Reforming Mining Law: A Look at Transnational Corporations’ Activities in the Democratic Republic of Congo Within the Doctrine of Corporate Social Responsibility

By Christian Matabaro

The Democratic Republic of Congo is endowed with immense mineral wealth. Its minerals include cobalt, copper, diamond, gold, iron, manganese, tantalum, tin, tungsten, and zinc. Yet the contribution of mineral abundance to the country’s economic development is poor. The Congolese mining sector was initiated in 1905 with the creation of OKIMO (Office des Mines d’or de Kilo Moto) and UMHK (Union Minière du Haut-Katanga). The rapid development of mining companies improved economic growth until 1973, when President Mobutu introduced a variety of inadequate economic policies, including zairianization and radicalization, that slowed down economic development. The actual mining code was adopted in 2002 to enhance a mining sector that already collapsed. This study suggests a variety of mechanisms and measures that are meant to energize the Congolese mining sector and, hence, allow the country to benefit entirely from its mineral abundance.

• Language: English
• Publisher: Xlibris US
• Release date: Mar 22, 2019
• ISBN: 9781796022698

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Copyright © 2019 by CHRISTIAN MATABARO.

Library of Congress Control Number:              2019903297

ISBN:                  Hardcover                     978-1-7960-2257-5

                            Softcover                       978-1-7960-2258-2

                            eBook                            978-1-7960-2269-8

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TABLE OF CONTENTS

Abstract

Acknowledgements

List Of Acronyms

Introduction

A. Background

B. Thesis Statement

C. Literature Review

1. Major Theories

a. Corporate Social Responsibility (CSR)

b. The Resource Curse Theory (RCT)

c. Institutional Theory

2. Empirical Evidence

3. Relevant Sources On The History Of The Congo

D. Chapter Outline

Chapter 1: The Congo: Overview, Independence, And Early Challenges

A. The Congo Free State: Rubber And Ivory

B. The Belgian Congo: Mining Interests

C. The Independence And Its Complex Issues: Strategic Minerals

1. The Belgian Military Troops

2. The Secession Of Katanga

3. The Soviet Union’s Military Assistance

4. The U.s. Involvement In The Congo’s Internal Affairs

D. Lumumba’s Rise And Fall

E. Thirty-Two Years Of Dictatorship

F. From Political Transition To The Present

1. From 1990 To 1996: The Struggle For Multipartism And Democracy

2. From 1996 To 2001: The Rebellion Of Kabila

3. From 2001 To 2006: The Way To Presidential And Legislative Elections

4. From 2006 To The Present

Chapter 2: Corporate Responsibility Towards Communities

A. Colonial Powers Set Up Extractive Institutions: The Wealth Drain

B. The Communities

1. Attempt To Identify A Community For Csr & Mining Purposes

2. Land Use

C. Corporate Social Responsibility And Law In Industrial Mining

1. Ethical Argument Of CSR

2. Economic Argument Of CSR

3. Csr And The Mining Industry

D. Mining Laws In The Congo

1. Mining Policies

2. Mining Policies In The Congo

a. Prospecting License

b. Exploitation License

c. Artisanal Exploitation Permit

E. Incentives For The Mining Sector

1. Benefit-Sharing

2. Anti-Corruption Efforts

3. Transparency Efforts

F. The Environment

1. Environmental Impact Study

2. Environmental Restoration

3. Pollution Prevention

Chapter 3: Mining Corporations And Their Contribution To Economic Growth

A. Governance And Policies On Economic Growth In Resource-Rich Countries

1. The Use Of Rents

2. Mining Royalties

3. Mining Taxes

B. Financial Assistance Of The IMF And The World Bank And Its Unlikelihood To Alleviate Poverty

C. Multinational Corporations And Post-Conflict

D. Trade vs. Raid: The Economics Of Conflicts

1. Resource Wealth And War

2. International Corporations And War

E. Parliamentarian Commission On Mining Agreements And Activities In The Congo

1. MIBA

2. GECAMINES

3. KMC

4. TFM

5. AMC

6. BANRO

7. OKIMO & ANGLOGOLD ASHANTI

Chapter 4: Artisanal Mining And Conflict Minerals

A. Major Commodities In The Congolese Artisanal Mining Sector

1. Formalizing Congolese Artisanal Mining

2.Conflict Minerals

B. Women And Children In The Artisanal Mining Sector

1. The Issue Of Child Labor In The Artisanal Mining Sector

2. The Issue Of Women In The Artisanal Mining Sector

C. Safety Measures For Secure Mining Shafts In Artisanal Mining

1. Mining Is A Risk

2. Government Agencies And Safety In The Artisanal Mining Sector

D. Conflict Minerals And The Dodd-Frank Act

1. The ICGLR Mechanism

2. The OECD Due Diligence Guidelines

3. The Artisanal Mining Ban In 2010

4. The Dodd-Frank Act And The Congolese Artisanal Mining Sector

E. Learning From Sierra Leone And Liberia: The Kimberley Process

1. The Process

2. Assessment Of The Process

F. Multinational Corporations And Conflict Prevention

1. Multinational Corporations As A Major Player In Ending Conflicts

2. Cooperation Between Industrial Mining And Artisanal Mining

3. Sanctions On Corporations Trading In Conflict Minerals

Chapter 5: Recommendations

A. Reforms Of The Mining Code

B. Environmental Reforms

C. Institutional Reforms

Bibliography

Appendix

LIST OF FIGURES

Figure 1. Map of the Democratic Republic of Congo

Figure 2. Conflict Minerals Supply Chain

ABSTRACT

The Democratic Republic of Congo is endowed with immense mineral wealth. Its minerals include cobalt, copper, diamonds, gold, iron, manganese, tantalum, tin, tungsten, and zinc. Yet, the contribution of mineral abundance to the country’s economic development is poor. The Congolese mining sector was initiated in 1905 with the creation of OKIMO, Office des Mines d’or de Kilo Moto and UMHK, Union Minière du Haut-Katanga. The rapid development of mining companies improved economic growth until 1973, when President Mobutu introduced a variety of inadequate economic policies, including zairianization and radicalization that slowed down economic development. The actual Mining Code was adopted in 2002 to enhance a mining sector that already collapsed. This study suggests a variety of mechanisms and measures that are meant to energize the Congolese mining sector and hence allow the country to benefit entirely from its mineral abundance. This thesis is interested in how mining production in both artisanal and industrial sectors can stimulate the country’s economic growth and alleviate poverty. The thesis argues that corporate social responsibility mechanisms combined with the resource curse theory and the institutional theory address issues in resource-rich economies and lead mineral abundance to contribute to economic growth. In analyzing the three theories, the study finds that transparency, accountability, and anti-corruption mechanisms in the management of natural resource rents mixed with natural resource funds, benefit sharing, environmental protection measures, and functional state services are critical to a mining industry that strengthens economic development.

ACKNOWLEDGEMENTS

The following thesis, while an individual work, benefitted from the insights and direction of several people. My thesis advisor, Professor Adler, has been an inestimable source of guidance and advice. His effective supervision assisted me in innumerable ways, one of which includes helping me understand the different theories that influence the topic. Additionally, personal thanks and gratitude go to Professor Katz and Professor Colares for their invaluable comments and suggestions that contributed to enhance this work.

In addition to the academic and technical guidance from my thesis advisor and the Committee members, I received immeasurable support from family. My parents, Jacqueline and Francis, provided me with endless love that made this thesis a reality; their motivation allowed me to pursue my education and to obtain this degree. Francis and Jacqueline, I will never thank you enough. My brothers and sisters motivated me all the way to getting this degree through their regular calls. Multiple other people were gracious enough to use their valuable time to assist me in completion of this project through editing and finding relevant sources; special thanks are addressed to Andrew Dorchak for devoting much time to provide me with library materials.

LIST OF ACRONYMS

ABIR: Anglo-Belgian India Rubber Company

AFDL : Alliance des Forces Démocratiques pour la Libération du Congo

AIA : Association Internationale Africaine

AIC : Association Internationale du Congo

AMC : Anvil Mining Congo

APF : Alaska Permanent Fund

BCK : Compagnie du Chemin de fer du Bas-Congo au Katanga

CCCI : Compagnie du Congo pour le Commerce et l’Industrie

CFC : Compagnie des Chemins de fer du Congo

CFL : Compagnie du Chemin de fer du Congo Supérieur aux Grands Lacs

CFS : Congo Free State

CNKi : Comité National du Kivu

CNS : Conférence Nationale Souveraine (Sovereign National Conference)

CSK : Comité Spécial du Katanga

CSR : Corporate Social Responsibility

EIS : Environmental Impact Study

EPA : U.S. Environmental Protection Agency

FARDC : Forces Armées de la République Démocratique du Congo (Armed Forces of the Democratic Republic of Congo)

Forminière : Société Internationale Forestière et Minière

GECAMINES : Générale des Carrières et des Mines

HCR-PT : Haut Conseil de la République - Parlement de Transition (High Council of the Republic)

ICGLR : International Conference on the Great Lakes Region

IMF : International Monetary Fund

KMC : Kabambankola Mining Company

KP : Kimberley Process

KPCS : Kimberley Process Certification Scheme

MIBA : Compagnie Minière de Bakwanga

MNC : Mouvement National Congolais

OECD : Organization for Economic Cooperation and Development

OKIMO/SOKIMO : Office/Société des Mines d’or de Kilo Moto

RCT : Resource Curse Theory

SAESSCAM : Service for the Assistance and Supervision of Artisanal and Small-Scale Mining

SARL : Société par Actions à Responsabilité Limitée

SC : Société Coopérative

SCS : Société en Commandite Simple

SEC : Securities and Exchange Commission

SNC : Société en Nom Collectif

SOMINKI : Société Minière et Industrielle du Kivu

SPRL : Société Privée à Responsabilité Limitée

TFM : Tenke Fungurume Mining

TNC : Transnational Corporation

UMHK : Union Minière du Haut-Katanga

UN : United Nations

UNHCR : United Nations High Commissioner for Refugees

INTRODUCTION

The Democratic Republic of Congo has the largest cobalt reserves in the world, the second richest copper region in the world, the largest known diamond reserves globally (25% of the known resources), and the world’s largest untapped gold deposits.¹ The Congo produced 45% of the world’s cobalt, 30% of industrial diamond, 6% of gem-quality diamond, and 2% of copper in 2008.² The main minerals extracted in both the artisanal and industrial mining sectors in the Congo include cobalt, copper, diamonds, gold, tantalum, tin, and tungsten. Despite this mineral wealth, the Congo has not experienced significant economic growth.

This study analyzes the poor contribution of mineral wealth to economic development in the Congo. Unsuitable economic policies such as Zairianization and radicalization entailed the collapse of the economy. The development of rebellions in the east of the Congo and their quest for Congolese minerals limited the economic development of the country. Mining agreements between state-organized companies and TNCs signed during war did not serve to enhance the country’s economic growth. The poor contribution of natural resources to the country’s economic growth challenges corporate conduct and the influence of the Congolese state and its services on the mining sector.

The importance of this study is to find answers to how mining production, both artisanal and industrial, can arouse the country’s economic growth and how resource abundance can translate into improved living standards of citizens, better education and health, better infrastructure such as airports, bridges, ports, railways, and roads that contribute to economic development.

This study sustains that transparency, accountability, and anti-corruption mechanisms in the management of natural resource revenue enhance economic development. Additionally, natural resource funds, benefit sharing, environmental protection measures, and functional state services constitute prerequisites to a mining industry that fosters economic development.

A. BACKGROUND

During King Leopold’s reign in the Congo Free State, corporate investment initially covered the exploitation of rubber and ivory. Mining investment began with the creation of OKIMO, Office des Mines d’or de Kilo Moto in 1905, and UHMK, Union Minière du Haut-Katanga in 1906. Unfortunately, King Leopold’s administration engaged in violence against the Congolese people, who were exposed to forced labor, maimed hands, murder, and the destruction of entire villages to pressure the population to supply labor for corporate investment. These atrocities entailed the death of ten million individuals in the Congolese population. After the era of King Leopold, industrial mining thrived with the prosperity of mining conglomerates. During colonization, mining ventures contributed to the economic development of the Congo, creating employment and spurring the creation of other companies, but those mining ventures were largely created to benefit the colonizing country and foreign private fortunes.

The Congo³ achieved independence in 1960 and President Mobutu took power in 1965. His rule engaged the country in a short period of economic growth with a growing mining sector until 1973, when the President introduced unfit economic policies. The policies or zairianization and radicalization severely limited the country’s economic growth. The production of state-organized mining companies declined, rent-seeking activities by state officials increased, the mismanagement of natural resource revenue and public resources surged, foreign investment decreased, and little revenue was invested in the state-operated mining companies to improve them. Hence, the policies of zairianization and radicalization fostered outright corruption, enmity to foreign capital, and étatism, which slowed down economic growth. By the measure of zairianization, the state dispossessed private owners, largely foreign owners, from their businesses and companies and attributed them to local citizens. The local citizens who acquired these businesses did not have the needed managerial skills to operate them properly, and so the businesses crumbled and the country’s economic growth declined. Later, the state appropriated the private businesses it attributed to local citizens through radicalization. Unfortunately, the state mismanaged these businesses and companies, which led the country’s economy to collapse towards the end of the 1970s. In the management of the revenue from mining companies, state officials engaged in rent-seeking behavior; hence, natural resource revenue did not serve the country’s economic development. Rent-seeking behavior led state officials to realize personal financial gains from their official position and gave them opportunities to misallocate mining revenue that should have collectively benefitted the entire nation.

Beginning in 1996, rebellions formed to take power in the Congo. These rebellions had mineral-related objectives; they were concentrated in the mineral-rich provinces of the country, especially in the eastern Congo, and they secured access to diamonds, gold, tantalum, tin, tungsten, and other minerals. In the same period, multinational corporations, as reported by the 2001 UN Panel of Experts on the Congo, traded for natural resources with rebellions in the wars in Congo. Between six and eight million lives were lost as a result of militarized activities in the mineral-rich regions of the Congo.

The narrative in the background addresses why the Congolese mining sector has contributed poorly to the economic growth of the country. Some of these factors have to do with the mismanagement of natural resource revenue by state officials in the state-operated companies, enmity to foreign capital, unfit economic policies that led to the country’s economic growth and mining activities decline, a strong presence of the state in economic activity, the instability created by rebellions that wanted to access the country’s mineral wealth, and the signing of unprofitable mining agreements with TNCs. Essentially, this narrative engages the study to analyze corporate conduct, especially transnational corporations (TNCs) in the Congolese mining sector and the work of state-operated mining companies based on the Lutundula Report and the subsequent Report of the Commission for the Revision of Mining Contracts. This narrative also encourages the study to analyze the role played by the Congolese state and its services in the mining sector.

B. THESIS STATEMENT

This study examines whether the uncertainty as to economic rents from natural resources has led to a poor contribution of mineral wealth to the country’s economic development. This uncertainty does not maximize the welfare of the population and may lead to a dysfunctional relationship between the state and TNCs in the creation of mining joint ventures. This study inquires whether the broader institutional context in the Congo produces the effect of a mineral abundance that fails to sustain the economic growth of the resource-rich country.

Corporate Social Responsibility is the theory that conducts the present study on natural resources and their contribution to economic development in the Congo. Corporate social responsibility translates into a number of mechanisms that lead to a successful mining sector. Those mechanisms include consultations and communication between local communities and large-scale mining companies, environmental impact studies, environmental restoration and pollution prevention, mining policies, natural resource funds, benefit-sharing, anti-corruption and transparency efforts, among other mechanisms.⁴ The thematic unity of Corporate Social Responsibility mechanisms is the possibility for natural resource wealth to be conducive to a resource-rich country’s economic growth and benefit the national community.

CSR mechanisms as applied to the Congolese mining sector can be unified in the understanding that follows: The lack of meaningful consultations of rural communities has led some communities to be opposed to large-scale mining operations. For example, local communities engaged in rough opposition against industrial mining on gold undertaken by BANRO Corporation.⁵ Further, industrial mining has been operated in the Congo without much regard to environmental concerns. For instance, in the Province of Katanga, mining corporations abandon wastes with little attention to the danger that those wastes pose to the local population.⁶ In this situation, state services, such as the department in charge of the protection of the mining environment, are not properly monitoring potential damage to the environment. In addition, mining policies play a significant role in mining operations. For example, mining policies would incentivize corporations to invest their capital in the Congolese mining sector.⁷

Moreover, in countries where natural resources are conducive to economic development, the state creates natural resource funds. This is the case in Alaska, Botswana, and Norway, to name a few. The resource funds receive part of natural resource rents. Then, the fund is invested in activities that generate profits or used as an income to support public programs when rents decrease as a result of volatility in commodity prices. Hence, the resource fund works as a reserve of financial revenue. The resource fund is intended to serve not only local communities surrounding large-scale mining operations, but also the entire nation. The resource fund addresses the possibility to invest natural resource rents in other ventures likely to generate benefits and profits. For instance, Norway uses part of its oil rents to supply the sovereign oil wealth fund, which invests in other ventures that generate a 5.3 percent income per year to the fund. The sovereign oil wealth fund had a reserve of $916 billion in 2015.⁸ Therefore, the resource fund can be used as an investment fund; that fund can also contribute to the country’s economic development in financing the infrastructure or in the welfare of the population. Furthermore, rural communities can share in the benefits of mining corporations to promote local development of the area where large-scale mining is operated. For instance, in South Africa, local populations have a share in mining companies.⁹

Finally, for mineral wealth to be conducive to economic development, state officials should avoid rent-seeking behavior and personal gains on the revenue of natural resources. Rent-seeking behavior leads state officials to realize personal gains from their positions and provides them opportunities to misallocate mining revenue that should collectively benefit the entire nation. This behavior has largely been the case in the Congo between the 1970s and 1990s and has resulted in the slowdown of the country’s economic growth. The mechanisms of transparency and accountability address the issue of rent-seeking behavior. When state officials are accountable, they allocate the revenue from natural resources to the needs that benefit collectively the whole nation.¹⁰ In this regard, state officials can respond to the court for their use or misuse of resource rents.

This study on natural resources and their contribution to economic development in the Congo focuses on how corporate social responsibility applies to corporate conduct, or corporate behavior, or corporate activities. However, the study could not be efficient if it did not account for an analysis on institutions¹¹ in the Congo. More importantly, corporate social responsibility alone, as applied to corporate investment, could not lead to understanding of corporate behavior in the Congo without looking at the overall institutional context of the resource-rich country, especially how the Congolese government and its services operate. The theoretical unity behind the thesis statement is to set policies and institutions that, taken together, foster a successful mining sector which supports the country’s economic growth. Therefore, the thesis is stated as follows:

The contribution of natural resources to the economic growth of mineral-abundant countries is dependent upon policies and institutions, which are transparency and accountability, natural resource funds, benefit-sharing, anti-corruption mechanisms, and improved state services. Transparency and accountability in the process of concluding mining agreements with TNCs constitute the mechanisms that lead state officials to manage mineral revenue to the benefit of the nation and make state officials accountable to the inhabitants as to the purposes to which resource revenue has been used. Transparency and accountability inquire whether natural resource proceeds are used for the personal benefit of state officials or for the benefit of the whole nation. Natural resource funds are intended to use part of the resource rents as a financial reserve to promote investment and generate income to sustain the country’s economic growth. Benefit-sharing promotes the possibility for local communities to share in joint ventures that operate large-scale mining activities in the local area. Anti-corruption mechanisms address the prospect of signing mining agreements with TNCs based on objective criteria of the value of minerals and the capacity of each TNC to undertake mining operations. State services constitute the cornerstone of the success of the mining industry; they oversee both the large-scale and artisanal mining activities and ensure that mining laws are observed.

The 2001 Report of the UN Panel of Experts on the Congo, the Lutundula Report, and the World Bank Report on the Congo ask why natural resources are not conducive of economic growth in the Congo and how minerals can contribute to economic development of the Congo. The 2001 Report of the UN Panel of Experts indicates that the answer lies in the weakness of the state and in corporate behavior. In fact, the UN Report indicates that the wealth of the country [DRC] is appealing and hard to resist in the context of lawlessness and the weakness of the central authority.¹² This occurrence took place as existing laws were not observed or not properly enforced. Courts were weak vis-à-vis political actors. Some individuals, essentially people in the highest levels of political power, were above the law or untouchable by the courts. This situation led state officials to misuse natural resource revenue without consequence. For example, President Mobutu and higher-ranked members of the state-party MPR¹³ were not accountable to Congolese people and could not respond in justice for their actions.¹⁴

Further, the UN Report adds that the role of the private sector in the exploitation of natural resources and the continuation of the war has been vital. A number of companies have been involved and have fueled the war directly, trading arms for natural resources.¹⁵ This circumstance was made easy by the uprising of rebellions in the east of Congo. Between 1996 and 2003, parts of the Congo were controlled by rebellions which prohibited access to the Congolese government through regular armed battles against the Congolese army. As rebellions had access to Congolese mineral resources, they needed business entities that were interested in minerals, and hence, traded these minerals for money or weapons on the global market. The 2001 UN Panel of Experts is clear on the involvement of business entities and offers a sample of foreign companies that operated minerals trade during periods of war in the east of Congo through its neighboring countries; nevertheless, this study does not ascertain whether companies cited in the Report were involved in the trade with rebellions operating in the Congo.

The Lutundula Report indicates that the bad economic performance in the Congolese mining sector is explained by a series of failed economic policies and questionable corporate conduct. The Lutundula Report cites, essentially, zairianization¹⁶ as an ill-advised economic measure by the Congolese state, which deteriorated the economic growth performance of the country and discouraged foreign investment. In addition, the state took over the property of all mining companies in the Congo and appointed management based on political affiliation rather than competence. Zairianization also allowed state officials to use natural resource rents and other revenue from state-owned companies for their own