to improve confidence in the market. However, it is important to point out this change in president is recent, and there is still not political stability. It will take another 12-18 months before any sense of confidence and certainty allows for changes in legislation. Uncertainty does not bring a lot of change in the DRC.
One of the main recent changes that is at the forefront of many investor’s minds is the subcontracting act which nationalised all the service and goods providers. This affects anyone who provides goods or services to local companies; they have to assign more than 50% of their share capital to local companies and individuals.
They have put a regulatory authority in place, which is supposed to enforce this act, but they are finding it impossible to do so. However, we are finding that all foreign players are now needing assistance, to find the best way to stay in situ and continue with operations, whilst staying compliant and retaining control of their investments. The main issue is the lack of local investors, able to bring enough capital to take over the 50% + 1 shares of the existing subcontracting companies and the lack of the so-called affectio societatis when local shareholders are imposed on foreign investors.
Steven: I know this particular law has certainly been a concern to many of our subscribers... There must be some COVID-related changes that companies operating in the DRC are facing currently?
Thibaut: Well when there is a lack of money, and there is in the DRC currently due to the commodity slow-down, local governments or states will use taxation. With lockdown, a huge amount of pressure has been put on companies in the DRC, not only through additional taxation – but also by the fact that companies have not been allowed to conduct mass dismissals. You need permission from the employment and labour minister who has not been giving it, and who in fact issued a directive expressly saying they would not allow it. Many companies will not have been able to bear this added pressure. There has been a fund of 10 million dollars made available to local companies, but I don’t know how well this has functioned.
More generally, employers are also required to put specific measures in place, including advertising and hand sanitiser. You also have to sanitise the office through an official license cleaning company. This obligation is however already challenged, because of its lack of legal basis.
Steven: Do you think DRC’s battle with Ebola has better equipped the country to deal with COVID-19?
Thibaut: Interestingly, in the eastern side of the DRC, where, as you know, Ebola is a particular problem, the recent pandemic did not develop so much. I assume this is largely due to the population being so well tuned to the necessary barrier behaviours such as washing hands and good hygiene practices.
Steven: That’s really interesting. Before we finish up, we would like to ask you what your top two tips would be for any company looking to invest in the DRC…
Thibaut: Definitely understand the legal framework first to avoid problems afterwards, and also rely on a local network of people you can trust – this is paramount. We see so many people trying to invest from abroad with no local footprint, and it rarely works. If you want to start a business on the ground, you need to find relevant people on the ground and build the business from there.
To find out more, subscribe to the Afriwise Platform to stay on top of legislative and regulatory changes in the DRC, in an easy, efficient and cost-effective way.