Rwanda’s mining firms are feeling the pinch of tough international regulations that have constricted their market access and increased the cost of doing business.
This follows the enforcement of the Dodd Frank Act, a US law enacted on July 21, 2010, that has made tracing, auditing and certification of minerals compulsory to ensure that they are “conflict-free.”
Specifically, Section 1502 of the Act requires all US and foreign firms including electronics, automotive, aerospace and retail industries to trace the supply chains and audit production facilities of their suppliers to ensure that they are conflict-free.
However, local mining companies say the legislation is not only increasing the cost of doing business but also making it impossible to sell minerals overseas.
The audit process costs approximately $200-$300 per tonne, though it could be higher depending on the type of the mineral.
“We are facing many audits, which are costly. We used to sell to Europe but today smelters in those countries are reluctant to buy our minerals because they know if they buy from the Great Lakes region, an audit will be imposed which is very expensive,” Jean Malic Kalima, regional director for Wolfram Mining and Processing Ltd, a leading exporter of minerals, told The EastAfrican.
Mr Kalima, who is also the head of Rwanda Mining Association, said local companies are now limited to trading mainly with Asia, though this has weakened their bargaining power.
He said smelters in Asia are taking advantage to buy minerals cheaply.
“We are forced to comply because our market is limited,” Mr Kalima said.
In Rwanda, the mining sector includes 548 sites with cassiterite (tin ore), wolframite (tungsten ore) and coltan (tantalum ore), the most important minerals mined and traded in the country.
Industry analysts say the US legislation is turning out to be a de facto embargo on minerals from the Great Lakes region.
“The market is narrowing because end-user companies such as Apple and Boeing, who use these minerals, are being advised by their lawyers that it is dangerous for them to buy minerals from Africa,” said David Bensusan, the CEO of Minerals Supply Africa Ltd, one of the largest traders of Rwanda’s minerals.
As result of the stringent rules, companies are resorting to trading on the blackmarket.
“We are all suffering because of this legislation that has encouraged smuggling,” said Mr Bensusan, whose parent company, Switzerland-based Cronimet Central Africa AG, is one of the leading traders and processors of cassiterite and tantalite out of the DRC.
However, Rwanda’s mineral wealth remains under scrutiny, with activists led by the US-based Enough Project alleging that the country has manipulated Congolese politics and security to expand its interests in eastern Congo, including plundering its mineral resources.
Rwanda has sought to set the record straight by making it compulsory for local mining companies to tag their minerals.
Since December 2010, the country has been implementing the ITRI Tin Supply Chain Initiative or iTSCi, an internationally recognised tagging and sealing system to facilitate the process.
While Rwanda recently issued its first mineral export certificate under the International Conference on the Great Lakes Region (ICGLR) certification process, the regional certification mechanism is still considered incomplete and is not yet fully recognised at the international level.
Specifically, the regional certification programme is faulted for missing out key structures for ensuring independent third-party audits, overseen by a committee of electronic companies, regional governments and non-governmental organisations. These are not yet finalised.
In addition, the fourth part of the process, tasked with ensuring transparency, thwarting fraud and smuggling has not yet been assembled.
“If Rwanda, Congo and the regional states do not take urgent steps to complete the mineral certification process, multinational companies may stop purchasing, as many minerals from the region cannot credibly be certified as conflict free,” Enough Project cautioned in a policy brief issued this week.