Who profits from the oil income?
Buying power for each of them had, on average, diminished by as much.
In a way the Congolese regime has widened the number of its dependents by this policy, but has not stabilised its social base. Even badly-paid, government
La less-disadvantaged
Despite the makeshift 'Marxism-Leninism' preached by the ethnic-based military clique that rules the neo-colonial state of the Congo, despite the links of the regime with the USSR, or of the ruling Congolese Party of Labour with such 'sister parties' as the Communist Party of the Soviet
Union or the Cuban Communist Party,
Brazzaville remains in the grip of imperialists, particularly of French companies.
The article below explains this in some detail through looking at the the government is creating the conditions place of oil production, controlled by the French company Elf and the
İtalian company AGIP, in the country's economy.
Andre BASSINET
Oil has been produced in the Congo for more than ten years.
During the first few years production varied between one and two million tons per year, while in
Gabon production in the same period was between 12 and 14 million tons per year.
The Congolese state received only a very modest income for this whole period.
From 1980 there was a sharp rise in
This was partly due to a significant rise in oil production but more to the rise in world oil prices. So, from
1979 to 1982 production increased by
160 per cent, from 2.8 to 4.5 millions of tons per year. The value of oil produced increased by 450 per cent, and the income to the state by 550 percent.
This oil boom got started at just the time that the present Five Year Plan
(1982-86) was being prepared. Thus, the
Plan was premised on the idea that the
Congolese state would have increasing resources based on a big growth in the production of hydrocarbons (oil, coal and gas) and on a continuing upward trend in prices.
The planners put their trust in the statements of the oil companies (the
French company Elf and the Italian
AGIP) who had, in 1980, announced some important discoveries, which allowed the state to count on a big increase in
Thus in 1982 the five-year plan projected the production of 5.2 million tons, and almost 6 million in 1983.
period beyond, up to 1986, it had different estimates varying between 7 and 11
The plan also projected a price range of 32 to 35 US dollars per barrel for 1982, and 46.8 to 51.2 dollars
Revenues from oil production represent more than 80 per cent of the Gross
Domestic Product of the Congo. Oil income - more exactly, that part of it that is not directly taken by the foreign oil companies and which goes through the state - gives the state and the political group that holds the reins, an enormous power to intervene in society.
International Viewpoint 12 March 1984 the economy of the Congo-
The tax income raised directly on oil has provided two-thirds of the resources of the Congolese state during the last three years. Added to this should be the indirect income raised by the taxes on the subcontractors. The Congolese state has obliged all the foreign oil companies active as subeontractors in oil production (builders of offshore platforms, or pipelines, public works enterprises building onshore installations, etc.) to create Congolese subsidiaries which, as such, are subject to local taxes.
In addition, the local spending of the foreign personnel employed by Elf and its subsidiaries has stimulated the growth of a whole sector of economic activity, particularly commercial, at Pointe-Noire (1), which also pays taxes to the state.
Finally, the importation of material by the oil companies and of consumer goods for the foreign technical personnel involves the collection of customs duties. In total then, more than three-quarters of the state's income is supplied directly or indirectly by oil production. However, the benefits for the private sector or publie enterprises of the effects of oil production have remained small. They are only felt at Pointe-Noire, and there more in commercial activity (such as supermarkets, hotels, etc.) than in directly productive activity. Spending the oil income
The expansion of state revenue has brought about a big increase in spending on 'state functioning' and a still larger growth in investments. The total budget for salaries paid out in the government service has risen considerably, although much less than the general rise in state
However, this increase has served to the number of government employees — this doubled between 1970 and 1979 - but not at all to pay them better. From 1980 to 1982 the wage component of the budget grew at the same rate as inflation, 16 per cent per category than many others. By increasing their number the regime has undoubtedly tried to erect a guarantee against the social problems caused by a huge increase in the number of 'educated and qualified' persons in the towns.
At the same time, by blocking wages for a pronounced discontent in a category which is also its base for social reproduction. It is spending on equipment for the administration that has grown more than the spending on staff - the former has tripled in three years. However, there is not a single photocopier in working order in several of the ministries, the offices lack paper, and there is a striking lack of tables, chairs, etc. in the schools. But it is true that it is easier to divert funds allotted to purchase equipment than those allotted to pay wages.
However, it is the investment budget that has gained the most from the oil manna. Since the time that the rise in income was announced the Congolese government has been gripped by a complete frenzy of road and airport building. 1982 more than one-third of the oil income was assigned to transport spending. With a complete disregard for all prudence, almost all the schemes projected in the plan were started at the same time in the first year. The ruling clique's predilection for this type of infrastructure is easily explained. Above and beyond the 'prestige' nature of these projects, there is the fact that it is on publie works that it is easiest to get big commissions. The payoffs to the different Congolese officials for contracts usually boosts the prices of roads by 20 percent. This would mean 6,000 million CFA francs in 1982. (2) Of course, these millions then are divided up political clients who are generally recruited on the basis of coming from the same region or clan. way the regime reproduces its social base.
The railways are the biggest item of investment spending after the roads. The reconstruction of the Bilinga-Loubomo section of the Congo-Ocean railway is one of the most scandalous cases of over1. Pointe-Noire, the second largest town in the country and the main port, is situated in the centre of the oil production zone, which
The CFA (Communaute Financiere Africaine) franc is a currency linked to the
French franc which is valid in all countries in the 'frane zone'. One CFA francis worth
.02 French francs, thus, approximately 400 CFA francs equal 1 US dollar.
21
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CONGO
Doumeng An example of 'new relations' with under-developed countries
The Doumeng group is known for the links that its president, Jean-Marie Doumeng, has with the French Communist Party. Doumeng is at the head of a series of companies and co-operatives that specialise mainly in food production, but also in the
The group makes substantial profits from trade in agriculrunning cost limits in the history of the Congo, rich though it is in such practices.
The part of the state's budget allodirectly productive sector agriculture, forestry, mines, industry and fishing - is small compared to that for spending on the state infrastructure.
construction industry.
tural products with the USSR. In the last few years the group (Societe Interagra,
In particular it produces very few new
Silos du Sud-Ouest, etc.) has also become a specialist in activity in certain so-called productive units.
In fact, the greatest
'progressive' Third World countries, particularly the Congo. It is present there in part of the budget for the productive secthe form of 'advisory companies, charged with setting up and selling 'development tor is used for subsidies for its functionprojects', as a supplier of agricultural equipment, in the import-export trade of food products, and in the form of public works enterprises constructing agricultura.
are allocated for this in the finance min-
The Doumeng group's originality and success in a country like the Congo stems istry's budget.
from its apparently 'anti-imperialist' speechifying and tactful concern for the sovis a roughly
Unlike other advisory companies it never proposes dis amount that should be added, mantling the public sector, but offers its services to help the nationalised enter appears in the equipment budget under for helping enter-
A typical example of its activity is in regard to the MAB, a cereal-processing
In fact, there is hardly a single plant inherited from the colonial period and nationalised by the Congolese authorpublic enterprise that is not in deficit.
Up to 1980 the MAB, like all the other public enterprises, had got into a deep
This is in general explained by machinery was not looked after, there were frequent breakdowns.
embezzlement that goes on, and the inproduction had dropped sharply, and it looked as if the firm would shut down very credible chaos that exists at the level of
Doumeng then proposed to save the business. The MAB remained the property
The money allocated to the of the Congolese state, but Silos Sud-Ouest were given the responsibility of manag productive sector is not, thus, strictly
The Doumeng group promised to balance the accounts and to make enough speaking, investment designed to increase of a margin to pay for the new equipment that it advised be bought, given that it productive capacity but rather endowwould be one of the companies in the group that would supply and install it. Howments given to try to ensure the simple
The MAB would have a monopoly on the import of reproduction of capital.
This is comwheat and flour for the whole of the Congo and would set, in agreement with the parable to the labours of the Danaides government, a 'fair' selling price. Deal agreed.
But a little later Doumeng revealed that, after study, the factory would never be who were condemned to fill an unplugable to lower the cost price of flour to a level that was competitive with the world ged barrel with water. The public enter-
So it proposed the following solution: the factory would slow down proare the flowing barrels at which duction and, with imported wheat, would produce 7,900 tons of flour in 1982, those people whom politicians are re-
The cost price of each ton of flour thus prowarding, or who have a family or ethnic duced would be almost 200,000 CFA francs.
link, can serve themselves from the posts supply the Congolese bakers would be imported by MAB at the world price, 110,000 of responsibility that they are given.
CFA francs per ton in 1982. The selling price of flour on the Congolese market was
In fact, the oil income, or at least that fixed at 127,000 CFA francs per ton, that is, in such a way that the losses on flour produced by the MAB factory would be covered by the profits made on the resale part which the Congolese state receives
(Elf and AGIP help themselves to comevery one is happy, thanks to Monsieur Doumeng. The MAB staff, who kept fortable profits at source), is only in their jobs by working part-time, the government which no longer needs to close or transit. A considerable portion leaves for pockets abroad. The big hotels in Brazzaon the equipment supplied, and it supplies MAB with its wheat and 41,000 tons of filled with
What is more it also receives a subsidy for its sales from the Common representatives of multinational com-
Market, as on all exported agricultural products.
These are the people who sell a 'management advisory company"! It really cannot be said to be losing out.
most of the fantastic development pro-
Congolese government can congratulate itself that there is at least one najects', the turnkey' model firms, or the have seen the price of bread rise sharply in the bakeries. The cost of flour rose by measures for helping the public sector.
Shameless imperialist pillage
Particularly in the industrial sector the
"prospecting salesmen' from the multinationals play on the fact that the state enterprises are all in deficit, arguing that the reason is the 'old age' of the material, or that equipment is 'out of date'. The ways for improving these firms always include an element called 'renewing equip ment' which is usually the only measure which is really applied. No one among the Congolese technocrats bothers to find out if the equipment thrown away like this is repairable, or if the new machinery really works better than the old.
Nor is there any effort on the Congolese side to find out if the material or services sold are at a 'normal price for international could be being sold at two or three times the price that they are sold in Europe, no
To tell the truth, everyone wants to see the equipment sold buildings, silos, etc.
ereignty of the country. prises to work better. ing it.
ever, it made one condition.
some 16 per cent of domestic needs.
subsidise the factory, and, of course, tionalised enterprise that is not in debt.
45 per cent in 1982. for the highest price. The foreign suppliers, because they will increase their profits; the Congolese officials, because they get a pay-off calculated as a percentage of the sale. What does it matter if public enterprise cannot pay the buying loan which the seller or a foreign bank has given it? The state will pay instead, or give it a subsidy, thanks
The foreign suppliers do not even hesitate at the most gross subterfuges to get a sale. But are they actually subterfuges? No one is taken in. So it is quite usual for the cost of construction works to be raised by 100 per cent in the course of the project without arousing very much protest from the Congolese client. Other firms act more subtly, such as the Doumeng group particularly in its role as manager of the nationalised group MAB (see box), or Elf-Congo.
French national company Elf controls 62 per cent of oil production in
The additional flour necessary to
The group has taken its profits
And for all that it is also paid as
In the meantime Congolese consumers the Congo. The rest is produced by the
Italian company AGIP. In 1982 Elf sold
2.8 million tons of Congo oil for 208,000 million CFA francs. It had to pay 96,000 million to the state on this sum: 38,000 million under the heading of 'duties, of the works were first esti
Cost mated at 16,500 million CFA francs.
sale was finally made at twice that price to an
Italo-German-French group.
was originally in 1980 but work is still company is demanding
94,000 million, 73,000 million already been paid, to finish in 1984.
up almost one-fifth of the oil income for that
The German firm Klockner was engaged to refit a match factory (Falco) for 540 milequipment it demanded 3,000 million francs plied, the president stating.
of the need for regional balance, project will be carried through whatever the
The factory is obviously situated in the northern area of the Country where the leaders of the military clique presently in power
International Viewpoint 12 March 1984
calculated by taking 17.5 per cent of the official price on each ton of oil produced, and 58,000 million as taxes on profits.
But who calculates the profits? Elf that gives the state the costs for production and for investments for research
Given that one knows that the equipment (platforms, pipelines, exploration machinery, pumps, etc.) is supplied by companies linked to Elf, or by the Bouygues firm in which Albin managing director of Elf until June 1983 and a former Gaullist minister, has personal and family interests, there seems very little doubt that the equipment will be over-billed. What that means in fact is that it is more or less Elf itself that decides on what profits it will pay taxes. Poor Elf. Just so - in 1982 its production costs were more than it had planned at the beginning of the
It was the same with AGIP. these two firms paid only 91,900 million in taxes rather than the 103,700 million predicted at the beginning of the year.
And as things have turned out to be really bad in 1983, Elf and AGIP have not only demanded that the official oil price be reduced by the same proportion as the price set by OPEC (Organisation of Petroleum Exporting Countries, of which the Congo is not a member), but also the way of calculating the tax on profits be revised. Unless this happens they will not guarantee to maintain the rate of pro-
Moreover, they already slowed down considerably in the first part of 1983, in order to show that they produce oil in the Congo almost out of charity. How Elf makes its profits
The oil refinery opened in 1982 is the property of the Congolese state, for which it has paid a high price. But it is managed by a mixed economy company, CORAF, whose shares are held 60 per cent by Hydro-Congo (a national company with a monopoly in the distribution of hydrocarbons), and 40 per cent by Blf. The agreement between the two partners stipulates that CORAF will make neither profit nor loss, and will buy all its oil from Elf at the official price, that is 38 US dollars per barrel. The official price determines the bill for taxes and duties. For many years it has been higher than market price. This means that, thanks to this agreement, Elf sells oil to the Congo that it produces there at a price that is 8 to 15 per cent higher than that on the world market.
Some two thirds of the refinery's production is heavy fuel and one third "light' products (fuel oil for industry, diesel oil, petrol, kerosene for aeroplanes for domestic usage, as 90 per cent of the Congo's population do not have electricity) and
The light products are for the domestic market, but heavy fuel oil is mainly exported because it can only be used for domestic heating (which is hard-
Equatorial regions), for International Viewpoint 12 March 1984 thermal power stations or fuel for ships. The Congo does not have a sea-going
The price of heavy fuel on the international market is dropping sharply. The oil-saving measures introduced by consumer countries have in fact mainly affected the consumption of heavy fuel. On the other hand, consumption of oil products like petrol, diesel and kerosene for aeroplanes continues to increase. Thus, it is difficult for CORAF to sell its heavy products for export. Elf, which has an international network which CORAF is denied, buys its heavy fuel to sell
However, the price offered by Elf is linked to the average world price. This fell from 185 US dollars per ton in December 1982 to 140 dollars in February 1983.
In these conditions CORAF would be in deficit (which its statutes forbid) if it did not compensate for its export losses by increasing prices for its 'light' products on the domestic market. And as it produces twice as much in heavy as in light products, one can see that every time the world price for heavy fuels drops one point the price for petrol, etc., has
So one arrives at this paradox: since the Congo has had an oil refinery the Congolese, enterprises and individuals, have paid 50 per cent more for their hydrocarbons than when it was imported. Thanks to the agreement with Elf, the Congo has the privilege of being undoubtedly the only country in the world where every time the world price for hydrocarbons drops, it rises by double that amount inside the country!
This policy gives Elf, which did not pay a penny for the refinery (6), the tol lowing advantages: with the retinery in full production at the end of 1983 it is guaranteed a sale for one million tons (one third of its local production) to CORAF for a price that is clearly higher than that on the world market. And then Elf will take its commission on the resale of heavy fuel for export without having to carry the drop in price for it. Finally, Elf will then bill CORAF for its services as a 'management advisory company'.
There are many examples of this type. The exploitation of the Congolese economy by imperialism is done with the willing complicity of a regime that has made big pretence in New Delhi at the conference of the Non-Aligned Movement, or at the meetings of the Organisation of African Unity of being one of the 'hard-liners' in the 'progressive' camp. The streets of Brazzaville are lined with denouncing imperialism or the 'bureaucratic bourgeoisie in the state
No doubt these are for the edification of the foreign business men, briefcases full of wonderful contracts, who come to dine at the Meridian Hotel with Congolese officials.
The management contracts cited, with Elf or the Doumeng group, allow only balanced accounts for the public enter prises that are managed by foreign companies. That is, they cannot even make profits to ensure there will be new investment. In these examples, Congolese officials are quite content to simply look for the biggest commission. the parasitic and dependent on imperialism character of the local neo-colonial bourgeoisie show itself. faction of this layer, organised on an ethnic basis, holds the reins of power in the state apparatus.
Before they enjoyed the manna of the oil production, the ruling clique in the Congo tried to carry out a policy of centralised levies on the surplus product produced in agriculture. Peasants were forced by law to sell all their produce to the state offices, at the lowest prices, and then to buy what they needed at the same offices at the highest prices. Spending but no investment
In order to succeed in thus stripping the peasants, they had to have means to enforce their policies. The Congolese peasantry went on a production strike and sold their produce on the black mar-
This produced higher prices for the The shops and warehouses of Office for Food-Producing Cultivation have been empty for several years, and the state circuit now carries less than 20 per cent of the national production of maize, and 2 per cent of cassava. all, what does it matter, since the black gold' has made up for everything in the last three or four years. continues to equip itself with lorries, warehouses and offices, despite the fact they are all empty.
Oil income has become almost the sole source of revenue for the ruling class, although this has not allowed it to base itself on the development of local capital. One cannot even say that the colossal embezzlement that results has allowed beneficiaries to set up private enterprises for themselves as a source of capital accumulation. Certainly, they all have, through one front man or another, interests in restaurants, bars, nightclubs, trading firms or land speculation. this remains in specific and secondary sectors of the economy, with the essential parts of production and resources being controlled by imperialism. drop in oil revenue leads to a general lowering of buying power these small
Without the possibility of ensuring the extended or even the simple reproduction of capital - productive potential drops from day to day — the Congolese bour-
The Congo got less advantageous condi-
Saudi Arabia the duty is 20 per cent rather than 17.5 per cent, and the tax on profits
85 per cent rather than the 60 to 75 per cent, according to the field, in the Congo.
CORAF, was created with a derisory capital hardly the price of a lorry, came from Elf.
For a detailed analysis of the political situation in the Congo, Trench-language In. see the article by progressive mask for a neo-colonial state.
geoisie remains a class of brokers. It uses state power in order to better negotiate with imperialists the size of the commis-
In this sense, the diplomatic alliance with Cuba and the USSR serves the Congolese bourgeoisie as a means of blackmail in order to bump up the size of their commission. At the same time it constitutes a guarantee that imperialism will not make a coup d'etat to replace the present team of brokers if they show themselves to be a little too greedy. What matters is that the oil companies' profits are not hurt by this political al-
The outlook is somewhat more sombre since the end of 1982. Oil consumption is down, and the price, clearly overvalued,
Thus, the oil companies have had a tendency to slow down production. This is particularly true in oilfields that are difficult to work. In these fields the profit margin, already lower than that for Middle East oil, has been further reduced by the drop in price.
In 1982 already, production in the Congo was lower than forecast: 4.5 million tons rather than 5.2 million. In 1983, according to the companies, production will have been again lower than the Plan (by 10 to 15 percent), and it is implied that it will level out in the following years at around 5.5 or 5 million tons, rather than going up to 7 or 8 million as planned. Excessive borrowing to cover huge deficit
As for the official price per barrel, the companies demand that it be minimum put at the OPEC price, in order to reduce the gap between the official price, which is the basis for calculating the taxes paid to the state, and the market price. How far will it go down? At least to 49 dollars per barrel, perhaps even to 25 dollars, in place of the 32 dollars in 1982.
The gap in the state's oil income between what was budgeted and what was finally received should be about 25 per cent for 1983. Above and beyond that will be the recessionist effects on the local economy of the drop in investment made by the oil industry.
The Pointe-Noire region is in danger of being seriously affected. All the subcontractors who work for Elf and AGIP in assembling or repairing material have had empty order books since January
Several sub-contractors based abroad have already liquidated their Congolese subsidiaries. Others have begun to get rid of staff.
oil industry sub-contractors sup ply the tax collectors with a substantial part of their ordinary income. state is not going to win on that front either. The provisional estimated loss for 1983 is 8,000 million CFA francs. Thus, the 1983 budget would have to be reduced by at least 60,000 million CFA francs in the course of the year. borrowing capacity of the Congo on the international money market is dwindling In fact, the country has resorted to excessive borrowing in the last few years.
Repayments due in 1983 reach 87,000 million, that is well over half the oil income received. Thus, in May 1983 it was necessary to hurriedly rework the budget of the current year. A painful operation.
Both operating budgets and investment budgets had to be cut. This ran the risk of upsetting both government emand directors of public enterAfter some sly bargaining the budgetary readjustments downwards were made on posts where no doubt it was assumed the incumbents had less chance of making their protests heard. Thus, 1,150 million CFA franes were cut from the school repairs budget, 350 million that was allotted for providing drinkable water for some villages and the allocation for providing two villages with electricity. On the other hand, the budget allocated for the care and upkeep of the president's residence was carefully preserved. 1983 this item would have paid the cost of electrification for 46 villages.
In fact, during this reworking of the budget, the government has only made a few petty economies. expenditure planned in the original budget remains. After long debates within the ruling bodies, it was decided not to cut down on government employees salaries more than had been planned. The biggest supply contracts, particularly for roads, have been kept — too many different interests were at work. Given all this, the government did not succeed in June 1983 in balancing the budget, and the gap of expenditure over income reached the tidy sum of 110,000 million
Even so, there are other expenditures to be added to this record deficit, which the ministers hid at the time that the new budget was adopted and which came to light one by one afterwards. In the space of one month it appeared that 10,000 million francs worth of expenditure had not been taken into account, each minister and the president having hidden from their friends a few dubious operations. Rising discontent
The initial budget already had a deficit of 73,000 million CFA francs which would have to be covered by bor-
But to raise the sum to be borrowed from 73,000 to 110,000 to 120,000 million seems to be out of the question. The foreign creditors are worried because they do not see how the country is going to be able to repay its debts when they
So they will refuse to agree to supplementary borrowing on such a
The government, with its back to the wall, is trying some discreet approaches to the Elysee along these lines, Congo is obliged to reduce its orders for supplies and its road contracts drastically, it will be the French companies operating in the Congo who will suffer? other words, *Finance our budget, the money will go back into your enterprises.' It could be that the MitterrandMauroy government will be amenable to this argument for an 'upturn', that is an upturn for the companies of Bouygues, Creusot-Loire, TPM, Alsthom...But it will demand tighter control over that part of the budget deficit that does not go to French companies, and which finances the Congolese leaders in their own operations. In any case, they will demand a reduction in expenditure on state functioning, and the first target will be sal-
If the French government remains determined, the Congo will perhaps be led to declare a suspension of payment of its debts before the end of the year.
During the renegotiation of the schedule, it will then be the International Monetary Fund and the World Bank who will try and impose their views, undoubt-
Immortal glory for the former president but what for the people? (DR)
24 edly in a more determined fashion.
The Congolese leaders are thinking to reduce expenditure without creating sharp social agitation and without touching their own incomes. As for the salaries of the ordinary government employees, there is a certain reawakening among the workers, would not that also be danger-
Discontent is on the rise, while it has not taken the form of strikes so much as of movements of revolt during an official vist, or acts of collective sabotage.
This article was originally written in July 1983.
International Viewpoint 12 March 1984
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MARIEN NGOVABI