Following the close of this week's unprecedented U.S.-Africa Leaders Summit, the business community's eyes are trained on Africa. Perhaps not since colonization has the West demonstrated such concerted interest in that part of the world, with all its promise and peril. Africa's more than 1 billion people have no interest in allowing history to repeat itself, and companies that hope to profit from the continent's potential will have to use an entirely new playbook to succeed. Some figured this out quite a while ago.
There may be no more dramatic illustration of this complex landscape than the issue of conflict minerals from the Democratic Republic of Congo, or DRC. Armed militias use the country's mineral wealth to fund violence and insurrection. In the eastern part of the country, fighting has continued for 15 years, enabled by the trade in these minerals. Millions of people have died, many more have been displaced, and rape has been widely used as a weapon of war. The situation is simply brutal.
Western consumers play a role in this dynamic by way of our electronics and, increasingly, jewelry. There are four main minerals in question:
- Cassiterite is the ore for tin, which is a circuit-board solder.
- Coltan is the ore for a rare metal called tantalum, which goes into capacitors.
- Wolframite is the ore for tungsten, which makes your mobile phone vibrate.
- Gold goes into electronics as a wire coating. It's also in our bling.
The illicit trade in these minerals provides fighting factions with tens of millions of dollars a year. Some industry players have been trying to change that for some time now. Others will be forced to under U.S. law.
Two sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act target corporate activity in parts of the world where corruption and human rights violations are especially prevalent. Section 1502 addresses the ongoing conflict in the DRC, requiring that companies disclose their use of conflict minerals from that region in their products. While this provision is still quite new, activists in the region credit Dodd-Frank with helping to reduce armed groups' involvement in the Congolese minerals sector.
As part of the U.S.-Africa Leaders Summit, representatives from Intel (NASDAQ:INTC), Motorola Solutions (NYSE:MSI), Ford (NYSE:F)(NYSE:F), and Signet Jewelers (NYSE:SIG) participated in a round-table discussion on responsible minerals sourcing, hosted by the Enough Project at the Center for American Progress. Each of these companies has developed robust systems that aim to eliminate the terrible human cost associated with the minerals they need to make their products. They are working with the Enough Project, an NGO that works to provide a framework for best practices.
In case you're in doubt, there is a business case for this. I asked how the corporate representatives would respond to someone who said that any efforts beyond legal compliance constitute a violation of their fiduciary duty and their obligation to maximize shareholder value. They had no trouble answering.
Mike Loch, Motorola Solutions' director of supply chain corporate responsibility, observed that industry hates surprises and price spikes, and the conflict minerals situation creates both. He noted that supply disruptions result from volatile circumstances on the ground, and then grow as legislation is passed in response to demonstrably terrible conditions. A company that sees these factors clearly and implements solid processes to manage them will be much more likely to guarantee supply chain continuity.
Carolyn Duran, Intel's conflict minerals program manager and supply chain director, pointed out that with each passing year, more and more shareholders are filing resolutions that push companies to address the human cost of their extractive activities in Africa and elsewhere. Duran has seen the voice of investors calling for more responsible corporate practices grow ever louder, and she believes Intel is at the vanguard of answering that call.
Not as easy as it sounds
The solution to the conflict minerals problem demands far more than goodwill and a statement of intent. The factors that create this problem are stubbornly intractable, and any substantive solution requires expertise, creativity, systematic implementation, and constant reevaluation. This means companies can't just suddenly jump on the bandwagon when things get too hot. It takes years, resources, and work to get this right, just as it does to develop a blockbuster product or service.
Intel distinguished itself in 2014 when it became the first company to make its entire line of microprocessors conflict-free. In an interview with Forbes earlier this year, Gary Niekerk, Intel's director of corporate responsibility, explained the immense challenges involved:
There were no established mechanisms or systems in place to track minerals from the mine of origin throughout the supply chain. Electronics manufacturers didn't know where their metals were coming from. We determined that the smelters processing the ore were a key choke point in the supply chain, so we set out to implement a smelter validation system with our industry partners to give us reasonable assurance that minerals processed in those smelters were not contributing to conflict in the Congo. This process took several years and is still ongoing.
I asked Carolyn Duran if this wasn't a very expensive undertaking for the company, but she said no. She explained that when accounting for sustainability is already a part of a company's fabric, as it is at Intel, the costs don't increase for what is a successful business model. Duran made the important point that whatever money the company spends on tracing was already going somewhere anyway, because operating in conflict regions brings all sorts of added costs.
Meanwhile, Motorola Solutions used the summit to announce that the Motorola Solutions Foundation had awarded a grant to RESOLVE -- a public policy dispute resolution organization -- to expand Solutions for Hope, a project that has created a closed-pipe system of mining conflict-free tantalum from the DRC. Motorola, like Intel, has identified smelters as a weak point in its efforts to maintain traceability of the minerals entering its supply lines, and the closed-pipe system helps to seal off some of those holes in the system.
Civil war is just bad for business
These companies are demonstrating tremendous agility and deftness in their handling of an intensely complex set of circumstances. Failure to do so will become increasingly costly, as Shell (NYSE:RDS-A) has learned in the Niger River Delta, where it has seen untold oil riches seep into the ground as a result of vitriolic conflict with local populations. Increasingly, companies will ignore social strife in their areas of operation at their own expense.
A decade from now, we're likely to look back on this first U.S.-Africa Leaders Summit as the beginning of a new era of business activity in Africa. Enduring success will go to the companies that establish good relationships within their areas of operation. Local communities, shareholders, and legislators demand no less.
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Sara Murphy has no position in any stocks mentioned. The Motley Fool recommends Ford and Intel. The Motley Fool owns shares of Ford and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.