The Zairean rebels’ decision to jettison De Beers has placed the diamond cartel on an even shakier footing, reports Chris Gordon from London
LAURENT KABILA’s Zairean Rebel Alliance for Democratic Forces has terminated De Beers’s contract to buy the output of the country’s diamond parastatal Miba (Socit Minire de Bakwanga).
This blow to De Beers’s control over central African diamond production follows two weeks of talks between the rebels and senior De Beers executives. De Beers’s London office acknowledged this week that the contract had been rescinded, though its Johannesburg headquarters declined to comment.
The rebels – who now control Zaire’s diamond-producing regions – had previously warned they wanted to end De Beers’s monopoly in Zaire and with it cut President Mobuto Sese Seko’s last source of revenue. His income has been derived mainly from diamonds over the past few years.
The alliance late last week put De Beers on three months’ notice for the Miba contract, citing its ties to Mobuto and corrupt business practices – a charge denied by Andrew Lamont, representative for De Beers in London.
De Beers is also hedging its bets in Zaire. For the present Mobuto is still president, and De Beers is still contracted to his government. “The situation in Zaire is still fluid … [De Beers will] ride with the change,” Lamont said.
De Beers is still talking to Mawampanga Mwana Nanga, Kabila’s designated finance minister, on sales from Miba when the contract ends.
The corporation’s drubbing in Zaire is the latest in a series of blows to its control over the gem industry, which it exercises through its Central Selling Organisation (CSO).
The CSO has contracts to buy the bulk of world diamond production, and artificially buoys prices by controlling supply.
But of the top seven diamond producers in the world – who account for 80% of the world’s rough diamond supply by value, according to De Beers’s latest annual report – four are now no longer securely in the organisation’s net.
Australia’s Argyle diamond mine, the world’s largest diamond producer by volume, quit the CSO last July, claiming it could secure better prices on the open market.
Russia, long a thorn in De Beers’s side, leaking high-quality diamonds worth $1- billion a year onto the market, has also still to renew its sales agreement with the CSO, 14 months after signing a memorandum of understanding with De Beers that it would.
Zaire punches another hole in De Beers’s control over low quality gems. Its neighbour Angola – a top-quality gem producer – has already reduced its dependence on the CSO, seeking other buyers alongside De Beers.
Such moves could prompt a radical reshape of central African diamond supplies, with De Beers, uncharacteristically, having to follow rather than lead.
The three other main producers are South Africa, Namibia and Botswana – where De Beers maintains close control over all production.
The output from Miba is industrial and near-gem diamonds – 6,5-million carats last year valued at $80-million. De Beers is also a shareholder in Miba, through its stake in Sibeka, a Belgian company which owns 20% of Miba .
However, Miba’s output is only a fraction of Zaire’s estimated diamond production of $350-million.
It is difficult to calculate Zaire’s diamond wealth: much of the production is sold locally to the licensed buying offices or smuggled out to Antwerp. An unknown proportion of this consists of smuggled Angolan diamonds, much of which come from the Unita opposition party.
De Beers closed its four buying offices in Zaire – Kinshasa, Kisagani, Mbuji-Mayi and Kahema – as the rebels advanced.
The organisation then refused Alliance requests that it reopen the offices – a move which left the field open to Jean Boulle’s America Diamond buyers, currently the only licensed diamond buying office in Kisangani, which is buying gems worth about $100 000 a day.
De Beers’s manipulation of low-quality diamond prices via several harsh price cuts has enabled it to combat Argyle’s defiance, and may go some way to cushioning it against Zaire.
Angola is a different story, however. Its mainly gem-quality diamonds were valued at around $1-billion last year. The CSO was forced to buy $800-million of these gems on the open market to underpin the prices it was targeting through its normal cartel operation.
De Beers chair Julian Ogilvie Thompson said in the latest annual report that De Beers had been hit by the “increasing uncontrolled outflow of Angolan diamonds to the major cutting centres … Angolan diamonds tend to be in the categories that are in demand.”