The Democratic Republic of Congo (DRC) is among the most mineral-rich countries in Africa. During the war, those natural resources fueled the conflict, and provided illegal sources of wealth for some. Now, as the DRC undertakes the rebuilding of its economy, the management of natural resources serves as a key component in its development strategy. Properly and profitably managing natural resources in the DRC is a complex task that must take into account security issues, regulatory reform, the structure and legality of past contracts, and the political environment for change. To address these issues, the U.S. Institute of Peace organized a meeting of the Congo Peacebuilding Forum on May 17, 2007. Panelists included Rico Carisch, of the United Nations Group of Experts for the DRC, and Peter Rosenblum, of Columbia University School of Law. This briefing summarizes the main points discussed by participants at the meeting.

Insecurity and Questionable Contracts in Congo’s Mining Sector

The DRC’s abundance of copper, cobalt, diamond, and gold deposits have the potential to serve as the engine of growth in its reconstruction. However, the official end of conflict, elections, and a new government have not transformed Congo’s natural resources into drivers of development. Two main impediments to that are insecurity around mines and the questionable legality of previously signed contracts for mining concessions.

Development plans relying on the extraction of natural resources have been hurriedly conceived, without adequately considering the security needs for mining minerals, one panelist reported. In particular, the presence of many armed groups at resource sites render the sites insecure for mining companies. These conditions are particularly true in eastern Congo, where government, foreign, and insurgent troops, all competing for natural resources both to fund their activities and for personal enrichment, occupy and raise the level of insecurity surrounding the mining sites. The insecurity around mines also raises the cost of investment, as many mining companies hire private security services—even former combatants—to guard their sites. Therefore, the Congolese government was urged to include provisions for security in its policies on natural resource mining and development.

Widespread use of unfair, illegal, or unclear contracts is a second critical impediment to developing the full potential of natural resources. Despite the 2003 Mining Code, drafted in collaboration with the World Bank to create a transparent and efficient permit system, uncertainties continue.¹ On one hand, the origin of a contract may be difficult to trace; whereas before the civil wars, mining companies were state-owned, the effort to privatize mines after the war left the status of many mines and the legitimacy of contracts unclear. Multinational corporations holding mining contracts in DRC may not know whether the sale of the contract was made by a rebel group or a representative of the Congolese government. In other cases, contracts may be contested due to multiple layers of ownership. As noted by one panelist, a productive mining site in North Kivu has been shut down, leaving 3,000 thousand Congolese unemployed, until the ownership of the mine is clarified. Moreover, unfair and illegal contracts may not contain any provisions for community reinvestment by the mining firm or return an appropriate share of revenue to the government, hindering economic development and the availability of social services.

What can be done to encourage fair, efficient, and transparent investment in Congo’s natural resource economy? According to the panelists, the answer lies in combined efforts from industry, the Congolese government, and the international community to review contracts and secure mining sites in order to create a stronger regulatory environment for extracting natural resources.

Lessons from Liberia’s Review of Mining Contracts

Some participants worried that undertaking a review of contracts would further discourage investments in mining Congo’s natural resources and subsequently hurt development. However, one panelist noted that Liberia’s positive experience with reviewing contracts in the aftermath of its civil war served as a good example for ameliorating unfair contracts, while retaining the confidence of international mining interests. One of the critical factors in Liberia’s review process was the political will for reform; it was an integral part of the transition process in Liberia. In particular, Liberian president Ellen Johnson-Sirleaf prioritized the reviewing of contracts, specifically placing Mittal Steel’s contract on the fast track. Finding itself in the spotlight, Mittal Steel cooperated with the review process, and chose to continue its operations in Liberia. President Johnson-Sirleaf’s prioritization of and direct involvement in the review process, along with Mittal Steel’s international standing, helped to ensure an effective review. It also sent a message that a review of contracts would not stop economic investment. While Congo does not have companies that equal the size and stature of Mittal Steel, it could be possible to mobilize Congo’s major mining companies and cultivate political will to undertake a process of reviewing contracts.

Public and Private Efforts to Review Congo’s Mining Contracts

Several initiatives are underway to disentangle the issues surrounding existing mining contracts in Congo, with a view to renegotiating contracts as fairer and less corrupt arrangements. Recently, the Congolese government, supported by many in the international community, began a review of mining contracts in March 2007. To convey transparency and credibility, the vice minister of mines, Victor Kasongo, created an inter-ministerial group to review the contracts and partnered with an outside organization in the review process. Despite this display of political will, some doubted the ability of government to efficiently undertake this exercise, given that it suffers from a funding shortage and has allowed only three months to complete the review (Indeed, one panelist noted that an international law firm took one year to conduct an independent review).

In a related effort, Columbia University’s School of Law has also started a project that maps out existing mining interests and geographically diagrams the social and political impacts of mining. The Columbia approach begins by examining contracts that have the most international involvement, working under the assumption that these firms have the most at stake. As in the Liberia case, publicly exposing malfeasance of large multi-national corporations could motivate firms to consider a renegotiation of their contracts. This could then become a catalyst for other firms to increase corporate compliance and accept a renegotiation of their contracts.

Participants differed on the benefits of reviewing contracts. One participant emphasized that policymakers must distinguish between contracts that were acquired legally and were in operation by an legitimate company—but whose origins may be questionable—versus contracts that were owned illegally. In the former, policymakers incur a high risk of harming economic growth by discouraging legitimate corporations from operating. Nonetheless, another participant warned that even illegal or unfair contracts acquired by a legitimate company harm communities, if they do not contain provisions for re-investment or do not return a fair share of revenue to governments’ coffers.

Tracking Minerals to Combat Illicit Mining

In addition to reviewing contracts, tracing and monitoring efforts offer another method of combating illegally procured minerals. Although Congo established the Centre for Evaluation, Expert Analysis and Certification of Precious Minerals in 2002 to certify minerals permitted for export from the DRC, the current monitoring mechanism could be strengthened. For example, one participant suggested, the government authorities, together with the international community and the private sector, might develop natural resource control systems. This could entail either a certification system in the style of the Kimberley process or a “fingerprinting” system that defines chemical impurities unique to each deposit site. The combination of the fingerprint and legal ownership information would be entered into a national database that could serve as the baseline against which every consignment of natural resources could be checked. It would then be possible to determine the legality of all consignments being offered for sale. While it is unlikely that any control system will provide a 100 percent guarantee against fraud or abuse of the DRC’s natural resources, a fingerprinting system will impose new obstacles for questionable firms, more easily separating illicit from licit goods. The necessary technologies for the fingerprinting system already exists, having been fully developed by South Africa and Russian companies in conjunction with their governments; additional research is under way in Germany.

Toward a Productive Mining Sector

Many consider natural resources the key to rebuilding Congo after more than a decade of war. However, the ambiguity, corruption, illegality, and unfairness of some contracts and the insecurity surrounding many mines prevent the government from using natural resources to their potential. Indeed, the crux of problem lies in improving the business and regulatory environment while simultaneously encouraging international investment in Congo. Equally important, the international community must find methods of standardizing transactions in the mining sector. Such practices would provide confidence in the integrity of the natural resource sector, while discouraging the sale of illegally obtained minerals.

Notes

1. SADC, SADC Trade, Industry and Investment Review 2006. Democratic Republic of Congo Country Profile. http://www.sadcreview.com/country_profiles/drc/drc_mining.htm.

This USIPeace Briefing was written by Dorina Bekoe, a senior program officer in the Center for Conflict Analysis and Prevention, and Christina Parajon, a program assistant in the Center for Post-Conflict Peace and Stability Operations, at the United States Institute of Peace. The views expressed here are not necessarily those of the Institute, which does not advocate specific policies.

The United States Institute of Peace is an independent, nonpartisan institution established and funded by Congress. Its goals are to help prevent and resolve violent international conflicts, promote post-conflict stability and development, and increase conflict management capacity, tools, and intellectual capital worldwide. The Institute does this by empowering others with knowledge, skills, and resources, as well as by directly engaging in peacebuilding efforts around the globe.