The Congo's poverty will not end with mining

Gold miners pass mud along a human chain in an open pit mine
North-eastern Congo. (REUTERS/Finbarr O'Reilly)

The Congo is one of the most impoverished nations in Africa, with more than 70% of its population living below the poverty line.  Yet this troubled nation sits on more than $24 trillion worth of minerals. Such mineral worth is greater than the annual economic output of both the US and entire European area combined. But accessing and distributing such wealth has not only been unsuccessful in reducing poverty within the Congo, but it has directly attributed to increased violence with militia rebel groups, slavery and social instability.

President Joseph Kabila, who is seeking re-election in the coming months, has had a change of heart and is now seeking to tap into the Congo's troubled mines to bring economic prosperity to all if its people. In the past, foreign firms have been wary of investing in Congolese mines because of its bad reputation for human rights abuse, but also because of the instability of the country which regularly dips into localised, violent civil war. There is a critical need for foreign investment to reinvigorate the Congolese mineral sector and ensure efficient production. Local companies don't have the expertise, technology or skills to excavate minerals on a scale that rakes in exuberant profits. Though in neighbouring nations where this foreign direct investment does occur, typically, these profits mostly go back to the foreign companies, not the country itself. However in the Congo, where localised mining in the east is increasing, it is often decentralised and unaccountable to government officials, which causes other significant problems.

The history of civil war and militia violence that has plagued many African nations, including the Congo, means that local development of industry is hampered by systemic corruption. It is estimated that 98% of the mines operating in the east of the Congo is controlled, or have strong ties to militia groups. Because of this, local militia groups tax those who work within the mines, restrict which ethnic groups the profits go to, but most often just funnel the profits into munitions and war campaigns. Sadly, due to government ineptitude and corruption, whatever control government agencies do get over these mines leads to very similar outcomes.

What is most shocking about Congolese mining though is the way in which its operations seem only to be entrenching the poverty cycle. As most Congolese citizens live below the poverty line and have an income of less than $2 a day, or live on subsistent farms and have no income at all, the existence of mines should have very little affect upon them. However, as mines pay money, the notion of working in a mine for cash can become an attractive option for at least one member of a family. Such money, if received, can be used for buying more farm equipment, or much needed medicine. Though when most mines only pay their workers between 50c and $1 a day, the likelihood of them becoming indebted to the mine for other costs incurred (such as food, shelter or 'protection') leaves them in a position of virtual slavery. And as militia groups are the ones who benefit most from the mines, their campaigns of looting and disrupting local villages drives more people off farms and into mines, creating a vicious cycle of poverty and slavery.

As violence around mines becomes worse, and the profits from these minerals fund new conflicts, the international communities (though mainly the US') response through the 2010 Dodd-Frank banking act to restrict the importation of 'conflict minerals' has only plunged more citizens into poverty. For some mining operations, output has slowed by more than 95% as the only way to export these minerals is to do so illegally; which in and of itself results in less profits going to the impoverished workers, and less no security for working standards. The intentions of such a policy is commendable, as it attempts to stop multinational corporations purchasing cheap minerals which cause conflict within a post colonial nation. Yet the ban and reduction in purchasing of these minerals is already hurting tens of thousands of Congolese citizens who have moved to a life in the mines.

Even in a perfect world, whereby local governments weren't corrupt, where there are no militias and all the profits went back to the people; a mining boom in the Congo would still hurt many citizens. When a country finds a new export that brings in unprecedented financial capital from overseas markets, it drives more people to move into that industry because it is highly profitable. The consequence of this occurring rapidly is called the "Dutch disease". Simply put, the exportation of this new wonder good drastically increases the price of the dollar. This kills off any other industries which export goods, (such as textiles in the Congo) because international buyers can no longer afford the good due to the inflated dollar. It also rapidly increases the amount of imports into that nation. Because of the high dollar, it becomes cheaper to buy goods from overseas (such as food) than at the local market, which then kills off domestic industries. Then if at any point the export market crashes, such as if there is another global recession or minerals are found cheaper elsewhere, an economy that has completely re-geared itself for one industry is left with nothing to produce for domestic consumption or export. This effectively kills the economy, and damages it for decades to come. Though if magically, because of better governance and more responsible foreign investment, the mining sector in the Congo could be revolutionised, the Dutch disease would only hit the east of the Congo were most of the mining occurs.

The sad fact being is that we don't live in a perfect world. So there is little chance that the "Dutch disease" will reach the Congolese economy at all. Instead, the continuation of corrupt and militia driven mining will still occur, even while an international ban is in place. Though even if removed, it would cause just as much harm by increasing militias' ability to buy arms. It appears as though there is no solution to this most unfortunate circumstance. While it is depressing to end a post on such a dreary note, many economists, international institutions and trade experts advocate for varied solutions to help end poverty and instability in Africa (with varied and questionable degrees of success). What is clear though, is that mining in the Congo is not one of them.




Links:
Congo rape victims face slavery in gold and mineral mines - Guardian.co.uk
Digging for victory - The Economist
Still smuggling - The Economist
Mr Copper - The Economist

US debt ceiling woes

"I told you so" 

The US has always had a morbid fascination with its debt. Clocks had been set up around the country decades ago, showing the slow but steady increase in US public debt. With the 11th hour nigh before the US debt ceiling is reached on August 2nd, there is a strange, discomforting irony in going back and looking at the clocks that were originally passed off as a scaremongering tactic for conservative candidates. Though with Congress still not having come to a decision as to whether to raise the debt ceiling (and if so by how much), there is the ever growing possibility that the US may default.  And even if it doesn't, the US may still dip back into recession because of bad economic policies were rushed through at the last minute to avoid default.

The very idea of a debt ceiling for government makes perfect sense. It's a cap (the ceiling bit) on the amount of money the government can borrow. This in theory reduces the ability of a government to act irresponsibly and charge up the national credit card on irrelevant, pricey policies. Though in this circumstance, the US debt ceiling is acting as anything but a protection measure for the US government and economy. It has become a mere obstruction to the ability for the US government to make both timely policy, but also not to default and loose its AAA credit rating.

To take the view of the "Tea Party", Barack Obama - being as fiscally and politically irresponsible as he is -  is trying to ruin the US economy. In this situation, the debt ceiling wouldn't stop an economic disaster. As soon as the government over borrowed, either the government would have cease from acting on anything that cost or the US would loose its AAA credit rating and economic strife would ensure. The President could also ignore the ceiling and open up the possibility for impeachment, thus economically and politically disabling the economy. In no way does the US debt ceiling manage to avoid or mitigate bad political and economic decisions in relation to debt. It acts more as a guideline, a point of reference to which governments would not like to reach because of what it symbolises; bad economic management.

Though for Barack Obama, who is trying to stimulate the struggling US economy and also push through major yet costly healthcare reform, the debt ceiling acts only as a blockade to action. It prohibits the President from using his executive power to make decisive action where Congress dithers and dawdles.  Though the closer the US gets to hitting the $USD14.3 trillion ceiling, the more pressure is placed on him to take decisive action.

On the current course, if no action is taken, the US will break through the ceiling on August 2nd, requiring Congress to limit government expenditure, resulting in the US defaulting on some of its loans. The impact of this would not only likely plunge the US back into recession, but it would trigger a wave of instability over financial markets around the world. With the already unstable Eurozone, a US default would only worsen their situation. The other option is that the President ignores the ceiling (and continues spending) or priorities some payments so as to avoid default. Though this would cause a political/constitutional crisis with the President using his powers in the manner, creating even more uncertainty and instability. Hence the only real option that remains is negotiation and deal making with the Republicans. As the Republicans hold the majority in the  House of Representatives, and could realistically pass their own policy of heavy spending cuts through with a filibuster, politics in Congresses is getting very terse, tense and nasty.

It's 11th hour of Capital Hill with the 2nd August fast approaching. It is unknown whether it will be the Democrats or Republicans who become victims of circumstance by agreeing to a last minute deal in Congress. The one unknown variable in this political equation is the markets knowledge that the US economy is at its most fragile state since the 2008 GFC (Global Financial Crisis). This may be the hour for bold decision making and strong leadership; or a drawn out filibuster, political backstabbing and a solution that no one is really confident in.

Links

US House and Senate divided over debt ceiling issue - BBC news 

Q&A: Why has the US not agreed a new debt ceiling? - BBC news 

Talks resume as Senate kills off debt bill - ABC news 

Gillard politically sore, but not censured

Spooner Cartoon: Courtesy of the National Times

The Gillard government can't seem to win a trick at the moment. Be it the much debated (and despised) Carbon Tax, proposal to enforce plain packaging of cigarettes, to even the Malaysian solution. All have served to only drive Labor lower in the polls. Though this outcome can be expected from a government that lacks the nuance to sell their own successes, especially in contrast to a powerfully articulate and dogmatic opposition. With the Gillard government trying to push through large, often quite unpopular policies, it has come with little surprise that a motion to condemn Gillard's "Malaysia" solution has come about.

Condemnation of government policy from the Parliament is unheard of. That is because the government of the day makes up the majority of the Parliament, and so no condemnation motions are able to pass. Though in the case of a minority government, as Gillard herself admitted, the circumstance of policy being condemned is more likely. However seeing a policy condemned, rather than it not being passed, is more interesting. Foreign policy (which the Malaysian solution comes under) is directed by the executive (Government) without the need for Parliament's approval. This means that it's the government's decision alone when it comes to foreign policy. Unlike normal policy, which gets put before the Parliament, foreign policy does not. This means that the Parliament gets very little time or place to object to it, apart from MPs and Senators airing their views in the Media. However this may change when the Greens move to propose a bill requiring refugee and asylum seeker foreign policy to be put before the Parliament, instead of leaving that power to the executive. As the minority Gillard government couldn't knock down the condemnation motion, it is most likely that they won't be able to thwart the Greens and Parliament's attempts to strip the executive of this power.

Despite the condemnation motion passing, the very motivation behind it was mere coincidence, rather than mass Parliament outrage at the Malaysia solution. The motion only got support when the Liberal/National coalition and Greens finally managed to agree on something. For the Greens, it's the view that offshore processing is inhumane and wrong. For the Liberals/Nationals, it's the view that the Labor party is just plain wrong. While the general agreement between these parties led to a condemnation of the government's policy, it wasn't strong enough to censure the Prime Minister, as the Greens thought such a move would just be a mere political "stunt". Following Tony Abbott's belittling questions to Gillard about the history of such a motion, and Julie Bishops comparison of Julia Gillard to a third world dictator, it's hard to view these comments as anything less than a stunt.

The Malaysian solution is yet again a fizzle of a policy for the Gillard government. When the Labor party isn't chasing opinion polls to ensure support, it isn't successfully managing its image of being a strong government. The merits of an 800 possible refugee swap for thousands more is ludicrous. Even though Malaysia appears to be signing up to the UNHCR, the likely hood of its signatory resulting in better treatment of human rights is a stretch.

Despite the condemnation motion, Labor (if still in government) will pursue ahead with the Malaysia solution. Maybe after that, the polls will start to pick back up. But until then, unless Labor and Gillard manage to woo the public with strong effective policy, they'll have to withstand the tense time of being down in the polls.

Links: 
PM under fire over Malaysia deal - National Times

Parliament condemns Govt on Malaysia asylum deal - The World Today: ABC online

Defiant PM says it's not about polls - National Times

Asylum-seeker swap deal must have UNHCR approval - The Australian 

PM avoids censure as Malaysia deal condemned - ABC Online