Western retailers could be forced to source their diamonds elsewhere to protect their businesses, writes Alan Martin.
Last week, the Zimbabwean diamond industry hosted an international conference at Victoria Falls with the aim of rehabilitating its tarnished image. It was an impressive dog and pony show, attended by the doyens of the world's diamond industry and an A-list of South African and Zimbabwean notables, all eager to do their bit to legitimise the illegitimate.
At issue were the incredibly lucrative Marange diamond fields of eastern Zimbabwe, which have been overshadowed by violence, smuggling and corruption since 2006. To hear Zimbabwean Minister of Mines Obert Mpofu tell it, these issues were a thing of the past. If there were any outstanding impediments to the good governance of this promising resource, it was all the fault of Western sanctions – a line parroted by everyone from Abbey Chikane, chairperson of the South African Diamond Board, to the paid shills of Indian and Dubai-based diamantaires, who have largely looked the other way when the issue of illegality in terms of Marange arises.
But efforts to confer legitimacy on Marange diamonds are misguided and premature. Cozying up to the military chiefs, who largely control Zimbabwe's diamonds, has no upside for the diamond industry. It undermines consumer confidence in diamonds and reminds the public of previous times when diamonds were not only synonymous with love, but also with unspeakable acts of violence and corruption.
Partnership Africa Canada, the organisation I work for, first made the link between the trade of rough diamonds and civil war in West Africa. In a new report we conclude that, despite government pronouncements to the contrary, the illicit trade in Marange diamonds is alive and well. A parallel trade thrives with the full knowledge and complicity of top officials in the Zimbabwean ministry of mines, military and state mining parastatals.
The theft of Marange diamonds is perhaps the biggest single plunder of diamonds the world has seen since the days of Cecil Rhodes. Conservative estimates place the losses resulting from illicit activity at more than $2-billion since 2008.
The smuggling occurs in different ways, ranging from small-scale efforts by artisanal miners to the involvement of key Zimbabwean officials and industry members in international trading centres.
The most troubling form of this activity is a sophisticated manipulation of diamond prices, which sees prices low-balled at the point of export only to leave Dubai later at twice the price. South Africa plays a major role in the smuggling of these diamonds, mostly as a key transit point on their way to the end destination of India.
Diamonds leaking out of any country at the rate they are leaking from Zimbabwe means not only a loss to the national treasury and the public good, but it is also the ultimate expression of a systemic failure of a country's internal controls.
The loss of public revenue is a matter of critical public interest and amplifies concerns that these diamonds are being used to fund a parallel government other than the legally constituted "unity" government.
Their subsequent trading makes a mockery of the Kimberley Process certification scheme and the industry's system of warranties, an honour system that promises that diamond shipments are untainted by violence or smuggling. Take, for example, the whereabouts of an estimated 2.5-million carats stockpiled after the outbreaks of violence that led to the November 2009 Kimberley Process embargo of Marange diamonds. Having been secured in the vaults of the Reserve Bank of Zimbabwe, it is inconceivable that the diamonds could have disappeared without the full knowledge of senior officials in the ministry of mines or the Reserve Bank.
Even more worrying is how such a quantity of embargoed stones without legal Kimberley Process certificates could have passed through the diamond supply chain unnoticed. Which members of the diamond industry took receipt of these stones?
These issues should be top of mind for the South African industry icons who attended Zimbabwe's diamond conference, not the least Ernie Blom, president of the World Federation of Diamond Bourses.
Zimbabwe cannot be allowed to continue to trade diamonds in this fashion. Those who naively or wilfully ignore Zimbabwe's mismanagement of its diamond resources, as the Kimberley Process has done,will only have themselves to blame when Western governments, or consumer markets, move to protect their industries, including by legislative means.
Retailers in the United States recently took a pre-emptive step by unveiling the diamond source warranty protocol, an initiative that will force suppliers, mostly in India, to separate diamonds from unsavoury sources from others, whether they are deemed Kimberley Process-compliant or not.
For all the rhetoric of Victoria Falls, a simple reality remains: Africa may produce 60% of the world's diamonds, but the bulk of consumers, 70%, are in North America and Europe. Pandering to the lowest common denominator and excusing Zanu-PF's bad behaviour may play well in some political constituencies, but it may also see Western retailers and consumers increasingly turn to non-African sources of diamonds.
Equally, industry members who in any way associate themselves with companies operating in Marange should be under no illusions about the criminal elements they are dealing with. They are not helping the economic recovery of an impoverished country. In fact, they are doing the opposite: they are enabling corruption and giving more power to those who have led political repression and violence in Zimbabwe – just in time for next year's elections.
Alan Martin is research director of Partnership Africa Canada and the lead author of the report Reap What You Sow: Greed and Corruption in Zimbabwe's Marange Diamond Fields, which was released this week. It can be downloaded here