Fears of a possible boycott of Congolese minerals

As reported earlier, the Securities and Exchange Commission will be publishing their conflict minerals regulations soon (there are some rumors that publication could be delayed until July, but they are scheduled for April). This means that companies that trade in minerals from anywhere in the Great Lakes will have to submit "Conflict Minerals Reports" by the end of next fiscal year - as some of these fiscal years begin in July, some companies have to begin implementing due diligence mechanisms in a few months.

This gives mineral comptoirs in the Kivus region just a few weeks to dump their large stockpiles of tin, tungsten and tantalum onto the market before the regulations kick in. Since there had been a government export ban on minerals between September 2010-March 2011, the comptoirs have been working overnights to get rid of their minerals before April 1st.

The Electronics Industry Citizenship Coalition (EICC) - which includes most large US electronics companies (Apple, Philips, Microsoft, Intel, HP, etc.) - has announced that they will stop using minerals that have not been properly tagged and traced on April 1st. Lobbyists for some of these companies have been pushing for the SEC regulations to be delayed, while congressmen Durbin and McDermott (the sponsors of Article 1502 of Dodd-Frank) dismiss these claims as scare tactics and say that companies have had plenty of time to set up due diligence mechanisms.

The main trigger for a boycott of Congolese minerals will be a decision by Malaysia Smelting Corporation (MSC), which is the main smelter for minerals from the region. They are due to decide in the coming weeks if they will continue buying from the region. If they begin a boycott, there is a fear that the supply chain will shift to supply the domestic Chinese and Indian markets. If the final goods do not reach the US (or Europe if the EU passes a similar bill), then companies will not be scrutinized for the use of conflict minerals.

According to analysts in the region, the Congolese comptoirs are reluctant to rely entirely on Indian and Chinese markets. Companies there pay less - sometimes as much as 10-20% less - and are perceived as less reliable. In addition, the UN Group of Experts has reminded the Chinese and Indian governments that they were given the mandate by the UN Security Council - where both China and India are currently members - to investigate companies everywhere for violating the due diligence requirements put forward by the Group last year.

In the meantime, critics of the Dodd-Frank bill complain that it will affect mining areas outside of the conflict zones of the Kivus - in particular Katanga and Rwanda - where there are tin and tantalum mines. Thousands of miners depend on this artisanal mining for the livelihoods there. Rwanda recently invited experts to a conference in Kigali, where they announced that they had almost concluded a certification process that would allow their country to conform with the requirements of the Dodd-Frank bill. Critics have pointed out that Rwandan government officials are no longer admitting that a large part of the country's tin exports used to originate from the eastern Congo and continue to be smuggled into the country. It is unclear whether the certification process will be able to exclude these conflict minerals.

UN officials in the eastern Congo have pointed out that since the Congolese export ban on minerals was imposed last September, troops led by war crime-indictee Gen. Bosco Ntaganda have been in charge of much of the lucrative smuggling operations. They control much of the lake and land border with Rwanda and Uganda where the smuggling happens.

It is unclear how a boycott of Congolese minerals will play out. As I have argued here before, in an ideal world, the threat of such a boycott should prompt Congolese business to pressure the government in Kinshasa to reform the sector by demilitarizing mines and setting up traceability schemes. This is a bit idealistic - according to people in the sector, the government in Kinshasa has shown little interest in real reform. There is a plan to give the military six months to secure mining areas, but in key area like Bisie and Walikale, the Congolese army could withdraw from some areas today and allow the mining police to take over, while stepping up aggressive prosecutions of military units involved in mining. Symbolic steps could be taken, such as suspending Gen. Gabriel Amisi, the commander of the army, for prosecution of his own involvement in gold mining at Omate (the UN and the BBC have reported on him).

But I also doubt that all minerals will suddenly begin to be shipped to China and India. I am not sure if companies there can easily separate products destined for domestic and foreign use, and they will probably also be wary (although perhaps not too much) of investigations by the UN Group of Experts.

To tackle this conundrum, here are some thoughts:

• Donors and industry bodies need to urgently invest in traceability schemes (including both oversight investigatory bodies and certification) that work with the Congolese government to provide a basic chain of custody from mines to the end-user. They could start with non-conflict mines such as Nyabibwe or Maniema mines, or even the large Bisie polygon in Walikale (that would require demilitarization first).
• NGOs in the US and the State Dept need to inform public opinion that the goal is not an embargo on Congolese minerals, but rather investment in a more transparent, accountable supply chain that can transform the conflict economy. This may mean that NGOs would have to step back from a blanket ban on trading on conflict minerals (as the realities of the eastern Congo make it difficult for the moment to guarantee a 100% "conflict-free status") towards promoting companies that are deemed to being doing the best possible job. This is not ideal, as could result in a largish loophole for companies, and more thought would have to be put into this.
• There needs to be real engagement by donors and NGOs with President Kabila in the run-up to elections to demilitarize mining areas.