Former advisor to the Governor of Katanga, he was also General Manager of Gécamines and director of several large companies in the DRC. He was also one of the key players in the mining code and the Subcontracting Act. For the past two years, he has created his consulting firm and was appointed CEO of ARSP in early 2019, the Autorité de Régulation de la Sous-traitance dans le secteur privé, created in April 2018. M&B questioned him about the notion of subcontracting, which is still confusing for many.
Mining & Business Magazine. There is some confusion about the very definition of ‘subcontracting’ in the DRC. So, before we even go any further, can you give us your definition?
Ahmed Kalej Nkand. In a very simple way, subcontracting is the act of outsourcing part or all of an activity that should have been carried out by a so-called main company. This main activity is registered in the commercial register when the company is set up. The idea, therefore, is having all or part of your business activity carried out by a third-party company.
M&B. This definition corresponds to the one in dictionaries…
AKN. I would like to talk here about the spirit of the law because what the legislator is aiming for is to create space for Congolese companies to allow the middle class to develop.
M&B. As far as that is concerned, everything is clear, and if subcontracting works, it is rather commendable. But, forgive me for insisting, few people have understood what falls or does not fall within the scope of subcontracting.
AKN. Let’s take the mining sector as an example… It’s the best known and most structured. Generally speaking, the sector is about exploring and extracting minerals, and transforming them into marketable metals. That is the general structure. Now when we do this kind of activity, there are what I would call secondary activities…
M&B. Yes, the design office, for example?
AKN: Absolutely, it has a crucial role to play and is usually not managed by the company. However, for us it falls under subcontracting. Then you have to move on to the exploitation phase and conduct what is called a discovery operation. You have to evacuate tons and tons of soil. This operation also falls within the scope of subcontracting if it is outsourced. Finally, you have to excavate, with special machines, one of which is the excavator. Renting these machines or having a service company carry out the operation also falls under the scope of subcontracting.
M&B. So far, I’m with you. We’re obviously talking about the main activity. Even if I have a small reservation about the design office, but let’s move on. Let’s continue.
AKN. The extraction site is not necessarily in the same place as the processing site, so you have to transport the mineral materials. This transport activity is again considered to be subcontracting.
M&B. We are reaching a limit here, aren’t we?
M&B. Because the main task of the mining company is not to be a carrier, in the same way that the SCTP or specialised private actors are…
AKN. True, but you have to reread the law on this, which specifies that related and ancillary activities count as subcontracting activities…
M&B. There we go! So let’s define those related and ancillary activities that I think are at the root of the misunderstanding.
AKN. Related and ancillary activities are all activities related to the main activity…
M&B. Can you give me an example in the mining sector?
AKN. Well, all the inputs and reagents needed for the transformation of raw ore into cathodes are also covered by the law on subcontracting…
M&B. Do you mean that input suppliers also become subcontractors?
M&B. All right! If that’s the law, let’s continue…
AKN. Then, the cathodes must be transported to the port to be processed…
M&B. Don’t tell me that the railway company, if the method of transportation is by rail, also becomes a subcontractor of the main company…
AKN. No, but the transport between the company and the station is…
M&B. I reckon that using a communications, catering, security or whatever other company is considered subcontracting.
AKN. Yes, absolutely!
M&B. You tell me that the law concerns all sectors of activity, so you might as well tell investors to leave the country!
AKN. Not at all! There is no need to leave the country… Foreign investors can start their own business and be 100% owners. The only thing they cannot do is to subcontract to foreigners.
M&B. So, if I understand correctly, investors can set up provided that the product they manufacture or the service they provide is not intended for local companies…
M&B. Because in this case, the main company owned by the foreign investor becomes a subcontractor, and local companies can no longer buy its product or service….
AKN. Exactly. In that case, the foreign investor would therefore have to comply with the law by opening up 51% of its share capital to Congolese people…
M&B. Let’s say that those who have been there for a long time want to stay and agree to sell 51% of their shares, what about those who would like to come and invest?
AKN. If they come to perform operations that fall under subcontracting, they definitely cannot be majority shareholders in the company created in the DRC.
M&B. Let’s take the real case of a Congolese industrialist who wants to build a dam. To take one example of an expert in the field, he has selected a foreign company, Eiffage… How can he do that?
AKN. If he can prove that the expertise of this company does not exist in the DRC, he can call on this foreign company for six months.
M&B. But building a dam takes three years!
AKN. So in this case, Eiffage will have to create a company of which 51% is owned by Congolese capital to have this market.
M&B. Isn’t there a risk of creating hoax straw men who are shareholders in these foreign companies?
AKN. That is one of the dangers indeed… And in this case, I tell the Congolese people who have been asked to go there! The Law will prove them right and return their shares to them!
M&B. Little has been said about the penalties incurred….
AKN. They are clear: fine for the main company that uses a foreign company to subcontract and for the breach of contract.
M&B. A recent example?
AKN. One of the major Chinese Owned mining companies ordered 250 residential units from a Chinese company. We let them know that it was impossible, that it was against the law and we broke the contract. This company will have to use a Congolese company.
M&B. The President of the Republic travels around the world in search of investors. Is this the right time to put in place such binding laws? Aren’t you afraid it’ll scare off investors?
AKN. No, because core business represents a major part of business and investments in the DRC, about 80%. With the law on subcontracting, we only focus on the 20% related to subcontracting activities. In other words, telecommunications, construction, extractive industries, and all major sectors requiring major investments remain open to companies owned 100% by foreigners, knowing that the State can call on these investors because the law only concerns the private sector. The legislator has, in a way, chosen to pursue a policy of positive discrimination for SMEs in order to promote the emergence of a middle class. We remain convinced that it is this ‘booster’ that will encourage national ownership of the economy.
M&B. We hope so! This 28th issue of M&B is an official partner of Indaba. What message would you like to send to these investors?
AKN. Don’t worry and be reassured that the company’s core business is not being called into question… They can therefore own it 100%! Their only obligation is to subcontract to Congolese.
They are always welcome in the DRC!