Dancing in the Glory of Monsters

by Jason Stearns

  Other mining executives soon followed Boulle’s lead. The Swedish venture capitalist Alfred Lundin, who, like Boulle, had already been in negotiations with Mobutu’s government, began talks with the AFDL over the country’s greatest mining prize, the Tenke Fungurume mine, in March 1997. Tenke was widely acclaimed as the largest copper mine in the world, with an estimated $26 billion in copper reserves. Lundin gave the rebels $50 million up front as a down payment, which was supposed to go to the state mining company.8 “There are moments in the history of mining when you can make deals like this under excellent terms,” Lundin said at the time.9 Indeed, the terms were not bad: In return for $250 million paid to the Congolese state and a $1.5 billion investment in making the mine functional, Lundin would be able to operate tax-free and retain a 55 percent share in the mine.10

  Were these deals illegal? Possibly. After World War II various war crime tribunals found German and Japanese companies guilty of crimes of pillage, either through the direct seizing of assets or by buying goods that had been stolen by others. In one case, for example, the U.S. military tribunal at Nuremberg found the manager of a German mining company guilty for having carried out excavation in a coal mine in Poland that he had been granted by the Nazi government. 11 In the Congo, Boulle and Lundin also signed deals with rebels, not with the legitimate government. Moreover, the cash down payments—amounting to perhaps $70 million—came at a crucial time for the rebellion, two months before it reached the capital, covering the cost of the final push.

  The Congo is often referred to as a geological scandal. This is not an exaggeration. In the late 1980s, it was the world’s largest producer of cobalt, third largest producer of industrial diamonds, and fifth largest producer of copper. It has significant uranium reserves—infamous for having contributed to the Hiroshima bombs—as well as large gold, zinc, tungsten, and tin deposits.

  Like so many of the country’s problems, the mismanagement of these assets dates back to colonial times. In 1906 already, the Belgian government gave the Société générale de Belgique, a powerful trust affiliated to the state, a mining tract of 13,000 square miles in Katanga, the size of Belgium.12 Under the exceedingly favorable terms of the deal, the company would get a ninety-nine-year monopoly over any mineral deposits it could identify in the next six years. It was also granted the management of the state railroad line that would help export the copper and cobalt ore, for which the colonial state would provide local labor. Société générale set about creating the three most powerful companies in the Belgian Congo: the Upper Katanga Mining Union, the Bas-Congo to Katanga Railroad Company, and the International Forest and Mining Company. Mineral and agricultural exports from the Congo fueled the creation of some of the biggest Belgian conglomerates and personal fortunes, developing the Antwerp port and creating a copper smelting industry.

  Mobutu nationalized the Upper Katanga Mining Union in 1967 and rebranded it Gécamines, while other mining companies in the Kivus and Katanga were also converted into state-owned enterprises. The government proceeded to use the mining company as a cash cow, systematically milking it for money to fund Mobutu’s patronage network instead of reinvesting earnings in infrastructure and development. In order to carry out this scheme, the autocrat forced all mineral exports to be sold through a state mineral board, which would then hand over its revenues to the state treasury. Nonetheless, thanks to rising world copper prices, Gécamines remained the country’s largest source of employment and income, providing over 37,000 jobs at its peak, running thirteen hospitals and clinics, and contributing to between 20 and 30 percent of state revenues.

  A confluence of factors brought about Gécamines’ demise in the 1990s. Copper prices plunged as low-cost producers such as Chile stepped up production and world demand dipped. The army pillages of 1991 and 1993, along with the ethnic purging of Kasaians from Katanga in 1993, drove much of the experienced expatriate staff out of Gécamines and contributed to the cutting of foreign development aid that had helped prop up the ailing mining sector. Finally, the years of mismanagement took their toll. In 1990, the huge underground Kamoto mine collapsed, leading to an abrupt drop in production of 23 percent. Exports declined from a high of 465,000 tons in 1988 to 38,000 tons just before the war, while cobalt production slipped from 10,000 to 4,000 tons in the same period. Similar trends affected all other mineral exports, leading to a vertiginous contraction of the country’s GDP by 40 percent between 1990 and 1994.

  Pressured by donors to relinquish the state’s grip on the economy and desperate for revenues, Mobutu allowed his prime minister, Kengo wa Dondo, to begin gradually privatizing the mining sector in 1995. Most of the contracts that were later negotiated with the AFDL, including the American Mineral Fields and Lundin agreements, were amendments to and confirmations of deals that had already been struck with Mobutu’s government in 1996. The notion that the war was fueled by international mining capital eager to get its hands on the Congo’s wealth does not hold water; the war slowed down privatization of the sector by a decade, as insecurity and administrative chaos prevented large corporations from investing. It was not until 2005 that major new contracts in Katanga were approved and investors began to invest significant funds.

  Kabila’s antipathy toward free-market capitalism shone through in other ways. The rebellion applied its half-Marxist, half-liberal approach to mining, adopting a slipshod policy that imposed harsh conditions on large foreign companies while favoring shadowy investors who often lacked the resources and expertise necessary to develop mining concessions. Kabila was not happy with the huge copper and cobalt deposits that had been doled out—according to the government, the president had never actually put pen to paper on the deal—to American Mineral Fields, and he suspended the negotiations. His minister of mining accused two of the biggest mining companies, De Beers and Anglo American, of “monopolism” and “lack of social responsibility” and stripped them of some of their Congolese assets.13 The government began demanding that any foreign investor provide 15 percent of the planned investments as a nonrefundable cash payment up front and that they keep the involvement of expatriate staff to a strict minimum. It put the largest existing mine, the collapsed Kamoto polygon, up to an open tender but then forced the six companies that applied to work together as a consortium to develop the asset. Not surprisingly, the deal collapsed. “C’était un désastre,” a Gécamines official told me, holding his head in his hands. “Laurent Kabila? Mon Dieu.”

  Soon, however, this approach had exhausted itself. Together with his Rwandan partners, Kabila revived an idea he had from his days as a maquisard in the 1970s and created a parastatal company called the Mixed Import-Export Company (COMIEX). Before arriving in Kinshasa in May 1997, Kabila had funneled a total of at least $31 million in private and state capital into COMIEX accounts at two Rwandan banks in Kigali.14 The funds included the $25 million down payment from Lundin, $3.5 million from the state mining company, and several hundred thousand dollars from a state coffee plantation in North Kivu.

  The idea of creating a large holding company to manage the ruling elite’s interests in the economy was not a new idea. In Rwanda, the RPF ruling party had a wide-ranging network of investments in banking, real estate, and industry through companies such as Tristar and Prime Holdings. In Ethiopia, the government would pursue a similar model. This allowed the government to dominate and benefit from the private sector without having to subject its activities and financial transactions to the public scrutiny required of state-owned companies. COMIEX initially functioned as the rebels’ bank, but Kabila did not fuse the company with the Central Bank when he came to power in Kinshasa. “COMIEX was never registered as a parastatal and put under the official control of the state,” Mabi Mulumba, the auditor general at the time, remembered. “It was a private trust run by people close to President Kabila, but entirely created with state assets.”15

  One of Kabila’s lawyers remembers having warned the president against funding a private company with state re
sources. The president laughed and told him, “But this law you are talking about, it is man who made it, no?”16

  When the second Congo war broke out on August 2, 1998, President Laurent Kabila knew that he didn’t have the resources or the army to beat back the Rwandan troops who were rapidly approaching the capital. Their indigence was underscored when Kabila sent an urgent delegation to Luanda to plead for military assistance to repel the Rwandan offensive. “First pay us the debt that you owe us,” the Angolan foreign minister told the envoys, referring to a $6 million debt Kabila owed for military support during the first war.17 The Congolese government also owed the Zimbabwean government over $5 million for deliveries of weapons and equipment, and it was clear that neither country would be willing to spend the resources needed without something in return.

  Like an entrepreneur trying to fend off bankruptcy, Kabila started putting up his country’s most valuable assets as collateral to secure further loans. He transformed COMIEX into a sprawling conglomerate that struck up partnerships with the Zimbabwean and Angolan state in massive timber, petroleum, mining, banking, and agricultural projects. In Harare, President Mugabe copied his comrade’s business plan, setting up his own privately registered, state-run hybrid called, somewhat ironically, Operation Sovereign Legitimacy (OSLEG), through which he intended to funnel investments and any eventual profits.

  The assets involved were enormous: OSLEG went in fifty-fifty with COMIEX in a timber business that received 3,800 square miles from the Congolese state to log, as well as in Sengamines, one of the country’s most lucrative diamond concessions. Several banks were set up to manage the cash flows to and from these various projects, and shares in the front companies were reserved for parliamentarians and ministers in both governments.18 The management of Mugabe’s corporation OSLEG included the commander of the Zimbabwean Defense Forces, General Vitalis Zvinavashe, as well as the minister of defense, along with top officials in the state mining company and minerals marketing board.19

  This kind of business climate favored enterprising, rough-mannered, and unscrupulous businessmen. Billy Rautenbach fit this mold. A former race car driver and the son of a wealthy Zimbabwean trucking magnate, Rautenbach took over the family business when his older brother died in an accident, and he set up lucrative car dealerships throughout southern Africa. He was known for his sharp temper. “He used to run the company by yelling at people. All day he would yell at people,” a former business associate told me.20 Over the years, he accumulated charges in South African courts ranging from customs fraud to theft to involvement in the murder of a former business rival. The murder charges were later dropped and Rautenbach eventually settled for the fraud charges, paying $5.8 million in fines.21

  In September 1998, Laurent Kabila’s government handed the entire Central Mining Group over to Rautenbach to manage as part of a deal with its Zimbabwean allies. Gécamines officials lamented Rautenbach’s bad temper and the fact that he cherry-picked the best ore, instead of systematically excavating the rock, which damaged the long-term profitability of his Kakanda mine. “He brought in these new machines that weren’t appropriate for the job,” one Gécamines official who was there at the time complained, “and picked holes throughout the concessions. It looked like a half-exploded minefield!”22 Mining analysts were particularly outraged with the immense size of the concession that Rautenbach had obtained. There was no way that he would be able to work on more than a small part of the concession. In the meantime, some of the most lucrative copper and cobalt deposits in Africa lay fallow.

  President Kabila was initially happy with Rautenbach’s performance, as he was one of the few people who seemed to be able to squeeze any profit out of the various moribund state-run companies, and just months later made him the director of Gécamines. “Kabila would be on the phone every week with Rautenbach, asking him for more money for the war,” one Gécamines employee remembered.

  Rautenbach did not perform poorly at first. By one estimate, he made $20 million from the Kababankola processing facility alone over eighteen months, while in Likasi he was processing 150 tons of cobalt a month, worth $6 million.23 “He kicked ass, got people to work, and cranked out production,” another mining executive remembered.24 However, Rautenbach was out to make quick cash, as was the government, and did not reinvest much of his earnings into the upkeep of infrastructures. By the end of 1999, Gécamines’ mineral production had fallen, and creditors were seizing shipments in order to pay back debts. Moreover, Rautenbach had made powerful enemies by laying off 11,000 state workers and canceling all previous marketing agreements for cobalt, transferring them to one London-based company. In March 2000, Kabila replaced the Zimbabwean with a local businessman.

  Similar deals proliferated, usually featuring dubious businessmen and getrich-quick schemes. In 2000, John Bredenkamp, a Zimbabwean arms dealer who has been involved in busting sanctions on Zimbabwe, obtained six concessions with estimated mineral reserves of $1 billion. He gave a down payment of $400,000 and promised 68 percent of net profits to the Congolese and Zimbabwean governments. The same year, another South African entrepreneur with a criminal record, Niko Shefer, met with President Kabila and obtained a deal to trade diamonds through Thorntree Industries, a joint venture with the Zimbabwean army. Shefer’s rap sheet included setting up a pyramid scheme with an evangelical church in Florida and a five-year prison sentence for fraud in South Africa. This time, Shefer was intent on taking advantage of a discrepancy between the official and the black-market exchange rates in the Congo to profit from diamond trading. A South African intelligence report details a conversation between Shefer and a potential business partner:The official exchange rate is currently $1 = CF [Congolese Francs] 4.5. The unofficial (referred to as “parallel”) rate is $1 = CF 28. Most foreign imports come in at the parallel rate. KABILA has agreed that Thorntree can buy Congolese Francs at $1 = CF 16 whilst diamond and gold purchasing will be conducted at the official rate. This mechanism will create huge margins that will give Thorntree a distinct advantage over its competitors. KABILA agreed to this proposal because he will personally receive 30 per cent of Thorntree’s discount. SHEFER estimates that CF 40 to 60 million a month will be needed to cover the requirements of initial buying operations....

  The potential margin is very attractive. For example, at the end of November [1999], I saw a package of 3000 carats, 80% gemstones, bound for the Oman-backed company. The parcel was worth $2.5 million; they paid the CF equivalent of $200,000.25

  It is difficult to know exactly how much money the various actors involved made. According to UN estimates, between 1998 and 2001 the Congolese government took roughly a third of Gécamines’ profit to fund the war effort, sending tens of millions of dollars to the Zimbabwean government to cover its military expenses.26 The International Monetary Fund, working from incomplete budgetary data that probably excluded some revenue, concluded that at the height of the war in 2000, the Congolese government was spending 70 percent of its expenditures on “sovereign and security items,” a budget line that was managed entirely by the presidency and dedicated mostly to the war.27 That amounted to over $130 million for that year alone. Some money also went directly to paying the Zimbabwean army—both Rautenbach and Bredenkamp gave money directly to Zimbabwean army commanders to pay for their bonuses, as well as for food and medicine for the soldiers.28

  Other money transfers circumvented the Congolese state and went straight to Harare. According to one account, Rautenbach sent between $1.5 and $2 million a month to government officials back home.29 According to several high-ranking Zimbabwean officials, when Rautenbach was removed from the leadership of Gécamines in March 2000, he threatened to reveal exactly how much President Mugabe and Justice Minister Mnangagwa had made during his tenure at the Congolese parastatal.30

  In the end, like everything in the Congo at the time, the Zimbabwean profiteering degenerated into a piecemeal approach, as Zimbabwean government officials took advantage of their military links t
o conduct private business. In October 1998, state-owned Zimbabwean Defense Industries obtained a $53 million contract to supply the Congolese government with food and equipment, much of which would be transported by General Zvinavashe’s private transport company.31 The head of the state weapons manufacturer, Colonel Tshinga Dube, also took advantage of his contact in the Congo to set up his eponymous diamond mining company, Dube Associates—apparently not too concerned with hiding his conflict of interest—in the Kasai province, although without much success.32

  By the time of the second Congo war, Mugabe was beleaguered by trade union strikes, food riots, and mounting inflation. He had also just embarked on a move that would come to dominate the next decade of Zimbabwean politics and bring him enemies from all corners of domestic and international politics: the expropriation of 45 percent of the country’s commercial farmland from its mostly white owners. After eighteen years in power, some of his former allies had begun to openly question his leadership. Dzikamayi Mavhaire, a powerful parliamentarian, moved to amend the constitution, arguing that Mugabe should be limited to two five-year terms. “The president must go,” he told an open session of Parliament. The government Herald newspaper also began running surprisingly critical editorials, fustigating the land redistribution policy.33

  In this context Mugabe was eager to maintain the loyalty of key allies, particularly in the security services. As the economy at home shrunk, so did opportunities for domestic patronage. The Congo war provided the opportunity he needed to keep his collaborators happy and busy elsewhere. This explains the urgency with which the Congolese and Zimbabweans set up their joint ventures and how easily Zimbabwean officials gave up on getting their debts reimbursed through the mining ventures.