Even though Zimbabwe’s cabinet agreed last week to ensure that diamond revenue is remitted to the treasury, smuggling, looting and leaks in the pipeline will remain serious problems unless urgent measures are taken to curb them. When Zimbabwe held mass diamond sales in India in November 2011, bargain hunters from as far as Israel, Lebanon and China flooded Surat and Mumbai’s markets to buy these gems.
The entry of Zimbabwe’s diamonds onto the global stage pushed the price of diamonds down and by January this year, South Africa’s De Beers and Russian ALROSA, which represent the majority of world supply, recorded a six to 10 percent drop in diamond price in the international market.
Sold at discounted rates of up to 50 percent, Zimbabwe’s diamonds are among the cheapest in the world, making them attractive, but they have brought little financial benefit to a country, which expected to eventually earn $2 billion from the trade annually.
Finance minister Tendai Biti expected diamond revenues this year to contribute $600 million to the national budget. However, the treasury has only been able to get a trickle, or about $25 million from diamonds, with Biti and the country’s prime minister last week warning the budget might have to be revised lower.
But in figures presented to Parliament, the Deputy Minister of Mines, Gift Chimanikire, said Zimbabwe had sold diamonds worth about $120 million and received a dividend of $29 million for the first quarter of 2012.
Chimanikire said on average, Zimbabwe’s stones were sold for $40 to $100 a carat, but Parliamentary Legal Committee chairperson, Shepherd Mushonga, questioned Chimanikire’s calculation and suggested they were being sold for as little as $9.
“Zimbabwe is now a member of KPCS (Kimberley Processing and Certification Scheme) and that on the world market a carat of diamond is selling between $200 and $800. The prices, which the minister has referred to indicate that our diamonds are selling for about $9 per carat when we are members, we are now allowed in the international community of diamond mines to sell our diamonds,” said Mushonga.
Although Chimanikire rebuffed Mushonga’s point, allegations that sales of Zimbabwe’s diamonds are under-priced and not transparent will not go away. The sale of diamonds has been shrouded in secrecy amid complaints of smuggling, corruption and looting since the discovery of diamonds in Marange in 2006.
Biti has also questioned the pricing of diamonds at a 2012 budget consultative meeting in Kwekwe in October. He told the meeting, “We are being told that diamonds are being sold at $60 per carat, but (on the international market) the cheapest industrial diamond sells at $200 while the expensive goes for $1,300. Looking at those figures, the nation could have got $4 billion in 2010 alone, but we only got $150 million.”
In February this year he said he had received $5 million against a target of $41.5 million.
In September 2010, the government authorized a secret diamond sale held in Marange diamond fields in spite of the international ban on Zimbabwe’s diamonds. At the time, secretary for mines, Thankful Musukutwa, responded defending lack of transparency and accountability saying: “We will not be releasing the quantity or amount that was generated because these were private sales by private companies.”
“No other country in the world releases their sales figures or quantities. When it comes to the issues of diamonds, we must be careful as a country because of the sensitivity of the issues associated with them,” he said.
Mines minister Obert Mpofu last week refused to guarantee transparency and accountability, citing sanctions. Industry experts say Zimbabwe’s cheap stones are set to dominate the global rough diamond supply market in the next few years.
In 2010, India imported rough diamonds worth $11 billion mainly for industrial use and more than half of the imports were of low-range quality. Demand for the country’s cheap gems led to the opening of diamond cutting offices in Surat and another office is set to open in Brussels, Belgium, later this year.
While import of rough gems from Zimbabwe could potentially employ 60,000 Indians in Surat, the trade has fueled smuggling and corruption back home.
According to diamond consultant Keith Lapperman, Zimbabwe lost up to $500 million in 2011 due to theft and smuggling.
“My estimate is that last year, between 20 million to 30 million carats were smuggled from Zimbabwe. This translates to between $400 million and $500 million. This is substantial,” he said. “A sub-industry of mainly smuggled diamonds has developed, which, if not regulated urgently, will have far-reaching consequences not only for Zimbabwe, but for the diamond industry in general. This figure is likely to decline once you formalize the sector. The controversy will be reduced.”
Economist John Robertson has pointed to the absence of protection of property rights, citing the state’s seizure of African Consolidated Resources (ACR) diamond claims in 2007.
“Essentially, the rights to prospect still need to be backed up with the rights for Zimbabweans to claim minerals as their own property. Security of ownership would guarantee billions in new investment,” he said.