Diamonds Sales a False Economic Dawn in Zimbabwe

Source: The Integrated Regional Information Networks (IRIN), the humanitarian news and analysis service of the United Nations Office for the Coordination of Humanitarian Affairs  http://www.irinnews.org/

HARARE, 23 August 2010 (IRIN) – An auction of Zimbabwean diamonds has created an air of expectation that the country’s economic plight will be eased or even improved, but the stones realized as little as a fifth of their value, and most of the proceeds are expected to benefit controversial mining companies.

The Kimberley Process Certification Scheme – an initiative to prevent conflict diamonds from entering the multibillion dollar global market – allowed Zimbabwe to sell diamonds from the Chiadzwa area of Marange in Manicaland Province. The diamond fields – reputedly the largest find in a century – have been mired in controversy, with constant allegations of human rights abuses since they were discovered in 2006.

Amnesty International has reported that soldiers deployed to guard the diamond fields have forced people to mine the diamonds, which were then smuggled out of the country, while other reports have indicated that security forces were killing illegal miners.

Primrose Mudzengi, 38, a teacher in the capital, Harare, earns a US$150 a month, which she has to juggle to cover the rent, school fees for her two children, food and transport.

“Civil servants like me are virtually living on slave wages. I am confident that our salaries will improve significantly once diamonds are mined and sold on a large scale, and the government can spare more money for us,” Mudzengi told IRIN. “I will be able to take my children on holiday as I used to do before the economy started sliding, and stop living like a beggar.”

Dickson Chofamba, a Harare-based government mechanic, told IRIN: “Civil servants have suffered for too long, and the discovery of the diamonds should give us a chance to restore our dignity at the workplace. The PSA [Public Service Association, which represents government employees,] should ensure that we get most of the money.”

The president of the Progressive Teachers Union of Zimbabwe (PTUZ), Raymond Majongwe, was more pragmatic. It would be “folly for civil servants to think that the diamonds would improve their lives”, he told IRIN.

Poor returns

“There are sharks out there who want to line their pockets first and, as it stands, there is a lack of clarity on how much the diamonds would give to our economy by way of job creation, and the value of the diamond deposits is not known,” he said.

It is estimated that Zimbabwe would need about US$8 billion dollars to resuscitate the economy. According to mining minister Obert Mpofu the auction raised US$56.4 million, of which the government will receive US$30 million, compared to an earlier estimate by finance minister Tendai Biti that the auction raised US$46 million, with US$15 million coming into government coffers.

Eric Bloch, an economic analyst, told IRIN that ahead of the auction it was hoped the diamonds would sell for US$400 to US$500 per carat, but only “around US$80 per carat” was achieved.

“Contrary to the current popular feeling, there is little evidence that diamonds will translate into our economic panacea,” Bloch told IRIN. “Hopes can easily turn into disillusionment; the economy will not turn around overnight, and the gains will be minimal for some time.”

The government will receive 10 percent in royalties and 25 percent as corporate tax from profits made by the mining companies, while the Zimbabwe Mining Development Corporation (ZMDC), a government parastatal, will get a small dividend, Bloch said.

“What many people are failing to realize is that the bulk of the money will not be going to government, but to the mining companies. It is important to develop the other sectors of the economy if the economic situation is to improve,” he commented.

Mbada Diamonds and Canadile Miners entered into joint ventures with the Zimbabwe Mining Development Corporation to exploit the diamond concessions, but Annie Dunnebacke, a campaigner for Global Witness, told IRIN that the nature of these deals remained “opaque”.

‘Drug traffickers, smugglers or plain crooks’

“According to first-hand accounts obtained by Global Witness, as well as media reports, Minister Mpofu told the [Parliamentary Portfolio Committee on Mines and Energy] hearing that he was aware of the ‘shady business deals’ of some Mbada and Canadile investors, and his own research showed ‘that people in the diamond business globally are drug-traffickers, smugglers, or plain crooks,'” Global Witness said in a recent report: Return of the Blood Diamond.

Mbada chairman Robert Mhlanga told participants at the auction that his company would ensure that “every carat of diamonds mined by Mbada Diamonds shall be accounted for”, while the Zimbabwe Diamond Technology Centre, a newly formed company, announced in a recent statement that it would ensure that “leakages are minimized, accountability enhanced, and compliance made much more easier”.

Innocent Makwiramiti, a Harare-based economist and former chief executive officer of the Zimbabwe National Chamber of Commerce (ZNCC), warned that leakages of diamonds would continue, and could result in the reversal of certification for future diamond sales.

“There are powerful people who are likely to use their positions to smuggle the diamonds out of the country, while illegal mining might continue for some time. In addition, authorities mandated to oversee the mining and sale of the mineral can take advantage of their offices and use all means to understate the amount and quality of diamonds for personal gain,” Makwiramiti told IRIN.

Another auction for the sale of 4.4 million carats is scheduled for September 2010, from which government expects to raise US$1.7 billion, but not all industry players support the KPCS recommendation to give Zimbabwe the opportunity to auction the Marange diamond stockpile.

The influential New York-based Rapaport Diamond Trading Network (Rapnet) has threatened its members with expulsion. “Rapaport strongly advises all diamond buyers not to trade in KP certified diamonds from Marange, and to request written assurance from their suppliers that their diamonds have not been sourced from Marange,” Rapnet said in a statement.

“Members found to have knowingly offered Marange diamonds for sale on Rapnet will be expelled.”