Key Growth Prospects in the DRC
The Democratic Republic of Congo (DRC) is one of the wealthiest countries in the world when it comes to minerals. Well established as the leading cobalt ore producer, its untapped deposits of raw minerals are estimated to be worth over $24 trillion. In addition to estimated reserves of 5 billion barrels of oil and 30 billion cubic meters of methane and natural gas, the DRC is rich in diamonds, copper, cobalt, gold and uranium.
The DRC’s mining industry has gained new notoriety in recent years with the rise of ‘Big Tech’ companies, particularly in North America, which depends on access to the DRC’s tantalum, tin, tungsten and gold for the production of smartphones, batteries and laptops.
Beyond its upcoming hydrocarbon licensing round – set to put 20 onshore blocks on offer to attract leading IOCs – the most promising investment opportunity in the DRC is still mineral production, specifically in meeting the growing market demand for ‘green’ batteries as the global energy transition seeks to expand on carbon-free grids, electric vehicles and green technologies.
Furthermore, the DRC holds extensive renewable resources, including 13% of total hydropower potential globally, yet only 2% of that potential is currently utilized.
In recent years, the DRC and the U.S. have been building an agenda for heightened investment in this area, reinforced through increasingly positive bilateral relations.
In April 2019, the two countries established the ‘Privileged Partnership for Peace and Prosperity’ (PP4PP), a joint commitment to enhanced economic collaboration, with the U.S. serving as a major investor and trading partner. A critical component of the PP4PP framework targets the introduction of U.S. private sector companies, goods and FDI to the DRC market. Because of limited capacity of the domestic commercial banking system, most projects access financing from international finance agencies and multilateral organizations, including the U.S. Agency for International Development (USAID), the World Bank and the United Nations Development Program.
USAID, for example, has launched a U.S. Government Development Credit Authority loan guarantee agreement to catalyze the availability of credit for small enterprise sectors, and in November 2019, signed an agreement to provide $600 million in U.S. development assistance to the DRC to support the growth of key domestic sectors. As a result, U.S. investors are able to explore procurement opportunities through these organizations.
Through a governmental push to increase national power access associated with increasing global demand for key minerals, the DRC’s energy sector is set to boast steep growth in the upcoming years. With great ambition comes great commercial opportunities across the energy value chain, as well as throughout the extractive industries sector, particularly for technology-driven companies capable of providing the right solutions.
The DRC is a world leader in the mining sector which represents 80% of its total exports and over one third of its budget. Given its reserves of lithium, nickel and cobalt, the DRC has a strategic role to play in the exponential development of electric vehicle batteries in the upcoming years. A handful of companies currently operate a large chunk of the country’s mining operations, but as the demand is set to increase rapidly, it is key to initiate discussions right now in the view of owning and operating key metals projects.
In an effort to render the supply chain more transparent, the government introduced a state-owned company aiming to purchase artisanal cobalt and have better control over the supply-chain. U.S. companies are not the only ones that have shown interest in securing strategic mineral resources, with the Chinese government making a strong power move in the DRC in 2008.
At the time, the two countries signed an infrastructure-for-minerals deal, which has secured a large reserve of resources bound for China and granted it a considerable amount of clout over the region. Beyond securing mining rights, international companies can also focus on investing in electrifying mining operations, which has been a key topic from the inception of the DRC’s mining industry and is set to grow alongside demand.
Since the liberalization of the sector in 2002, operators have gradually catered to their own industrial needs through installing their own power generators on-site. Furthermore, grid limitations mean decentralized power systems are the most economically viable option, both fossil-fuel and clean energy-based.
The DRC features one of the lowest access to electricity rates on the continent with around 10% of the rural population connected. Around 95% of produced electricity comes from hydroelectric dams built on the Congo river and its effluents. Sixteen dams are currently in operation, of which 12 are owned by SNEL, the national utility company.
The new framework for the liberalization of the electricity sector could contribute to government plans to increase electricity access rate of the population in the coming years. There is great room for foreign companies to invest in the DRC’s hydro space as only about 2,5% of its potential has been developed to date. Major projects are currently underway including Inga III (4,230 MW), Luapula (900 MW) and Ruzizi 3 (147 MW), for which there are needs for high-quality hydro-turbines and other machinery.
Off-grid, there is huge potential for individual power solutions and decentralized systems. Indeed, less than 5% of the rural population is connected to a source of power and isolated communities cannot rely on the poorly developed grid. Renewable energy companies could have a major role to play as the cost of development of individual wind or solar kits decreases and potential subsidies increase.
Petroleum is still a nascent sector in the DRC, with large swaths of onshore petroleum provinces remaining largely unexplored, particularly in the proliferous Great Lake region to the Eastern border of the country, said to contain major natural gas, methane and oil resources. The government is currently in discussions to launch its first ever licensing round in the coming months, which represents a great opportunity for international companies with the right capabilities to take positions in perhaps the world’s most promising underexplored oil and gas play.
Development of the sector could largely benefit from a seismic data campaign, given the lack of available data to measure its true potential. Down the road, exploration and production opportunities will be immense and the need for drilling equipment and production and monetization know-how will be paramount.