Resource-linked conflicts not only lead to widespread human suffering and social unrest. They are also detrimental to commercial investments in the long term and are a threat to secure resource supplies. For nearly 20 years, Global Witness has conducted research on the funding of armed groups through the trade in minerals, timber and oil in violent conflicts around the world. We have been behind major international policy reforms and mechanisms to tackle the problem, including the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
Sudan and South Sudan
The case of Sudan and South Sudan demonstrates the risks, as well as the positive potential, of natural resource revenues in post-conflict countries.
In 2009, Global Witness research highlighted discrepancies between oil production figures published by the Government of Sudan in Khartoum and those issued by the major oil consortia, including China National Petroleum Corporation, which operates major oil blocks in both countries. Our report, ‘Fuelling Mistrust: The need for transparency in Sudan's oil industry’ made the case for more transparency in the Sudanese oil industry, arguing that without it, mistrust between the governments in Khartoum and Juba would grow and the hard-won peace would be jeopardised.
When South Sudan gained independence from Sudan in 2011, it became the most oil-dependent economy in the world. At the same time, the only route for South Sudan to export its crude oil was via Sudan’s pipelines and port. By early 2012, tensions around the negotiation of a new oil agreement between the neighbours had escalated, culminating in the total shutdown of production in South Sudan for eighteen months and military clashes in oil facilities, with adverse consequences for Chinese oil companies operating in the two countries, as well as for local populations.
Export revenues provide South Sudan with much-needed income and could reinvigorate the country’s struggling economy. However, this revenue stream is far from stable. Continued disputes with Khartoum over accusations that South Sudan is funding rebels in Sudanese territory, lead to threats to close the pipeline, and production levels remained at a minimum until September 2013 in preparation for this eventuality. The operating environment for Chinese companies is therefore currently riven with uncertainty, leading Chinese diplomats to be prominent figures in negotiations between the two states.
In addition, the risk of corruption and mismanagement in South Sudan’s oil sector remains high. There is a strong legal framework in place to govern oil but very little capacity to implement it, while the government remains under pressure to raise revenue through increased production, or new contracts. Global Witness published ‘Blueprint for Prosperity: How South Sudan's new laws hold the key to a transparent and accountable oil sector’ in November 2012 to provide an analysis of South Sudan’s new oil legislation, the commitments that have been made to transparency and accountability and the gaps which remain. Global Witness continues to scrutinize South Sudan’s oil sector as it develops to ensure that commitments on paper become reality in practice.
Announcements of mineral and petroleum reserves worth up to US$3 trillion in Afghanistan have raised hopes of transforming the country’s future. However, managed poorly, such resources could exacerbate corruption and contribute considerably to further conflict in such an unstable region. This would jeopardise commercial investments including those of Chinese companies with the associated security and reputational risks.
Global Witness works with Afghan civil society, the Afghan government and international donors to promote good governance of the country’s natural resource wealth. In November 2012, Global Witness published a first detailed analysis of the most significant mining deal signed to date in the country, the Aynak copper contract, focusing on the risks of insecurity for Chinese investments and staff in a volatile environment.
Key findings from the report, ‘Copper Bottomed? Bolstering the Aynak contract: Afghanistan’s first major mining deal’, include:
- A lack of provisions for transparency in the contract to safeguard against corruption
- Limited efforts to encourage full engagement with the local community, increasing the risk of violence and conflict around the mine
- Lack of specifics in the security arrangements, increasing the potential liabilities to the Chinese consortium.
The report’s publication subsequently lead to a commitment from the government to make the deal’s contract public, in addition to other contracts covered by the presidential decree. This has allowed for further independent scrutiny of an agreement that will likely set the precedent for forthcoming major investments in Afghanistan.
Eastern Democratic Republic of Congo
Global Witness has carried out several years of research into how the trade in minerals – specifically tin, tantalum, tungsten and gold – finances illegal activities by armed groups and military units in the east of Democratic Republic of Congo. These same groups and units have carried out widespread violent abuses against local populations and led to the forced displacement of tens of thousands of people.
Some of the more active firms exporting minerals from eastern Congo are Chinese-owned. Since the Congolese government introduced a law in 2012 requiring companies to carry out ‘due diligence’ checks on their supply chains to international standards, our researchers have encountered a greater willingness amongst these Chinese-owned companies to engage in discussions about how to break the links between the minerals trade and conflict financing.
Much of the tantalum ore exported from eastern Congo is processed in China. Some of these Chinese processors have yet to commit to measures to ensure that their mineral purchases do not fuel conflict in Congo. However, one Chinese tantalum smelter is taking a leading role in a project involving large electronics companies to produce ‘conflict-free’ capacitors containing Congolese tantalum.