Setting up an effective system in promoting conflict free minerals in Africa

Abstract

Conflict has been rife in the Democratic Republic of Congo (DRC) for many decades, in a war over minerals. The economic incentive for this conflict lies in the multimillion dollar trade in conflict minerals, and the results are human rights abuses, violent conflict and corruption. International industries from resource-rich countries play a role in business and human rights violations in other countries where governance is weak, such as the DRC. The focus of this study is minerals extracted from the eastern DRC – the ores that produce tin, tantalum, tungsten (the 3Ts) and gold. These minerals are essential to the electronics industry, where various companies, primarily publicly listed companies, use these minerals in their production processes. This study examines the way in which companies at the top of the minerals supply chain use their buying power to influence their suppliers, exerting pressure down the supply chain. There have been dramatic changes in this arena recently, including the passing of conflict minerals legislation in the United States of America (USA) and an evolving multilateral architecture for supply chain due diligence emanating from the United Nations (UN) and the Organization for Economic Cooperation and Development (OECD). This study explores a variety of efforts initiated by a number of companies, governments and non-governmental organisations (both in the DRC and internationally) committed to combating conflict minerals. These efforts are aimed at formulating a regulatory framework on the security exchanges in Africa. Such a system should be conceptualised to regulate the due diligence process relating to minerals to enable end-users to trace supply chains from companies who use these minerals back to the sources of origin, by using independent audit chains of custody in a certification scheme similar to the Kimberley Process for conflict diamonds. This system is intended to be a means to strengthen the global transparency and accountability of electronics companies, together with industry initiatives, the OECD’s guidelines and extractive industry transparency initiatives principles, targeting publicly listed companies. This study, which consisted of a desktop review of books, journals, reports and internet sources, analyses elements of the USA‘s Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and South Africa’s King Code Report III on Corporate Governance of 2009 to determine whether these instruments are appropriate to be applied to African exchanges. It examines whether these instruments can be used to create a system requiring companies trading in or using conflict minerals in their production to compile an annual report that is to be made publicly available, disclosing the source and chain of custody of conflict minerals which originate from conflict zones, notably the DRC and other African countries. Due to the globalised markets, companies are gaining greater power than some governments. Companies are regulated by the legislation of the host country in which they are incorporated. The countries in which these companies operate and publicly trade are usually developing countries, which are characterised by impoverished communities and unstable or emerging democracies. The recent passing of the conflict minerals provisions in the Dodd-Frank Act requires that publicly traded companies in electronics industries report annually to the Securities Exchange Commission (SEC) on whether conflict minerals are part of their supply chains, and if so, what the steps have been taken to ensure that the companies do not contribute to the ongoing conflict. The practical/managerial implications of the African system is that the inconsistencies and instability in these emerging markets legislation and their relaxed rule of law create loopholes in the systems of industry which would normally require adherence to human rights principles and industry’s assistance in developing global standards and/or incorporating such standards into legislation. Industry is still largely unaware of whether products are conflict-free and has no way of determining the status of products. Responsible supply chain co-operation is therefore needed by companies to take steps to trace supply chains, and ensure independent auditing and certification. This study looks at how industry and governments can formulate international standards and regulations that require publicly listed companies using the 3Ts and gold in the production of their goods to put human rights at the heart of their enterprises. The findings of the study highlight the urgent need for due diligence, transparency and an accountability agenda for resource sectors. The study argues that more African states need to buy into these initiatives. Greater transparency must be part of broader governance schemes. The study recognises the important role of stock exchanges and the importance of regulating companies which trade and source minerals from the DRC and other countries in Africa. The study recommends a reform of securities exchanges and the implementation of corporate governance codes. The study argues that Africa can incorporate elements of the Dodd-Frank Act, the SEC Act, King III and the JSE Listing Requirements into national legislation in the individual states to impose important legal duties on companies to promote fairness, accountability, responsibility and transparency. Passing legislation to regulate the international minerals trade is crucial for the promotion of a legal mineral trade.