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Main Content
In Praise of Joint Initiatives in the Mining Industry
Proving the value of self-regulation in developing countries
It is often believed that private industries are incapable of self-regulation. This idea has been reinforced with the financial crisis that critics have claimed, with reason, is the proof that the financial industry is incapable of regulating itself and preventing it from abiding to good governance. Certain industries suffer from particular tarnish through mistakes and irresponsibilities and this is true of the extractives industry.
Extractives can be broadly defined as the business of extracting mineral commodities including oil gold, diamonds, gems, iron ore and precious metals. This is a business sector which has a particularly bad history associated in peoples' conscience with exploitation, terrible working conditions and polluting the environment all in the pursuit of profit.
Of all the places where this is politically sensitive, this is true for Africa both for the employees of the industry and customers who are increasingly pro-active in 'voting with their money'. But recently two initiatives coming offered by the sector itself have decided to challenge the rules of the game. These are the Kimberley Process and the Extractives Industry Transparency Initiative (EITI).
The EITI was founded in 2003 through a collaboration between industry and civil society representatives. It includes most of the big names of the industries, such as BP in oil and BHP Billiton in mining , and major NGOs such as Publish What You Earn. It also has the backing of industry associations and Western governments, who provide the project with the political and financial initiatives it needed. Nevertheless, EITI remains a private sector led project.
The EITI now counts 11 compliant member countries in Africa and Central Asia (having suspended Yemen for non-compliance).There are a further 23 candidate countries who are currently being reviewed and inspected before their possible accession.
Its main goal is for private companies to publish, publicly and transparently, what they have paid for public projects. The EITI addresses many problems of the developing world. The first one, which may be surprising for Western readers, is the lack of information local populations have surrounding their own natural resources and mineral wealth.
This is not to say these populations do not know their land, on the contrary. But they often do not fully realise the quantity and income that this natural wealth may bring to them. The first culprit is difficulty to access the information, which is rarely publicly available, and when it is, few people have access to the internet. The second culprits are corrupt officials who try hiding the information as graft, like many crimes, is a creature of the shadows.
As the EITI has obtained backing from the political and economic world, this has helped to conduct it public awareness campaign and shine spotlight on the issue, tackling it head on.
For the development community, both governmental and non-governmental, the benefits are quite obvious: public awareness, transparency, accountability and keeping their own civil servants in check.
But for the private corporations involved in the initiative, the benefits may appear to be more far-removed. And, of course, critics are bound to criticise the initiative as they will see the 'evil hand of profit' looming over it. However, the companies benefit from some advantages that are nearly impossible to pay for.
Transparency is a core element for business. After all, business and the economy at large are based on trust, without which no barter or exchange is possible. Conducting these kind of transactions in the open is to the advantage of all involved.
As China is increasingly resource-hungry, there is much room for corruption amongst local officials in resource-rich Africa, Indonesia and Mongolia. Countering these temptations with transparency and clearly writing down the rules through participating in the initiative is a clever way to reassure investors and consumers alike. By seeing that their money is put into implementing the company's business and not graft, shareholders' fears will be put at rest.
Another private initiative that has worked surprisingly well in the last few years is the Kimberley Process. Named after the town of Kimberley in South Africa, policymakers, aid representatives and powerbrokers met to discuss the problem of conflict diamonds in the year 2000. The Kimberley Process (KP) developed its own standard when it was finally initiated in January 2003, called the Kimberley Process Certification Scheme (KPCS).
Originally started by mining South African states, the KP has now grown extensively to include 75 countries, civil society organisations and the World Diamond Council and was endorsed by the UN Security Council. This accounts for a whopping 99.8% of the world's legal diamond industry and most diamonds found in the West and elsewhere are now KP certified.
The KP Certification Scheme gives the diamond a unique number which enables the wholesaler and final consumer to track its origin and whether it was mined legally. It has to abide to a set of stringent standards of quality and purity, and each movement from the mine to the luxury shopwindows of Mayfair and the Champs Elysées are tracked.
The idea for the KPCS spawned in the mind of diamond industry executives who were responding to international consumers' increasing shunning of their products through active public awareness campaigns in Europe and North America.
The idea was to deprive the rogue governments of Sierra Leone and Liberia of financing their bloody civil wars through these 'conflict', or 'blood', diamonds. Besides the well-documented slave-like and abusive conditions in which the diamonds were extracted, they also represented a medium of hard currency for these governments to fund their wars. Diamonds have the advantage of being trust-worthy and usable as a currency itself or exchangeable to US dollars or other war-free currencies.
But there has been a lot of trouble surrounding Zimbabwe in the Kimberley Process with a total sales ban being only lifted last year by the European Union. Furthermore, many question why the ban was lifted at all with increasing evidence leaking out that the country's powerful military intelligence institution, the Central Intelligence Organisation (CIO) , is controlling the Eastern Marange fields and helping to fund Mugabe's grip on power.
The start of the new millennium has been marred by numerous conflicts throughout Africa and despite cynics pointing to the inalterable nature of these conflicts, they are preventable. There is more and more evidence that certain governments with colonial pasts and companies close to power have benefited directly from these conflicts and Western responses or lack thereof.
These was blatant in 2008 as the crisis in Zimbabwe between Morgan Tsvangirai's MDC and incumbent Robert Mugabe's Zanu-PF descended into civil war. The deadlock has still not been broken and Mugabe and his party's cronies still hold to power.
There was also another shocking example that same year in the Kivu, in the Democratic Republic of Congo where militias raged a bloody war of attrition and atrocities in trying to control vast natural resources, including columbite-tantalite, a rare commodity used in the construction of laptops and mobile phones.
When Western policymakers seem more intent on ensuring political patronage with regards to their national interests in their former colonies and certain companies may tar the name of whole industries in this pursuit, the future may seem bleak.
But in a world where consumers are eager to 'vote with their wallets' and where rumours, allegations and the supporting evidence can be online in a matter of minutes, it is in the interest of companies to follow the leads of the EITI and the Kimberley Process. They are surely not perfect but they pave solid foundations on which investors and policymakers may tread proudly to build the future of developing nations.