Diamonds- Zimbabwe cannot afford to be another Sierra Leone

Zimbabwe should speed up the promulgation of the Diamond Act because diamonds can make a decisive difference for the country.  This can be a positive difference where the country’s gross domestic product will increase as a result of greater transparency and accountability of diamond resources to the State. Or it can be negative because the history of alluvial diamonds in Africa has been a sad one.  But Zimbabwe cannot afford to be another Sierra Leone.

More than 75 000 people were killed and 4.5 million displaced during a decade-long fight for diamonds in Sierra Leone. So far about 200 people have died at the diamond fields in Marange which were first exploited in 2006.

Presenting his budget statement for 2011, Finance Minister Tendai Biti lamented that though the country had sold diamonds valued at $85 million in two batches under the Kimberley Process Certification Scheme the government had earned only $32 million.

“From these figures it is quite clear that there is still a long way to go before this economy benefits from its diamonds,” Biti said. “It is urgent that work on the Diamond Act be concluded.”

The act will confer all the country’s diamonds to the government, a move that might attract even more controversy because up to now most Western countries have complained that the country’s diamonds, especially those from Marange, are benefitting President Robert Mugabe and his cronies in the military and not the people of Zimbabwe.

The Marange diamonds are being mined by a state-owned company, the Zimbabwe Mining Development Corporation (ZMDC), which has gone into partnership with two companies, Mbada and Canadile. The two private companies are said to be fronts for Mugabe’s cronies.

A third mining company, Anjin, is Chinese. Its mine should come into production next month. Two other mining companies are producing diamonds outside Marange. These are Rio Tinto-owned Murowa near Zvishavane and River Ranch near Beitbridge which is owned by a Saudi Arabian billionaire.

Former army commander Solomon Mujuru used to own 20 percent of River Ranch through his company Khupukile Resources, but this stake is said to have been sold to a Harare lawyer Addington Chinake.

Biti said the Diamond Act will deal with the following among other things:

• The question of exclusive State ownership for alluvial diamonds rights in Zimbabwe.
• The criteria of selection of any mining partner.
• The valuation criteria of the contribution of the mining of the mining  partner selected.
• The creation of a Diamond Regulation Framework.
• The definition of policing and anti smuggling standards.
• The role of ZIMRA in collection and monitoring of diamond revenue.
• Environmental issues.
• Compensation to displaced mining communities; and
• The creation of the diamond Generation Fund.

Zimbabwe is expecting to produce 2.7 million carats of diamonds this year with the bulk coming from Marange. Only about 300 000 will come from Murowa  and River Ranch.  Production is expected to increase to 4 million carats next year.

According to the KP statistics for 2009, the latest available to the public, the world’s biggest diamond producer was Russia which sold 34.8 million carats.  A total of 124.8 million carats were sold through the KP system last year. With reports that Zimbabwe could account for 25 percent of the world’s production, this would mean that Zimbabwe could match or surpass Russia’s production.

Biti said it was therefore critical for Zimbabwe to tread cautiously and transparently because diamonds could detract the country off track. “We also need to manage expectations with regards to the scope and extent of diamond revenue realisations,” he said. “Whatever is generated out of our diamonds should be of benefit to each and every one of our ordinary Zimbabweans.”

“The current opaqueness with regards to the mining of diamonds and the resultant realisations can only serve to raise false expectations and public alarm over the extent of the perceived leakages,” he said.

The Finance Minister said Zimbabwe had so far sold three batches of diamonds from Marange under the KP system. The first sale in August had realised $56.5 million while the second in September had raised $29.9 million. Figures for the third sale have not yet been released.

The government earned $30 million from the first batch and $11.9 million from the second, but only $8 million was remitted to treasury.

Biti said some of the money from the sales had gone to the ZMDC, the Minerals Marketing Corporation of Zimbabwe (MMCZ), and the Zimbabwe Revenue Authority(ZIMRA).

Biti said for all future sales, the government should be entitled to dividend payments as well as resource depletion fees and the commission that is being paid to the MMCZ.

Resource depletion fees are currently being paid to the ZMDC.

The minister said the funding of the MMCZ should be a function of a government approved budget.

Payments to ZIMRA should be from royalties, value added tax and non resident shareholders’ tax.

But it is not only the Zimbabwe government that is having sleepless nights over the diamonds in Marange. The KP itself has failed to resolve the issue of whether Zimbabwe should freely trade its diamonds from Marange.

A plenary meeting of the KP in Jerusalem early this month failed to come up with a solution. KP chair Boaz Hirsch had promised to have the issue resolved within three days but three weeks have now gone by.

Hirsch also called a special meeting in Brussels this week, but it failed to resolve the issue. Hirsch himself, reports say, could not attend the meeting due to illness.

It is this impasse that could see Zimbabwe becoming another Sierra Leone because it may be forced to sell its diamonds outside the KPCS.

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