Doing well out of war? Companies’ experiences in conflict zones

4 12 2009

The duration of intra-state conflict has doubled since the 1980s. This is explained by the fact that it is now easier to sustain conflict. During the Cold War, superpowers were often supporting groups of rebels (Angola provides a good example of this). Nowadays, to sustain a conflict a rebel group has to find other source of revenues and to a certain degree has to consider itself a business first. Alternative source of revenues such as kidnappings (think of Columbia) or natural resources extraction (think of Sierra Leone) can be far more lucrative than foreign government support.

Mining as well as oil and gas firms can sometimes be caught in the middle of civil conflicts. When rebels take possession of the area in which extractive operations take place they can levy protection charges on producers, run an extortion racket. To make sure that they are well understood by companies, rebel groups can threaten to/or damage expensive infrastructures.

On the other side of the coin some companies have benefitted from civil conflict and shaky state structures. One of the channels through which firms can take advantage of conflicts to further their interest is called a booty future. These occur when a rebel group acquire funds by selling advance rights to the extraction of minerals that they do not control but expect to control in the near-term. In this case firms are literally funding and furthering the conflict. The classic case of paying a bribe to officials in countries with weak governance structure and covering the payment as a “facilitation payment” is also part of firms’ opportunities.

Resource-enabled conflict in the Democratic Republic of Congo

The conflict in the Democratic Republic of Congo is a well documented of a conflict being sustained by the proceeds of mineral extraction as a mineral rich part of the country is under the control of rebels. The role of companies such as THAISARCO, the world’s fifth-largest tin-producing company, owned by British metals giant, Amalgamated Metal Corporation (AMC) has been well document. THAISARCO’s main supplier, Congo-based Panju, sells cassiterite and coltan from mines controlled by the rebels.

The United Nations Security Council released a report in October 2002 following investigations on the connections between the illegal exploitation of natural resources and the illicit trade of small arms and weapons. The report lists firms that due to their behaviour should face financial restrictions. It also lists multinationals not complying with the OECD’s Guidelines for Multinational Enterprises, which establish voluntary principles for responsible business conduct.

To make sure that PDAC understands the benefit of Bill C-300, I browsed through the report and found five Canadian companies including First Quantum Metals, Harambee Mining Corporation, International Panorama Resources, Melkior Resources, Tenke Mining Corporation that have been found to be breaching the OECD guidelines. Of note, I also found out by reading the document that a company owned by George Forest was listed for financial restrictions. We now know where his funding problem for the acquisition of Forsys came from.

Many reports by NGOs such as Global Witness have focused on the situation in Congo.

Due to events such as the conflict in the Democratic Republic of Congo, many reputable companies find the reputational risks of operating in developing countries too great to operate in. There has been work carried to identify the variables influencing the likelihood of resource-related conflict occurring. While every conflict is unique, some pretty strong factors have emerged from research and can give an indication of a country’s vulnerability. The link between natural resources and conflict is influenced significantly by the level of income per capita, the rate of economic growth, the structure of the economy (are commodities the main or sole export goods?) and the ethnic composition of a country. Societies where the largest ethnic group accounts between 45 and 90 percent of the population are more at risk of conflict.

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2 responses

7 12 2009
Micheline

Très intéressant !

8 03 2011
Forsys and GFI Settle amid Wikileaks Intrigue « Just Digging: a Mining and Metals blog

[…] Forsys and GFI Settle amid Wikileaks Intrigue 8 03 2011 In one of my very first entries, I discussed the failed acquisition of Forsys, a Canadian junior with a fully-permitted uranium project in Namibia, by Georges Forest International (GFI), a Belgian firm with questionable business practices. After being temporarily halted by Industry Canada, the transaction was called off due to GFI’s failure to transfer the funds. I speculated on the cause in a subsequent entry. […]

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