Financing Conflict: The Impact of International Business on Development, Democratization, and Conflict in the Democratic Republic of the Congo

This week, the EU announced a draft law on conflict minerals in response to the continued funneling of minerals out of the eastern regions of the Democratic Republic of the Congo (DRC) that has reportedly fallen short of what many campaigners had been hoping for. The draft law establishes a mechanism for European firms to voluntarily self-certify that their products have not come from warlords in conflict-ridden areas and offers various incentives for firms to exercise “due diligence.” However, this “responsible importer scheme” would only apply to companies actually selling raw mineral materials on the market. This removes all firms that sell products with the minerals already installed, such as cell phones and laptops. 

The EU’s proposed law comes after the implementation of a similar, although more stringent law, in the United States. The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in the United States in 2010 by the U.S. Securities and Exchange Commission and contains a section (section 1502), which states the following:

        Section 1502 requires persons to disclose annually whether any conflict minerals that are        necessary to the functionality or production of a product of the person, as defined in the provision, originated in the Democratic Republic of the Congo or an adjoining country and, if so, to provide a report describing, among other matters, the measures taken to exercise due diligence on the source and chain of custody of those minerals, which must include an independent private sector audit of the report that is certified by the person filing the report. Certain aspects of this rulemaking will require consultation with other federal agencies, including the State Department, the Government Accountability Office, and the Commerce Department. Persons are not required to comply with these rules until their first full fiscal year after the date on which the Commission  issues its final rules.

While this law has been a groundbreaking step towards ameliorating the impact of international business on conflicts raging in the eastern DRC, it has also seen some serious setbacks. 

This week, a panel of three federal judges is preparing a response to a lawsuit brought by a number of powerful business interests against the disclosure of conflict minerals. Industry lawyers have argued that the law “overburdens” companies. It is clear, though, that many companies do not agree with this argument and have shown themselves to be leaders in transparency and accountability in terms of conflict minerals, companies such as Apple, Hewlett-Packard, and Intel, among others.

The implementation of laws such as the Dodd-Frank Act and the proposed draft law from the EU demonstrate the strong, and detrimental, connection the international community has come to accept between conflicts in developing nations and the international economy. In his recent testimony before the Senate Foreign Relations Committee at a public hearing on “Prospects for Peace in the DRC and Great Lakes Region,” Dr. Robert Menendez outlined a number of issues plaguing the DRC, as well as a process for ameliorating them. He specifically stated that the complex situation in the DRC is “characterized by collectively-reinforcing factors like: a perverse political economy; extremely weak governance at all levels; trans-national political, financial and inter-group dynamics; and a persistent war economy.” As part of the process towards lasting peace, development, and democratization, he highlighted the importance of economic development, and while he praised such efforts as the Dodd-Frank Act Section 1502, he made it clear that a more comprehensive approach would be needed to address all levels of the “perverse political economy” that characterizes the DRC.

When thinking about the connection between international business and conflict in the DRC, it is difficult not to wonder about the other ripple effects this connection has on the overall development and democratization of the country. What would a more comprehensive approach to improving development and democracy look like, which also accounts for ending the vicious cycle of conflict and exploitation in the eastern regions of the DRC? Is there more the international community could be doing to stem this violence? How do these policies impact local miners who, while potentially working for warlords, still need to create their own livelihoods? 

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3 Responses to Financing Conflict: The Impact of International Business on Development, Democratization, and Conflict in the Democratic Republic of the Congo

  1. kyleedigregorio says:

    This is such an interesting and largely underestimated topic. After reading this piece, the fact that liberalization has been consistently promoted as a necessary precondition for economic growth within the Democratic Republic of Congo becomes exponentially more ironic, given that– by conservative estimates– approximately 71% of Congolese live below the poverty line. Yet one cannot discuss poverty within the DRC without addressing the pervasive conflict that has for decades wracked the country. Congo’s “transition” to peace, which was sponsored by international donors from 2002 to 2006, involved demobilization and democratization processes which rested on an economic logic that sought to end conflict by restructuring economic incentives for violent players: essentially by offering nominally higher returns for less violent alternatives. Yet, the demobilization process was not accompanied by the installation of a rational-legal bureaucracy or system of law, which carried negative implications for the economic situation to which newly demobilized ex-combatants returned. It seems as though, given the decades of conflict, the economy remains limited and lacks a sense of functionality. Absent of industrial or organized agricultural production, the economic base of the country remains highly reliant on non-formal taxation and mineral extraction, which have both proven to be highly contentious. Given the economic structure and the incentives which underlie and motivate the DRC’s “persistent war economy,” what are the “next steps?” It appears as though those profiting from this economy are content to maintain the status quo. Despite the claim made by industry lawyers, concerned that 1502 “overburdens” companies, do you think that a commitment to corporate social responsibility (CSR) and the legislation inspired by it can prove to be a promising contributor in reducing conflict in the DRC and, ultimately, in fostering an environment more conducive to development and democratization?

  2. sorensond says:

    This was an interesting post. I find it very interesting that some companies seem to be complying with new regulations, while other international companies claim to be “overburdened.” It would be interesting to look more into the investment/procurement patterns of these different organizations. to see if there were preexisting patterns.

  3. cjforster says:

    A interesting post. Section 1502 is certainly very welcome and as you note the requirements for companies are low. Although there is a cost involved in ascertaining the supply chain of such minerals, the law only requires companies to disclose what they use. Therefore they are able to merely disclose that they do use conflict minerals. The law does not require them to stop using such minerals and some companies will not. For others however, both consumers and their own investors will demand responsible procurement.

    Section 1502 is a critical part of the comprehensive approach needed in the DRC and Central Africa as a whole (1502 applies to minerals stemming from 10 countries).

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