On December 24, 2011, the Democratic Republic of the Congo (“DRC”) enacted a new agricultural Law, n° 11/022, (the “Law”) that sets broad guidelines for the agricultural sector. Since its entry into force on June 24, 2012, the Law has been a source of concern for foreign businesses operating in the agricultural sector because of its ownership clause which restricts foreigners’ access to farmlands. Since the promulgation of the Law, investors in the agriculture industry have been waiting for the implementation measures to clarify and interpret the Law, particularly its ownership clause that has been widely criticized.
It is now clear that the DRC has taken steps to shed light on this situation as a new proposition of law to amend and supplement the Law is currently under discussion within the commission for environment, tourism and natural resources of the DRC parliament. As of March 2013, the draft of new law has been submitted to the DRC Government for its observations.
The DRC is a large agricultural country with 80 million hectares of arable land of which only 10 percent are currently exploited[i]. It is the second country in terms of arable land available for cultivation activities, after Brazil. However, despite its large tracts of arable land, its major river system, its variety of climates, its fisheries potential and considerable livestock, the DRC is currently ranked among the deficit countries in agriculture and food security[ii]. The country is very much dependent on imports of food. Once an exporter of food, the DRC now grows too little to meet even the basic food needs of its 73 million citizens. It is estimated that around 60 percent of the active population has no choice but to undertake some form of subsistence farming on a micro level to meet their basic food needs.
A combination of factors has led to the food insecurity in the DRC. One of these factors is the lack of a comprehensive agricultural policy framework for several decades. To address this issue, the Law sets broad guidelines for the agricultural sector. The purpose of the Law, as laid down in article 1, is to promote and increase agricultural production to ensure food security and rural development. There seems to be a new recognition that agriculture holds the key to the country’s development. The government is working to develop strategies for economic growth and poverty reduction and the International food policy research institute’s country strategy support program in the DRC aims to contribute to these efforts.
The Law came into force in June 24, 2012. It applies to new agricultural concession holders as well as to holders of agricultural concessions granted prior to the entry into force of the Law. Concessions holders must comply with the provisions of the Law within 12 months of its entry into force but a lot of uncertainties have remained with regard to the Law’s interpretation as implementation measures have not yet been published.
Scope of application
According to article 2 of the Law, its provisions apply to exploitation; agricultural training and research; to financing of agricultural activities; to sale of agricultural products; to protection of the environment as well as to tax and customs regimes. However, the Law does not apply to livestock, fisheries and aquaculture.
The Law sets a decentralized institutional framework to govern the agricultural policy and creates agricultural advisory boards at the national, provincial and local levels. The central government shall design and implement the national agricultural policy, which should constitute the basis of each provincial agricultural policy[iii]. The national agricultural advisory board is designed to play a consultative role for all questions pertaining to the agriculture and to gather private and public stakeholders as well as members from local communities. The provincial agricultural advisory board shall implement the provincial agricultural policy and shall also play the role of a conciliatory body for disputes pertaining to farmlands owned or used by local communities.
Acquisition of farmlands
During the colonial period, the acquisition of farmlands was governed by the Ordinance of July 1st, 1885 (the “1885 ordinance”) on the administration of the Congo Free State[iv] as then amended by decrees of the sovereign king of August 22, 1885, September 14, 1886 and June 3, 1906, which introduced the concept of private and exclusive property in the legal system of Congo. Under the Congo Free State, they were three types of lands: (i) lands owned by local communities, which were governed by local customary laws; (ii) lands acquired prior to July 1st, 1885, through valid contracts; and (iii) all non-occupied lands, which belonged to the State. During the Belgian colony, concessions on large lands could only be granted after approvals from the Belgian parliament[v]. Consequently, many Congolese nationals were deprived from their territory and lands owned by local communities based on local customary laws were transferred to the Colony as ownership over those lands was not registered in any registration office[vi]. In reaction to the colonial period, the ordinance No. 66-343 dated of June 7, 1966, known as the “Bakajika law” cancelled all the concessions granted before its entry into force, which became the property of the DRC state. After the Bakajika law, the law No. 73-021 of July 20, 1973 on the general property, land and real estate and regime of security interests (the “1973 law”), as amended and supplemented by the law No. 80-008 of July 18, 1980 introduced the principle that “the soil is the exclusive and inalienable property of the State”. The ownership of the state over land includes the public and private domain. The public domain includes all the lands which are intended to public use or public service. All the other lands are part of the private domain of the State. Only lands belonging to the private domain can be the subject of a concession, which can take the form of perpetual or ordinary concession or a land easement[vii].
According to the 1973 law, any physical person or legal entity from Congolese or any other nationalities is eligible to hold concession rights on farmlands for agricultural purposes. However, foreign individual or foreign legal entity can hold concession rights on farmlands only for a renewable period of 25 years in comparison to Congolese nationals who are entitled to hold perpetual concession on farmlands.
The DRC New Agricultural Law
Article 4 of the Law re-states the principle of exclusive ownership of the DRC State over the soil by emphasizing that “the DRC has permanent sovereignty over its natural resources and plant resources for food and agriculture as well”.
Acquisition of farmlands is governed by article 16 of the Law, which restricts foreigners’ access to farmlands. Article 16 provides that farmlands are granted to farmers[viii] under the conditions provided under the Law. Applicants seeking agricultural concessions[ix] have to meet the following conditions:
- Be a physical person of Congolese nationality or a DRC’s legal entity[x] that has as majority shareholder the DRC State and/ or Nationals[xi];
- Have a residency, domicile or headquarters known in the DRC;
- Submit proof of its registration to the Commercial Registry if it is a person doing business;
- Submit proof of its financial capacity to support the required financial charges to value the concession;
- Perform an environmental and social impact study in accordance with the Legislation on the protection of the environment;
The conditions set out in article 16 are “eligibility conditions” with which applicants and holders of agricultural concessions need to comply to hold an agricultural concession on farmland according to the Law. The DRC State, as exclusive owner of the soil, entrusts the exploitation of farmland to any physical or legal entity that meets the eligibility criteria defined by the Law. If the eligibility criteria are not met, applications will be denied. No explicit consequences or sanctions are provided by the Law in case holders of agricultural concessions granted prior to June 24, 2012 fail to comply with the eligibility criteria of article 16 after June 24, 2013. Criminal provisions set out in articles 77 and seq. of the Law do not apply to this violation. However, as it is the case in the mining sector, non-compliance with eligibility criteria results in the holder’s ineligibility to hold an agricultural concession. Hence, the risk exists that the concession contract or convention might be cancelled by the DRC State[xii]. Furthermore, article 17 of the Law provides that the agricultural concession sets out the types of cultures that the holder shall exploit on the farmland and shall specify the minimum quantity that the holder undertakes to produce.
Concerning customary rights of local communities on farmlands, the Law specifically re-states those rights and specifies that customary rights exist on farmlands regularly used by the local community[xiii]. Farmlands recognized to local communities include reserves of croplands, fallow lands, pasture lands and forests regularly used by the local community. However, customary rights held by local communities are not evidenced by any kind of registration certificate. The Law does not intend to create any system of registration.
Transfer and lease of farmlands
Concession rights are transferable in the conditions set by the Law. In this regard, article 21 of the Law provides that the transferee must meet the eligible criteria set out in article 16. The transfer of a concession does not require to be notified or to receive any kind of opinion from the local advisory board as it was claimed by many agricultural associations during the preparation of the Law in 2011.
The lease of a concession is governed by articles 24 and 25 of the Law. Pursuant to article 24, the agricultural concession holder has the right to lease its concession to third parties who shall be bound by the destination thereof. Concession holder must notify the local administration in charge of agricultural affairs and remains jointly and severally liable with the lessee towards the State for all obligations arising from the agricultural concession. A preemption right in favor of the lessee is created by article 25 of the Law. In case of a transfer for consideration, the lessee has the right to buy the concession from the transferor unless he does not meet the eligibility criteria set out in article 16 of the Law and/ or already holds a concession which was not developed.
Transitory measures and consequences
The Law was enacted on December 24, 2011 and entered into force on June 24, 2012. In accordance with article 82, the Law finds application to concessions granted after its entry into force as well as to concessions granted prior to June 24, 2012. This means that the Law was intended to be applicable retroactively to every concessions previously granted. According to the Law, holders of agricultural concessions which were granted before the entry into force of the Law have to comply with the provisions of the Law before June 24, 2013.
Unless amended by a further law or otherwise interpreted by the implementation measures, this means that foreign holders of agricultural concessions need to change their shareholding structure in order to comply to article 16 of the Law which requires the DRC State and/ or Congolese Nationals being majority shareholder of any legal entity holding an agricultural concession in the DRC. The ownership clause contained in article 16 is largely inspired by other sectors such as the mining and telecommunication sectors, which also provide for some participation of the DRC State or Congolese Nationals in the share capital of foreign companies holding exploitation mining rights or a telecommunication concession[xiv]. However, the agricultural Law goes well beyond by requiring the DRC State and/ or Congolese Nationals being majority shareholder of said legal entity. The ownership clause has been widely criticized by foreign investors and by the Congolese Federation of Enterprises, which is advocating amendments to article 16 of the Law.
To date, many questions remain unanswered. It is, for instance, still unclear how the sale of shares to the DRC State and/ or Nationals will be implemented and what will happen to agricultural concessions without potential buyers or with buyers not ready to pay the economic value of the concession. By Ministerial Decree No. 054/CAB/MIN/AGRI/2011 dated of July 8, 2011 a Committee was created by the Minister of Agriculture of the DRC to elaborate and draft the implementation measures of the Law that should have clarified the way the Law should be implemented and interpreted. However, such implementation measures have yet to be published, even though the Law is in force since June 24, 2012.
This situation maintains and has caused a lot of concerns among foreign investors. The DRC government has taken steps to remedy to this issue as a new proposition of law to amend and supplement the Law is currently under discussion within the parliament. It is however unclear to what extend this proposition will amend the Law, but it is highly probable that the ownership clause will be substantially changed as the clause has been widely criticized by the agricultural industry. Foreign investors should carefully monitor new updates on the proposition to amend and supplement the Law on as new information will become soon available.
1 See: the preamble of the New Agricultural Law n° 11/022 of December 24, 2011.
2 An estimated 37 million Congolese suffer from under nutrition.
3 See: articles 6 and 7 of the Law.
4 The 1885 ordinance sets the broad outline of the Congo’ system of land ownership.
5 See: article 15 of the Law of October 18, 1908 on the government of Belgian Congo.
6 Prosper Nobirabo Musafiri, Dépossession des droits fonciers des autochtones en RDC : perspectives historiques et d’avenir,Forest People Programme, June 2009.
7 See: articles 57 and seq. of the 1973 law.
8 Article 3, point 8 of the Law defines farmer as “physical person or legal entity that conducts agricultural activities professionally”.
9 Article 3, point 6 of the Law defines agricultural concession “as contract or convention between State and an agricultural operator granting the operator the right to exploit the private domain of the State within specified limits to ensure
10 A DRC’s legal entity is an entity incorporated in accordance with the Decree of the Sovereign King of February 27, 1887 on commercial companies as amended and supplemented by the Decree of June 23, 1960. However, as of September 12,
2012, the formation of a legal entity in the DRC is governed by the OHADA Uniform Act of April 17, 1997 on commercial companies and economic interest groups (the “Act”) as the DRC finalized its adhesion to the Organization for theHarmonization of Business Law in Africa (OHADA) on July 13, 2012. Provisions of the DRC’s corporate law will remain applicable unless they are contrary to the Act, which became directly applicable and binding in the DRC on September 2012. (See: article 10 of the OHADA Treaty)
11 The initial version of article 16 as provided by the first draft of the Law stated that “applicants to concession should be aperson of Congolese nationality or a legal entity incorporated in the DRC”. During its second reading, article 16 al. 2 was modified to substantially restrict the acquisitions of farmlands by foreign companies.
12 Under the 1973 law, the non-compliance with the rules pertaining to the occupancy of the land could lead to cancelation of a concession agreement as well as penal sanctions. See Chapter 3 of the 1973 law.
13 Article 34 of the Congolese Constitution states that “private property is sacred. The State guarantees the right of individual or collective property, acquired in accordance with the law or customary law".
14 Article 71 of the Mining Code provides that the granting of an exploitation permit is subject to transfer to the government of 5 percent of the shares in the registered capital of the company applying for the license. These shares are free of charges and cannot be diluted; Article 19 of the framework Law No. 013/2002 of October 16, 2002 on the Telecommunications in the Democratic Republic of the Congo provides that legal entity holder of a telecommunication concession shall adopt the legal form of a Limited Liability Company (“SARL”) and 30 percent of its shareholders shall be Congolese nationals or legal entities incorporated in the DRC and 5 percent of these 30 percent shall be vested in employees of the company.