The Resource Curse

How is it a country so rich in resources, like the Democratic Republic of Congo (DRC), can face social, political, and economic turmoil? Endowed with large amounts of diamonds, gold, copper, cobalt, coltan and tin, DRC faces today what is known as the resource curse.

 

According to the resource curse, resource-dependent countries are subject to the following curses: an increase in corruption, larger likelihood of an authoritarian government and a higher risk of civil war. With an excess of wealth coming from one sector of the industry, the state fails to promote other parts of the economy. The sole reliance on resource extraction revenue incurs the risk of the nation becoming a “rentier state”. This is a country in which élites buy support rather than invest in good economic performance. With resource revenues quickly rising, multinational companies increasingly align with the government.

 

Resource extraction and revenue distribution begin to trump all other sectors of institutional development. Society begins to value ownership more greatly than representation, weakening the state’s ties towards democracy. Everyone wants a piece of the prosperity. Economic agendas play a pivotal role in creating violent conflicts. Civil war is much more likely in a state of resource wealth.

 

Mining Funds Armed Groups

 

The United Nations has estimated that in many parts of the provinces of North and South Kivu in DRC armed groups control the trade of minerals. The control over the mines is the main source of revenue for the warlords and often the only reason keeping these groups going. In 2002, for example, the United Nations estimated that no coltan was leaving the Eastern DRC without benefiting either the rebel groups or foreign armies. Estimates are that the Forces Démocratiques pour la Liberation du Rwanda (FDLR) reap millions of dollars each year from the illegal trade in minerals in Eastern DRC. As long as this trade remains profitable for them such rebel groups have no interest at all in putting an end to the armed conflict.

 

Despite this evidence many Western companies continue to buy minerals originating from these regions. The British mineral trading company Afrimex and its Congolese subsidiary Société Kotecha, for example, paid taxes to rebel groups in order to be able to continue exporting coltan from South Kivu, thereby supporting their military activities. AngloGold Ashanti mined gold in Mongbwalu which was under the control of an armed group named Front des Nationalistes et Intégrationnistes (FNI). In fact, AngloGold asked FNI for permission to start mining gold there. AngloGold paid levies to FNI for each kilogram of gold which was flown out of Mongbwalu and also provided assistance with logistics and transport, for example allowing FNI to use the company's 4X4 vehicles.

 

The Tenke Fungurume Mining (TFM) project in Katanga- An Example of Corruption and Civil War

 

Tenke Fungurume in Southern Katanga, DRC, was one of the largest untouched deposits of copper and cobalt in the world. In 1996 the Swedish Lundin Holding was awarded the exploitation rights. Serious problems of transparency and corruption surround the signing of the contract.

 

The negotiations for the contract took place in total secrecy. Moreover, Lundin owner Adolf Lundin offered to finance Congo's then president Mobutu’s upcoming election campaign. The final outcome was an unfair deal favouring Lundin and damaging Congolese interests. In May 1997, Mobutu was overthrown and replaced by Laurent-Désiré Kabila. Shortly after, Lundin Holding made the payment of $50 million as a deposit, as foreseen by the contract, but half of that money was transferred to the accounts of a company partially owned by Kabila.

 

In 1999 Lundin froze its activities due to the civil war in Congo. In 2005 a new contract was signed with the provisional government. The negotiations for the contract again took place in secrecy. An independent external evaluation of existing mining contracts was under way at the time the new contract was signed but its conclusions were not awaited. According to various analysts, the terms of the 2005 agreements were tilted even more in favour of Lundin than those of the 1996 agreement.

 

In 2007 an independent commission established by the Congolese mining ministry concluded that the contract should be renegotiated. Nonetheless the mining project went ahead as scheduled and the exploitation began in 2009. In October 2010 the renegotiations ended with only minor concessions from the investors' side to the Congolese government and leaving, for example, the fiscal terms of the original contract untouched.

 

Oil Extraction in the Niger Delta

 

DRC is not the only country in Africa suffering from the resource curse. Another example is Nigeria. Following the military rule in 1966, the federal government gained control of the Nigerian oil sector. Commercial oil exploitation had started in 1956 with an institutional structure favouring the three majority groups of the country. Developmental outcomes were compromised and the government was undermined by the increase of new sub-national state units.

 

The people living within the Niger Delta, an ethnic minority, began to feel excluded from the governance process due to a lack of transparency. Land ownership issues, environmental degradation, lack of compensation, and loss of livelihoods are all still prominent issues today. Violence became a greater issue when a wave of youth mobilization began, local thugs were being armed for election purposes, and the adverse response of both the oil companies and Nigerian government to legitimate complaints let to a further escalation of violence. While the local population suffered the negative consequences of the oil extraction - at least 400.000 tons of oil have spilled in the soil of the Delta over the last decades - they have not seen anything of the wealth the oil generates. While in 1980 28% of the population were living below poverty line in 2000 the figure had risen to 60%.

 

In October 2009, in conjunction with the Movement for Emancipation of the Niger Delta, militant leaders accepted the amnesty offered by Nigerian President Ya’ardua. The area remains very fragile. The violent conflict is a result of accumulated grievances related to the control of the resources.

 

Conclusion

 

The resource curse has befallen many resource rich countries like DRC or Nigeria.  This is fuelled by a lethal mix of corrupt and incompetent authorities, rebel groups wanting their share of the revenue from the natural resources and Western companies shamelessly making deals with both of them to secure access to these precious resources, impervious to the impact of their action on the local population. A change of attitude from all three these actors is needed to put an end to the curse. An important way the West can contribute to this is by holding companies accountable for the consequences of their action. The Dodd-Frank Act[1] is a first important step in the right direction, but further steps are needed including legislation which permits companies to be held accountable before European courts of justice for their crimes committed in Africa.

 

 

Thomas Lazzeri & Carleigh Rixon