Painting by Cheri Samba

Lokuta eyaka na ascenseur, kasi vérité eyei na escalier mpe ekomi. Lies come up in the elevator; the truth takes the stairs but gets here eventually. - Koffi Olomide

Ésthetique eboma vélo. Aesthetics will kill a bicycle. - Felix Wazekwa

Thursday, February 24, 2011

A hiccup in efforts to render mineral trade more transparent?

Bloomberg had an article this week suggesting that the US legislation against conflict minerals could lead to a boycott of all mineral exports from the region. Smelters, mostly located in southeast Asia, are apparently telling their suppliers that as of April this year they will not be buying tin, tungsten or tantalum from anywhere in Great Lakes region that is not clearly tagged and traced. This deadline mirrors one announced by the Electronic Industry Citizenship Coalition (EICC), an industry group in the United States.

The Rwandan government, along with local suppliers, is calling foul, saying they need more time to implement traceability schemes. The Rwandans say that 30,000 small-scale miners in their country could be affected by this. They also say that the SEC regulations, which will be published in April, do not come into effect until fiscal year 2012, so why rush things?

Dealing with conflict minerals was never going to be smooth ride. We always knew that aggressive regulation of conflict minerals would lead companies to avoid buying minerals in the region altogether, for fear of reputational damage. And that would affect not just the questionable dealers and the armed groups, but also tens of thousands of diggers and traders who live hand-to-mouth off the trade.

For many analysts - myself included - this initial shock may be necessary to force traders in Goma and Bukavu to lobby the government to withdraw its troops from mining areas. After all, most of the key mining areas and trade routes have been in the hands of the Congolese army for the past few years, following their massive campaign to push the FDLR into the forests and to retake key economic sites. In economic lingo: a demand shock would change the incentives for the traders, and they have enough clout in Kinshasa to change government behavior.

Of course, there is an alternative, less optimistic story that could be told: That the US legislation will just lead to more smuggling, which will disproportionately benefit armed groups, as smuggling usually involves military force. Instead of listening to the traders in the Kivus, and despite the difficulties getting the minerals to market, the government will prefer to keep their soldiers in mining areas, as removing them might affect their peace deal with the CNDP (who control many of these areas) as well as the personal interests of many high-ranking officers.

There is no doubt that the voices of the critics will crescendo in coming months as the SEC regulations kick in. But the conflict minerals legislation alone was never going to be a silver bullet. It needed to be accompanied by a lot of supporting fire on the ground. Here are some thoughts off the top of my head of what could be done to reinforce the momentum to regulate the trade:

(1) Due diligence is based on knowing where your product comes from. At the moment, the murky maze of minerals trade in the Kivus - stretching from thousands of pits to comptoirs in Goma and Bukavu - is impenetrable for industry auditors, and receipts and documents are easy to fake. But the maze can be penetrated - Global Witness, Enough and the UN Group of Experts have done so, it just takes months of investigative work and good local knowledge. We need to institutionalize this research - a third party oversight body should work with the Congolese government to map the minerals trade, investigate dealers and provide information to companies regarding what is good and bad product. See a proposal for this here.

(2) We need to encourage the industry not to abandon the Congo. Create a labeling scheme for well-traced, bona fide "conflict-free" minerals that could be hyped through labels akin to fair trade coffee. Work with the many mining co-operatives to operationalize this. Start with the Bisie polygon in Walikale, where perhaps over half the region's tin comes from. Of course, this would mean you'd have to get the Congolese army out of Bisie first.

(3) The ball in really in Kinshasa's court. The government does not appear to have a coherent (or at least a public strategy) for how to deal with mining in the Kivus. Although President Kabila himself said that the trade was being run by "mafia-like networks" last September and declared an export ban on minerals, there hasn't been much effort since then to clean up those networks. His own army chief of staff was exposed by the UN and BBC of using army assets to further his personal gold business. The army units that occupy the mining sites of Bisie, Misisi, Ziralo, Kamituga, etc. are still there, profiting from the trade. Can't the diplomatic community engage the government, perhaps to set up a Task Force for Mining in the Kivus to support civilian regulation of the sector, boost infrastructures (a lot of the minerals still have to be flown out of the jungles at huge expense) and eventually invite in international, industrial investors?

These are just some off-the-cuff ideas. But they all would be in line with the mandate that the Dodd-Frank bill gave the State Department: To develop "a strategy to address the linkages between human rights abuses, armed groups, mining of conflict minerals, and commercial product." This strategy must include provisions to "develop stronger governance and economic institutions that can facilitate and improve transparency in the cross-border trade involving the natural resources of the Democratic Republic of the Congo to reduce exploitation by armed groups and promote local and regional development."

That strategy was supposed to have been submitted to Congress by last month.


Will said...

One interpretation is that the costs for firms buying in the region have become too high: the procedures that are going into place will be too burdensome in comparison to the cost of buying elsewhere, and the obvious choice is just to source from other locations.

From what I have read, the region is not a large enough supplier to strongly impact the market on any of the minerals that are regulated. This means that although the costs to firms on US exchanges (or their trading partners) were certainly affected by the legislation, it is tough to see them taking this up as an important enough problem to lobby not only US policy but Kinshasa's as well.

The idea behind a transparency scheme, I think, is to keep some interest in the region rather than banning the trade outright, but it may be that the price differential does not justify the risk. With both the US legislation and Kabila's announcement weighing on the trade from the buyers side, and with the increased likelihood of a European version of the legislation going into effect over the coming months, the most likely scenario is that there is significantly less interest in general, and perhaps too little to keep up the flow of trade at any reasonable price.

Anonymous said...


As I am sure you know, the "financial reform" bill itself was deeply flawed itself.

It shouldn't be surprising this very small piece of it, to say the least of its implementation, is as well.

It was a slight victory for America's strengthening africa constituency, this much is certain. But like the entire bill itself it did not go far enough. We tried, as you know, to get punitive fines placed on violators to help with security sector reform once a more comprehensive "reform" is set. Rev Jesse Jackson himself along with the several mainline African American organizations pushed Dodd and the Administration hard on this piece.

We all know what we got instead- few if any fines for violations. Obama's Wall Street and Silicon Valley backer's would have none of it.

Your strategy piece is, like much of your work, brilliant.

But until a much more effective American lobby for the Congo comes into being and we tighten some screws on Kabila they just won't see the light of day.


James said...

Is it true that Colonel Emmanuel Nsengiyumva has been shot dead by his bodyguard, apparently a Rwandan intelligence operative? I just read it here:

If this is true, then we may soon witness more chaos in the Kivus with the growing Rwanda's influence and Bosco Ntaganda slipping away from ICC's reach, becoming the most powerful proxy warlord.


edward rackley said...

what happened to your proposal? any donors stepping up to fund it yet?

Flogistix said...

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