Natural Resource Politics and Solutions for Congo/Uganda

Excess Ugandan Gold Exports

At Desai Legal Services, I always want to help people and companies with common business challenges, but also I want to help businesses with import or export challenges, with investor or worker visa challenges, asset transactions internationally, and just generally, to help business operate legally and efficiently between countries.

And so I will be doing a few videos to highlight a few unconventional growth markets and economies that one day may present business opportunities and challenges.

Today were going to talk about the region of the Congo/Uganda/Rwanda region here,-this region which is about 10x the size of Germany is a tremendously natural resource rich region of Central Africa. Well talk about a bit of context about the region and its politics and especially maybe some better ways for businesses from advanced economies to do business in the region.

My first story draws heavily on my favorite news source, the British newspaper, the Economist and their reporting on some of the challenges in the Central and Eastern African countries of Congo and Uganda.

Quick Background on the region:

The regions politics and history are characterized by significant European involvement. Many former European colonial interests in the region and European industrial and business interests continue to dominate the politics of the region. As the Economist puts it “Colonialism fragmented the continent and linked its economies to imperial capitals rather than to each other. That legacy locked many businesses into national silos. Today big European and American multinationals still dominate markets from logistics to soft drinks.” So that gives you some context…

Now lets focus back in on the region of central Africa, specifically to the Congo – a bit of history: at the 1885 Berlin Conference, European powers got together agreed to grant exclusive rights to Kind Leopold II of Belgium to colonize the Congo. Leopold’s regime then began various infrastructure projects like railroads and also industrial development projects so that within a few years, Belgian Congo became a major world producer of rubber for that helped the spread of automobiles. By 1908 the Belgium Parliament voted to annex the Congo as an official Belgian property.

The Belgium government even had the Congolese colonial army fight in WWI and WWII against German and Italian colonies in Africa.

And one lesser known, interesting fact is that much of the uranium used by the U.S. (which is an ally of Belgium) nuclear programme during World War II was Congolese because the Congo is rich in uranium deposits among so many other minerals.

In the period following World War II, direct European control lessened. There were movements across Africa pusing for independence from these European colonial powers that were weakened by the Second World War.

But to kind of get a better sense of politics in the region at at that time, well do a quick deep dive into a situation that many of us may be familiar with.

In 1960s Congo, an intellectual post office clerk turned political organized named Patrice Lumumba gained national fame after being imprisoned for leading anti-colonial protests. In 1960, he helped to negotiate partial independence from Belgium and was elected Prime Minister.

However, with important copper mining interests in the South, Belgium was not prepared to fully divest all its investments in the southern province of Katanga. Within months of allowing Congo to declare independence, Belgium then sent troops to support an armed independence movement in Katanga.

In response Patrice Lumumba made the mistake of turning to Soviet Russia and meeting with the Soviet ambassador to ask for weaponry and military equipment to help expel the Belgian troops and defeat Katangan rebels. The Soviet Union agreed to provide weapons, logistical and material support. Around 1,000 Soviet military advisors also landed in the Congo.

This aroused the concern of the American intelligence community who feared that a Soviet-aligned Congo could form the basis of a major expansion of communism into central Africa. And as you’ll remember the U.S. also had important uranium resources that could be used as nuclear material and that could not fall into Soviet hands. President Lumumba’s 7 month old tenure as Prime Minister of Congo had become what the American intelligence community considered a national security risk.

And thank to the work of the United States Senate Select Committee to Study Governmental Operations with Respect to Intelligence Activities (known as the Church Committee because it was chaired by Idaho Senator Frank Church) many CIA records and communications have been declassified culminating in the 2013 release by the State Department, Office of the Historian of the admission that President Eisenhower authorized the CIA operation to assist in the assassination Lumumba.

So in January 1961, only 7 months after Lumumba became prime minister, the CIA station chief helped to direct the capture of President Lumumba for transfer to the Katanga rebels who executed him by firing squad.

The 2013 State Departments release goes onto reveal, “After Lumumba’s death at the hands of Congolese rivals in January 1961, the U.S. Government authorized the provision of paramilitary and air support to the new Congolese Government,” that was then led by the Congolese Army Chief of Staff Mobutu Seko, who served as the dictator of Congo for the next 35 years. Throughout this time the United States was the third largest foreign aid donor, next to Belgium and France and supported the Mobutu regime until the end of the Cold War.

With the end of the Cold War, the danger of Soviet military and intelligence operations to spread the communist sphere of influence greatly receded and we entered the modern period of Central African politics.

Modern Central African politics can be described as the interaction of and sometimes competition between former colonial European industrial interests with African tribal politics.

One of the most significant developments in the central African region has been what some historians have referred to as Africa’s first world war in 1996, which involved what many of us, in the United States, probably remember: the tremendously destabilizing Rwandan genocide.

And another quick aside that will help us understand the tribal politics in the region that have their roots in colonial politics.

Many boundaries in central Africa were created artificially by agreement among the major European empires, like Britain, France, Germany. These artificially created national boundaries encompassed many disparate tribal and ethnic groups. In administering control over all the disparate tribes, clans, and more organized African socio-political groups that were mashed together within these boundaries, colonial powers would use strong local tribal kingdoms or ethnic groups to help enforce colonial directives and serve as workers, police, and civil servants.

In 1884 when Germany took over Rwanda, the German colonial government employed the kingdom of the Tutsi clan (which according to some historians, they thought was racially superior because they were thought to have migrated from the northern Afroasiatic Ethiopia region) They employed the Tutsi king and clanspeople to control a region that encompassed a much larger majority Hutu clan.

So, when assigning administrative positions in the German colonial government, Tutsis were given these positions with the majority Hutu population largely disenfranchised and forced into subservient roles to the Tutsis.

When the Belgian colonial government took over from the Germans after the WWI, they continued elevating Tutsi’s to these positions of limited power over the majority Hutu population. This system created a lasting socio-economic division in Rwandan culture for nearly a century, until with the support of the Catholic church, the Hutu clergy and educated elite launched the beginning of an ethnic conflict that still continues to this day and has engulfed nearly all of central Africa including the Congo and Uganda with millions of casualties.

And it is important to note that at several critical junctures, former European colonial powers have actively supported in some cases sent large, skilled troop regiments to protect favored administrations.

Most notably the French sending several thousand well equipped troops to Congo and Rwanda with the support of the Belgian military to support the Hutu administration in Rwanda. This was seen as an attempt to rebut British influence in the region and to prevent Rwanda from joining the British Commonwealth, which it ultimately did in 2009.

Most recently, the region has been dealing with reverberations from this tribal conflict, with 2 million refugees and Hutu rebel tribal militias spilling over from the now dormant Rwandan conflict into an active conflict in the rainforests of Eastern Congo.

With little ability of the government to control this vast undeveloped region with enormous copper, cobalt, zinc, tin, diamonds and gold deposits, militant groups are able to finance their operations with much of the trade being controlled by a Hutu militia. With European and now Chinese and even Indian industrial interests willing to help refine any of these valuable ores, the Economist estimates that there are up to 2 million poor inhabitants employed in the business of mining these ores.

It with this political context of the region that we now examine the Economist’s most recent story on the gold smuggling that has been taking place between the Congo and its neighbor Uganda.

What triggered the Economist’s reporting was that exports of the precious metal gold grew by 50x over the past decade and last year overtook coffee as Uganda’s largest export. This was strange considering that there are few gold mines in Uganda and the ones that do operate are not sophisticated and not really that productive. You have people sifting crushed gold ore by hand in small pans and actually washing the ore with liquid mercury also by hand – do not recommend that.

The Economist reports that according to industry insiders, this great increase in gold exports, comes from gold smuggled from war torn Congo, where they estimate that 90% of gold mined there is smuggled to neighboring Rwanda and Uganda.

Then in Uganda, Belgian investors spent $23m building African Gold Refinery, after being assured of tax exemptions for both the import of raw gold and the export of refined gold for at least ten years. Since then the refinery has exported more than 31 tonnes of gold to Dubai and Antwerp.

The American nonprofit watchdog group Sentry, estimates that up to $600 million worth of gold is smuggled out of the Congo every year with rebel militias as beneficiaries.

This whole way of conducting business and politics is obviously untenable. There is an important technological development that I’ve written about at length here that would greatly benefit regions like this that suffer from political turmoil supported by natural resource extraction.

Blockchain technologies that can track supply chains and execute smart contracts can help to provide some transparency and predictability to natural resource extraction and trade. Insofar as these transactions can be reliably captured on the blockchain, advanced economy business, subject to anti-foreign corruption laws will start having to make sure they are not financing rebels and warlords. In addition, government policy can make these natural resource transactions completely public and transparent on the blockchain so that the citizens in the region can be informed and exercise democratic solutions.

In addition, blockchain technologies can also be applied to ensure reliable and open elections through blockchain secured voting systems so that through democratic movements, more stable political solutions can be developed.

With some parts of Africa having some of the strongest smart phone penetration and in some regions being a world leader in terms of electronic money transfers, this is not too far outside the realm of possibility…