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The Human Cost to Technological Innovation

DRC Democratic Republic of Congo cobalt fintech

DRC Democratic Republic of Congo cobalt fintech

At DisruptionBanking we primarily cover Fintech, a definition aimed at squaring ‘financial technology’. But the applications and systems (the software) that these innovations run on need devices and data storage (the hardware). And what a significant amount of hardware in the world needs to run on efficiently is the element cobalt.

Looking at the effect on the demand from one of the world’s poorest countries is not pretty, but it is necessary. On the bright side, there is some hope for solutions.

The Democratic Republic of Congo produces up to 60% of the world’s cobalt. Without the material, you would most likely not be able to read this story as it is a key element that is used in lithium-ion batteries. These are the batteries that power most of the world’s smart phones, computers and electric vehicles. But the human rights abuses perpetrated in this region and industry include the worst kinds of child labour, unregulated and illegal mining operations that open miners to abuse, corruption and life-threatening working conditions.

Recently, a number of technology companies are being sued for using suppliers that engage in these practices. A lawsuit brought by 14 families of children that were mining the material has been issued to Tesla, Apple, Alphabet, Dell and Microsoft as being aware of “the forced labor system that has brought grave harm to the Congolese minors.” The lawsuit alleges that “the young children mining Defendants’ cobalt are not merely being forced to work full-time, extremely dangerous mining jobs at the expense their educations and futures; they are being regularly maimed and killed by tunnel collapses and other known hazards common to cobalt mining in the DRC.” Six of the 14 children were killed by those aforementioned tunnel collapses, with the others being left maimed. These children, some as young as 6 years old, were paid as little as $2 a day for their 6-day working week.

DRC Democratic Republic of Congo cobalt fintech

The collapse of mines in the country is unfortunately a regular occurrence. Two weeks ago, in one of the most recent tragedies, 24 miners were killed when torrential rain battered the eastern Ituri province and caused a landslide that engulfed a gold mine. Finding fatality statistics is not easy as many miners of cobalt are undocumented and tend to work for themselves as ‘artisanal’ miners. At one industrial copper and cobalt site, it was estimated that on average, 2,000 unauthorized ‘artisanals’ enter the site every day.

Companies that have been implicated in the lawsuit have already spoken out that they will do more to combat this supply chain risk. But highly problematic to the equation of sustainable sourcing is that cobalt is not classified as a ‘conflict mineral’– a classification given to other materials widely believed to possibly fund terror if unregulated such as cassiterite (for tin), wolframite (for tungsten), coltan (for tantalum), and gold ore. When a mineral is given this classification, their supply chain is significantly better traced. The fact that cobalt is not leaves it open for any group to take advantage of the Congolese people.

DRC Democratic Republic of Congo cobalt fintech

However, there are some solutions that can prevent this from happening in the future. Due to the main problem being the lack of accountability in the supply chain and the difficulty in tracking the material, some organizations have developed alternative methods. One of those, RCS Global, a “proven leader in data-driven responsible sourcing of natural resources” is by the use of the blockchain to create the Responsible Sourcing Blockchain Network (RSBN).

The concept is for cobalt from an industrial mine to be placed in secure bags, entered into a blockchain and traced from the mine and smelter to battery plants. Minerals such as cobalt are notoriously tough to track owing to the fact that they are mixed with other elements and metals in smelters, but blockchain technology goes a long way to trackability. Martina Buchhauser, Volvo’s (a founding partner of RSBN) head of procurement stated that “with blockchain technology we can take the next step in ensuring full traceability of our supply chain and minimizing any related risks, in close collaboration with our suppliers.”

The technology is now tried and true. A pilot run by RSBN sent 1.5 tons of Congolese cobalt across three continents over 5 months of refinement successfully from the beginning in a Congolese mine, through smelting and refinement in South Korea to it’s finish in an American Ford Motor plant. This is progress in action by the private sector in the cobalt supply chain, traditionally seen as deeply exploitative by the Congolese locals.

“We’ve reached significant new milestones as we’ve moved beyond testing, proving the merits of this coupled technology and assurance model can extend to a wide range of participants across every tier of the supply chain and to other minerals,” said Dr. Nicholas Garret, CEO of RCS Global Group.

DRC Democratic Republic of Congo cobalt fintech

The RSBN is an initiative that uses the IBM’s Hyperledger Fabric blockchain system with a large number of partners. Glencore, arguably the most in need of participating in this system, has pledged to become an active partner by February 2020. The main reason the British and Swiss mining giant should be sourcing via blockchain? The company is the largest miner and supplier of cobalt in the world. According to Glencore’s website, they produced 42.2kt of cobalt in 2018, equal to $1.2 billion at today’s current price of the mineral ($29). The multinational company is also a major contributor to the economy of the DRC, with their $626 million tax bill in 2018 contributing up to a tenth of the DRC government’s coffers.

The DRC has been a country plagued by civil war for a long time, and follows on from a history of exploitation from Western nations going all the way back to King Leopold II of Belgium who claimed the territory and enslaved the population in 1885 for private gain whilst committing countless atrocities. To this day it can be a dangerous place indeed. Just last month, a crowd in Beni burned their resident UN base and the town hall in protest against inaction against a devastating raid on their villages from the Islamist militia the ‘Allied Democratic Forces’ which have plagued the country since the late 90’s. To get a view of the volatility in the country, one can look at the Travel Advice map from the United Kingdom’s Foreign Office.

DRC Democratic Republic of Congo cobalt fintech

This danger has not deterred companies, for strong (bottom line) reasons. The demand for cobalt is projected to rise exponentially when more electric and autonomous vehicles come online. The IoT (Internet of Things) world promises to increase the thirst for the element. In the next year, forecasts suggest that there will be around 6.58 network connected devices per person around the globe and some companies are seeking to strengthen their access to the resource by circumventing mining companies like Glencore altogether. Apple has been widely reported to be looking to purchase cobalt directly from the miners to secure their share of cobalt for the future demand of their devices.

But the sad irony is that in these rich in mineral regions, access to the internet is far from guaranteed. Populations in Africa must spend a far larger proportion of their disposable income on internet service, with the Congolese Post and Telecommunications Regulation Authority (ARPTC) estimating that only 17% of the population having internet access. The Democratic Republic of Congo is not only the main producer of cobalt but also the most expensive country in the world to access internet, with 1 GB of broadband costing nearly 30% of monthly disposable income.

DRC Democratic Republic of Congo cobalt fintech

Innovations like the blockchain would also decrease corruption significantly as an immutable and transparent ledger could quickly alert NGOs and investigative journalists to anomalies in pricing and quantities. If for instance every unregistered cobalt trader were forced to create a public address to trade in the material, it could force digital regulation or RegTech (regulation technology), into many small marketplaces in the Congo without invasive methods. Tax collection from these traders would also be far easier, decreasing the DRC dependence on companies that supply vast amount of their government tax revenue.

The applicability of tracing minerals and materials that could be a used to fuel conflict or come from human rights abuse suppliers has wider reaching implications for not just cobalt but other sectors prone to abuse. Anglo American’s De Beers has begun using blockchain to track diamonds with their Tracr product for instance. The problem amongst companies is widespread, in a global survey conducted by IBM, 84% of chief supply chain officers stated that the lack of visibility across their supply chain was the biggest challenge they are currently facing.

They are not the only ones facing a lack of visibility in the supply chain, so too are the ones at the beginning of that journey.

The opinions expressed above are those of the author and do not necessarily represent those of DisruptionBanking or its partners.

By Ignatius Bowskill-Dutkiewicz

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