STEARNS AND SPIEGEL: Ethical investment in the Congo

Imagine the following situation: A businessman runs a profitable company, providing much-needed employment to the economy. An integral part of the business, however, consists of paying off thugs who terrorize the community, stealing and raping at will. Would you invest in this business?

This is essentially the question that the Yale Corporation and other investors face regarding the mineral trade in the eastern Congo. There, pick and shovel mining puts cash in the pockets and food on the tables for hundreds of thousands spread over an area the size of Florida. The minerals they mine are also estimated to provide the largest source of financing for armed groups that commit thousands of rapes and murders each year.

This epidemic of violence led the United Nations Special Representative on Sexual Violence to dub the Congo “the rape capital of the world,” and recent health surveys suggest that as many as 40 percent of women in the eastern Congo have been sexually abused. Mortality studies show that 5.4 million people died as a result of the conflict between 1998 and 2007, and thousands have been killed in recent years.

While the roots of the conflict are complex, there is no doubt that rebel soldiers make millions each year off the mineral trade — numerous United Nations reports detail armed groups taxing trade routes and mining pits, owning transport companies and smuggling ore into neighboring countries.

Something had to be done. In July 2010, U.S. legislators inserted several pages into the mammoth Dodd-Frank financial regulation bill to help regulate this mineral trade; once this part of the law goes into effect, companies listed on U.S. markets will have to publish conflict mineral reports detailing what they have done to find out whether they use minerals involved in the conflict.

This bill does not sanction businesses trading in conflict minerals. It doesn’t even require them to stop buying these tainted goods. Rather, the law only requires that companies make their supply chains more transparent. Penalties are left to private investors and concerned individuals.

This is where Yale comes in. Around the same time as the Dodd-Frank bill was passed, we approached Yale’s Advisory Committee on Investment Accountability (ACIR) about weighing in. This is the body that recommended that Yale divest from Apartheid South Africa and from companies doing business with Sudan.

We urged the committee to adopt a policy of engagement: Tell companies that Yale will not invest in supply chains that finance violence, provide a grace period for companies to implement substantial reforms and otherwise consider divesting.

Unfortunately, ACIR is reluctant to take a position on the matter. “We couldn’t conclude with any certainty that if we started boycotting them it wouldn’t do more harm than good,” ACIR chair Jonathan Macey told the News last month. The problem, he said, was that the committee found conflicting data.

Some journalists and academics are concerned that the Dodd-Frank bill has resulted in a boycott of Congolese minerals and pushed hundreds of thousands of Congolese into unemployment. Yet most experts and field researchers disagree. A United Nations expert panel found that the Dodd-Frank bill led to a decrease in mineral production. While some miners have indeed lost their jobs, those losses are likely lower than many estimates. Many miners have migrated to other jobs. The Congolese army has withdrawn from some key mining areas, and mining companies have begun to separate clean from dirty minerals.

The UN panel backs the Dodd-Frank legislation, as do campaign groups like Global Witness and Amnesty International, several dozen Congolese human rights groups and the Catholic Church. The Congolese government has also thrown its weight behind the U.S. legislation.

So is the data really so conflicting?

There is no doubt that the crackdown on conflict minerals will lead some miners to lose their jobs in the short run. But to compare these modest job losses with the rape and killing perpetrated by armed groups is untenable. Yale has fallen behind Harvard, Stanford and Dartmouth in its efforts to ensure that its investments do not underwrite violence.

Now is not the time for risk-aversion and hesitation. Just this month, violence displaced another 100,000 people in the eastern Congo. And thanks to industry lobbyists with far deeper pockets than human rights groups — and without firm action from private investors like Yale — the Dodd-Frank legislation risks being diluted into a toothless bill. Yale now has to decide: Will it lead?

Jason Stearns is a third-year graduate student in political science. Julia Spiegel is a third-year joint degree student at the Yale Law School and Princeton.

Clarifiction: March 26 2012

The headline of this column was changed from “Divestment in the Congo” to “Ethical investment in the Congo” to better reflect the ideas presented in the piece”

Comments

  • River_Tam

    > While some miners have indeed lost their jobs, those losses are likely lower than many estimates.

    Yay for statistics-free statements.

  • ChuckBlakeman

    Imagine the following situation: An advocacy group convinces the United States to drop a nuclear bomb on Pakistan in order to kill Bin Laden. Thousands die, 100,000’s lost their homes and employment, and 1 million people are directly affected.

    Would you back that advocacy group?

    That is the question you have to answer if you are going to accept the advocacy of Global Witness, Enough Project and others saying “cell phones are evil”.

    Dodd-Frank legislates mineral trade in 10 central African countries. The Congo is the size of everything east of the Mississippi. Central Africa is the size of the continental United States. The conflict area is the size of Vermont, and is not even connected by a single road to the rich mineral areas hundreds and over a thousand miles to the west and south. Lumping all of central Africa together under Dodd-Frank has paralyzed the entire region.

    We are a Congolese-owned and based company who leaves most profits locally, uses mineral wealth to diversify local economies and break the dependence on minerals, which will eventually be depleted. Since September of 2010, minerals from honest, innocent artisanal miners all over central Africa are not selling. There is a 100% embargo on most artisanal minerals, moving 1 million people from abject poverty to utter destitution.

    One woman who left farming and worked as a miner to avoid rape, “Now what am I supposed to do? Go back to farming?” Dodd-Frank is sentencing her and thousands like her to unspeakable horrors in front of them.

    Less than 1% of all central African minerals are attached to conflict. What this article conveniently leaves out is that the UN Panel of Experts has proven smuggling by militia has “increase significantly” while exports of legitimate artisanal minerals all over central Africa has evaporated.

    You don’t hunt Osama bin Laden with a nuclear bomb and you don’t solve a very localized militia problem by destroying the livelihoods of everyone throughout the entirety of 10 central African countries. The “minerals are evil” message could be the worst passive tragedy perpetrated by the west on Africa in 100 years.

    I offered to pay for Enough Project and Global Witness to come to Stanford University to debate this issue. I met with students at Stanford without them. I’ll make the same offer for Yale. Invite us and we’ll bring at least one Congolese Chief with us.

    Demonize criminals, not minerals. Four years after Kimberley was implemented to rid Sierra Leone of militia groups selling diamonds, the only way they were eradicated was when the British army went in and routed them out. Global Witness quit Kimberley earlier this year, announcing it be an abject failure. They are the ones who have coached Enough Project on how to model Dodd-Frank after Kimberley.

    As Eric Kajemba, head of a Congolese civil society said, “If the advocacy groups are against us, who is for us?” The world is upside down.

  • RexMottram08

    The law of unintended consequences….