Mining and Development in Africa: Case study: A certification mechanism for conflict minerals

Dr Michael Nest (info@michaelnest.com) This presentation is a case study of the new Regional Certification Mechanism for Conflict Minerals being established by the International Conference on the Great Lakes Region (ICLGR) in Central Africa. Conflict minerals refers to tin, tungsten, tantalite, and gold. Members states of the ICGLR hope that the new mechanism will be both a conflict reduction tool and a marketing instrument for these minerals. Development context It is important to understand the development context of the DRC and neighbouring countries in order to understand the scope of the challenges facing the ICGLR in trying to develop and implement the certification mechanism. Since the early 1990s there have been five waves of conflict affecting DRC. These conflicts have directly involved Rwanda, Burundi and Uganda, as well as several other African governments between 1998 and 2003 that supported either the DRC government forces or rebel forces opposed to the government. There has also been civil war in Sudan/South Sudan for decades, as well as conflict in the Central African Republic. In the DRC conflict continues across a wide area in the east. Conflict has had a terrible toll on civilians. There have been millions of direct and indirect deaths in Eastern DRC and the region is often referred to as the worse place in the world to be a woman as a result of endemic sexual violence. Over two million Congolese are refugees in neighbouring countries, and there are 600,000 internally displaced people in Eastern DRC. There are about 60,000 youth across Central Africa who have fought as child soldiers, including 30,000 in the DRC. Health, education and transport systems in the DRC collapsed decades ago. This contrasts with, for example, Rwanda and Uganda where good progress has been made in these sectors. The health and education facilities that exist in the DRC are largely funded and organised by the non-profit sector, especially churchaffiliated organisations. The economy in Eastern DRC has become militarised in that illegal armed groups and government armed forces are significant economic actors. They profit from directly producing and trading minerals, but also tax general economic activity by civilians. Armed forces profit both as institutions, and individual senior military officers have personal stakes in the mining sector and other businesses. The conflict and the toll on civilians in the DRC happens in the context of a weak state. The police force, army and government departments have few resources and there is little political wherewithal to get them to do anything. In the DRC, as well as the Central African Republic and South Sudan, there is an extremely weak presence of state institutions outside of towns and cities.
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Congolese have weak property rights and find it difficult to protect and defend their property, especially land where minerals are found. This is a by-product of a weak state, including a weak judiciary, as well as weak traditional institutions such as customary chiefs who in the past might have mediated property disputes. Weak property rights also threatens the investment of companies including foreign companies that want start mining or minerals processing. Weak property rights are a major reason that most mining carried out in Eastern DRC is artisanal mining that is labour intensive, rather than capital intensive mining by big corporations using industrial modern methods. Mining and conflict Since 2001 there have been inquiries by the United Nations and governments and research by academics and non-profit organisations into the relationship between armed groups, mining and ongoing conflict in the DRC. This work Government has established that conflict over the control of the production and trade in minerals is, indeed, a factor in ongoing war in Eastern DRC and profits from these activities have gone to armed groups. However, while mining is a cause of conflict in Eastern Congo, the evidence shows is that it is only one cause amongst several and that minerals are a not the major cause. Despite being a lesser cause of conflict, conflict minerals have received more attention internationally than other causes, such as local grievances over land, political leadership and ethnic rivalry. Three things of note happened in response to the security and developmental crisis in Central Africa around minerals and conflict. First, western corporations responded to negative publicity around conflict minerals by refusing to buy minerals. The reputational risks around sourcing minerals from Eastern DRC have extended to neighbouring countries implicated in conflict in the DRC, so it was not just the DRC from which corporations refuse to buy minerals, but also Rwanda, Uganda and Burundi. Despite the DRC governments moratorium on exports some ore is still smuggled out, especially gold. Anecdotal evidence is that tin, tungsten and tantalite that left the DRC illegally was sold mostly to Chinese minerals processing firms. Smuggled gold probably went to many different destinations. Second, various legislative and regulatory initiatives were launched to try to minimise the flow of minerals out of Eastern Congo. The thinking was that if mineral exports were stopped, profits to armed groups would decrease, thereby reducing the capacity of those groups to wage war. Most notably, the US passed new legislation, the Dodd-Frank Wall Street Reform Act 2010. This Act has two sections relating to mining and development: Section 1502 on conflict minerals and Section 1504 on transparency issues. The US Securities and Exchange Commission has also issued regulations to guide companies in complying with this legislation. Well-organised campaigns by civil society and activist groups interested in mining and development had a key role in persuading US politicians to pass the Dodd-Frank Act. The OECD also issued Due Diligence Guidelines for mineral supply chains from conflict zones. A major consequence of the Dodd-Frank Act was that in September 2010 the DRC government suspended exports of minerals out of Eastern Congo, resulting in widespread economic depression in that part of the country.

Third and before the above the member states of the ICGLR got together in 2000 for peace talks to resolve the conflict that was engulfing Central Africa. The ICGLR is comprised of eleven member states: the DRC, its nine neighbours and Kenya. South Sudan is not yet a member, but it has expressed interest in becoming one; Sudan is still a member even though it no longer borders the DRC. Initially the ICGLR was convened as a conference to facilitate talks, and this name remains although it now has a permanent headquarters and secretariat in Bujumbura, Burundi. The ICGLR has had some success in reducing tension. For example, it got Rwandan and Congolese ministers to talk to each other quite an achievement given the history of aggression and tension between the countries. Partly because of criticism that the ICGLR was simply a talk-shop and not making enough progress, member states decided to do something concrete and in 2004 they agreed to focus on the root causes of conflict. This shaped the ICGLRs focus on mining and its decision to establish the regional certification mechanism. The Regional Certification Mechanism The mechanism is designed to keep out of the supply chain those minerals produced or handled by armed groups, in order to satisfy the concerns of corporations that any minerals they buy coming from Central Africa are not contributing to conflict. I spent July in the DRC, Rwanda and Burundi meeting government officials in various mining and finance departments, miners (including representatives of artisanal miners), minerals processors and some civil society representatives. My role was to advise the ICGLR on how the mechanism should best be funded. Implementing and operating the mechanism will cost money. Donors do not want to fund it in the long-term, and should not if it is to be sustainable. Member states of the ICGLR have extremely small budgets and cannot afford to pay for the mechanism. Inevitably industry the major beneficiary of the mechanism will have to pay for it through a levy, and that was what I recommended in my final report. The concept of the mechanism is simple: different tracing schemes are established to ensure due diligence around the provenance of minerals. Due diligence includes establishing chains of custody through a mix of seals on containers, identity documents of miners, transporters and processors, and special certificates allowing export. Consignments of minerals passing through the tracing schemes will receive a certificate co-branded by the ICGLR and the relevant exporting member state stating that the minerals met due diligence standards. The certification mechanism includes industrially produced minerals (e.g., tin from Katanga in the DRC, or gold from Tanzania), as well as artisanally produced tin, tungsten, tantalite and gold. There are two tracing schemes currently in place: (1) the International Tin Institute Supply Chain Initiative operating in Rwanda and Katanga Province, DRC, which will also shortly launch in Maniema Province, DRC; and (2) A scheme designed by MetTrak, a South African
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firm, which is operating in Rwanda and has been trialled in the DRC. Both schemes cover tantalite, tungsten and tin. Chains of custody do not extend to processing plants outside Africa or manufacturing firms or consumers. The World Gold Council has agreed to cooperate with the International Tin Research Institute to extend that organisations tracing scheme to include gold, rather than creating a separate scheme. The idea of permitting multiple tracing schemes is to facilitate competition between schemes, thereby bringing down the participation costs to industry. Note that costs will ultimately be borne by miners as exporters are likely to pass costs back upstream. Flexibility of choice is built in to the certification mechanism in that miners, traders and exporters can join whichever tracing scheme they prefer, or set up their own. The ICGLRs role When talking about the mechanism, it is important to differentiate between tracing schemes on the one hand, and the certification mechanism on the other hand. The certification mechanism sits above tracing schemes. The ICGLR has the role of ensuring the integrity of the overall mechanism. It has a dedicated unit based in Bujumbura that will act as an independent third party coordinating activities related to the mechanism, such as: Quality control on tracing schemes Receiving and investigating complaints, e.g., of corruption or fake certificates Collecting and publishing production and export data on its website Educating industry, government and civil society about the scheme Planning and coordinating any changes to the mechanism

The ICGLR faces significant challenges in implementing the mechanism, including: jurisdictional issues when investigating complaints; confusion on the part of government officials, miners and exports about how the mechanism will work; and communication and coordination challenges across the eleven member states. Anticipated benefits The ICGLR member states hope that once tin, tungsten, tantalite and gold from Eastern DRC are certified as not having been handled by armed groups, minerals processing firms especially in western countries will start buying them again. The mechanism can thus help to kick-start the mining sector in the DRC, as well as boost the mining sector across Central Africa. An expanded mining industry will generate increased exports, profits for the mining sector, royalties and tax revenue for governments, and jobs and incomes for ordinary people.