Has the time arrived to get optimistic about Zim’s diamond resources?
The Kimberley Process Certification Scheme (KP), the diamond trade’s international watchdog, gave the green light for Zimbabwe to resume sales of diamonds from the Marange diamond fields at its plenary discussion sitting held in Kinshasa on 1 November 2011.
The KP process was set up in 2003 by governments, the diamond industry and civil society to stop the trade in rough diamonds that had helped pay for rebel groups and governments to wage civil wars.
Zimbabwe was suspended in 2009 from the KP on the back of concerns over alleged human rights abuses in Marange, and since then could not conduct official diamond sales. For a nation whose economy is on the mend and is seeking to shake off the effects of a decade long economic meltdown, the resumption of official diamond sales is a clear blessing, yet sceptics hold their breath, unable to envision the turn in fortune for the Southern Africa nation.
Tendai Biti, Zimbabwe’s finance minister described the 60,000 hectare Marange diamond field as “the biggest find of alluvial diamonds in the history of mankind”, with the KP green light prompting him to send back his US$3.4 billion proposed 2012 budget to the drawing board as it did not include diamond revenues. Obert Mpofu, Zimbabwe’s mines minister, concurred, pledging that Zimbabwe will “. . . shock the world with her stockpiles” unleashing her worth to the world and breaking her begging cycle. He added that his ministry was ready to “ . . . lead and champion the economic recovery of this country through a robust dynamic and aggressive policy to grow the mining sector in Zimbabwe whose growth is currently bullish and set to contribute in excess of 50% of our GDP”.
The optimism among authorities is not without substance. Diamonds are estimated to gross around $2 billion annually, which places Zimbabwe in the league of the world’s biggest diamond earning nations. In 2010, the leader, Botswana earned $2.5 billion while Russia and Canada earned $2.3 billion each. The three are the only countries grossing in excess of $2 billion annually.
Zimbabwe’s GDP outturn for 2011 is estimated to reach $6.82 billion, with the forecast diamond earnings contribution working to about 30%.
Sceptics, on the other hand, do not expect any significant contributions to the economic wellbeing of the country. Revelations by Biti that proceeds from the diamonds trade had not been remitted to the treasury sums up the case for the doubters. The finance minister stated that “the reality of Zimbabwe’s situation is that there is no connection between Zimbabwe’s income from diamonds, its output and international prices”. He added that between January and June 2011, Zimbabwe exported 716,959 carats of diamonds from its alluvial diamond mines in Marange, yet only $103.9 million of diamond export shipments were accounted for during the same period.
Considering that 18% of Marange diamonds are gem quality, which attracted between $1,000 to $5,000 per carat, while the remainder fetched an average $200 per carat, Biti’s statements suggest that about half of the reported production was unaccounted for.
The lifting of the suspension, which was hailed by the World Diamond Council president, Eli Izhakoff, as a real milestone that demonstrates that the KP enables producing countries to benefit from their natural resources, will no doubt disappoint the naysayers.
Trading through the official channel should not only help stamp out leakages, but enable accountability and ensure fair prices for Zimbabwe’s diamond exports.
Imara is an investment banking and asset management group renowned for its knowledge of African markets.