BeyondConflict:ReconfiguringSupplyChainApproachesforGoldandDiamonds

‐NicholasGarrett

(ResourceConsultingServicesLimited)www.resourceglobal.co.uk

‐ResponsibleJewelryCouncil

London,May18,2010

ResourceConsultingServicesLimited(RCS)

• RCS is a London‐based research, strategy development and implementationconsultancythatprovidesconsideredsolutionstoclients’challengesinextractiveandagriculturalsectors.

•RCSemploysworld‐classanalysisskillstodeveloppracticalstrategiesthatarefactbasedandacademicallysound.

• RCSmatchestheseskillswithadvisory, implementationandevaluationservicesthroughoutaproject’slifespan.• RCShasglobal reachdrawingoncorestaff expertiseandspecialist in countryassociates.

• Examplesare: investmentfacilitation, economic impactassessments, adviceongovernmentintegrityissues.,etc.

NicholasGarrett

• DirectorofResourceConsultingServicesLimited(RCS);• ResearchAssociatewiththeLondonSchoolofEconomics(LSE);• PhDCandidateatFUBerlin(MininginDRC);• BasedinSouthAfrica

• Widelypublishedspecialistintheresearchandin‐depthanalysisofeconomic,political,andsocialstructuresinAfricannaturalresourcessectors;

• Practicalstrategydevelopmentformultilateraldevelopmentorganisations,governmentsandmulti‐stakeholderinitiatives;

• Investmentfacilitationandpracticaladvicetotheprivatesectoronwhereandhowtoconductbusinessinhigh‐riskareas

BackgroundtoPresentation

• PartofRCS’workistoanalyse,advise,implementandaudit‘chainofcustody’assuranceschemesinhighrisk‐areasfortheprivateandpublicsectors;

• RCScurrentlyworksontheissueonthegroundinAfricaandAsia;

• Thispresentationfocusesonpointoforiginassurance(minelevel)inthegoldtradingchainfromEasternDRC

Addsomepracticalpointstothetheoreticaldebate

AreaofInterest

TheGoldTradingChainfromEasternDRC

• EasternDRC’sgoldproductioniscurrently100%artisanal

• Industrialgoldexploitationtoresumeoverthenext1‐2yearsinOrientaleandSouthKivuProvinces

SimplifiedArtisanalGoldTradingChainfromSouthKivu,EasternDRC:

Mine Refining / Consumer

Destinations e.g. India

Urban Export Hub, e.g. Bukavu

Regional Export Hub e.g.

Bujumbura

International Trading Hub e.g Dubai

Rural Trade Hub e.g.

Shabunda

SomeIssueswiththeGoldTradingChainfromEasternDRC

•PrincipleChallengesoccurontheNationalandSub‐NationalLevels:

• VestedInterestsBenefittingfromtheStatusQuo(i.e.Potentialspoilers)

• MilitaryPredationonTrade

• HumanRightsAbuses

• WorkingConditions

• Informality

• LittleTransparency

DivergentViewsonHowtoRespondtoIssueswiththeGoldTradingChainfromEasternDRC

• Westernadvocacyinalliancewithpopularmedia:

“It’sthemineralsfault‐Naturalresourcesendowmentsfuel conflict,facilitaterapeandsustainpoverty!” Industrywillcontinuetobeconfronted!

• Therealityontheground(exampleofarmedgroups): “Thecausalitycounts:a)Mineralsdonotcauseconflict,butconflict andunderdevelopmenthavemadepopulationdependenton resourceextraction;andb)Armedgroups,incl.thenationalarmy preyonpartsoftheminingandothereconomicsectors‐butitistheweakstate structuresfacilitatetheseactions.”

Mixofsecuritysector‐andstate‐,andnaturalresourcemanagement reformisrequired.

HowtoRespondtoIssueswiththeGoldTradingChainfromEasternDRC

•Short‐termandLong‐termgoalshavetobecombinedincentivesarekey!!

• Communitiesneedtradetocontinue(livelihood);

• Stateneedsassistancetoreformsecuritysector(armedgroups)andbuildstateorganisationalcapacity(taxationandminingsectoroversight);

• Responsibleinternationalprivatesectorneedsassurance(socialandpoliticallicensetooperate);

• Domesticprivatesectorneedsprofessionalisationandformalisation(becomepoliticallyacceptablestakeholder)

• Internationaladvocacygroupsneedtoshowtheirdonorstheyarebeingrecognisedandworktoretainaseatatthetable(mediaexposure;participationindiscussionroundsetc.)

IndustryNeedsforGoldTradingChainfromEasternDRC

• Industryneedspointoforiginassurancedowntotheleveloftheminetobeabletosourcewithconfidence;• Therearesignificantchallengestodevelop,effectivelyimplementandsustainablyoperatepointoforiginschemes(seeDiscussionPaperandFiona’sPresentation)

WARNING:KimberleyProcessLegacyIssues

• AdvocacyGroupshavewokenuptothefactthattheKPCSisunabletodeliveronitspromisetoguaranteeoriginandconflict‐freestatusinweakstates!• Weakstates/KPCShavelittlevisibilityinto‐andcontrolover–thedomestictradingchain‐thisisanimmenseintegritythreat

Managestakeholderexpectationsofwhatoriginassuranceschemescanachieve;Theyarenotconflictresolutiontools,butpartoflargermineralsectorprofessionalisation,formalisationandgovernancereformprocesses.

SelectedLessons:MakinganAssuranceSchemeintheGoldTradingChainfromEasternDRCwork

• Needtohaveatransparentpointoforiginassuranceschemedesignprocess,subjecttostakeholderscrutinyandinput;• Needtohaveatargetedapproachonquickwinareasforpilotimplementationwithapossibilityforupscaling;• Needtoaccessandassesstargetminesandupdatethisinforegularly;• Needtobuild,manageandmaintainrelationshipswithdomesticandinternationalstakeholders;• Needtohaveasustainablesecurityelement;• Needtohaveformallyoperatinglocalcompaniesinthevaluechaintobeabletocomplywithchainofcustodyprovisions(subjecttoaudit);• Needindependentverificationandverificationresponsemechanism;• Needtomanagestakeholderexpectationsinternationally,sothattheprocessdoesnotmeetwiththesamedisillusionmentastheKPCS;• NeedtorecovercostsImportantly(andtricky)needGovernmentcommitmentandleadership

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