Policy overhaul needed in the diamond sector 

Source: Policy overhaul needed in the diamond sector | The Herald July 12, 2019

Policy overhaul needed in the diamond sectorThe move by Government to open the diamond industry to largest players in the world is vital as this will revive the struggling economy, helping shore up the crippled foreign currency

Beaven Dhliwayo Features Writer
The return of Chinese diamond mining firm Anjin and the awarding of a licence to Russian gem conglomerate Alrosa to mine in Manicaland’s Chiadzwa diamond fields is a positive development in the diamond sector.

As part of the contribution to the country’s Vision 2030 of creating an upper-middle income economy, the mining industry is destined to increase in size from a mere $2,7 billion industry attained in 2017 to a $12 billion industry by 2023.

To achieve this, mining giants with financial muscle are needed to increase production in the mining sector in the country.

Zimbabwe is richly endowed with a large trove of minerals, but has failed to reap maximum benefits from the sector due to bad management and lack of capital to fund operations.

Government formed the Zimbabwe Consolidated Diamond Mining Company (ZCDC) after ordering firms to stop operations and vacate Marange diamond fields.

The companies are Anjin, Diamond Mining Corporation, Jinan, Mbada Diamonds, DTZ Ozgeo, Rera, Gye-Nyame, Kusena and Marange Resources.

Zimbabwe’s diamond sector comprised two players; Murowa Diamonds owned and operated by RioZim and ZCDC.

Murowa works kimberlitic deposits while ZCDC mostly exploits conglomerate, which is a type of sedimentary rock formed through alluvial deposition.

These firms were heavily focused on alluvial extractions which require less capital as they are easily gathered through open cast processes.

However, the country has largely exhausted alluvial gem deposits, while local miners claimed the local companies lack the technical capacity or the resources to search for other possible deposits underground.

Anjin is not new to the Zimbabwean diamond mining industry as it previously mined the Marange diamond fields until 2015 before Zimbabwe’s Government decided against renewing mining licences for gem miners in the area.

Alrosa, the world’s largest diamond producer by output, started conducting geological exploration in Zimbabwe in 2013, but dropped the licences it held there in 2016 due to a reform of the country’s diamond industry.

The move by Government to open the diamond industry to largest players in the world is vital as this will revive the struggling economy, helping shore up the crippled foreign currency. With the two major players coming on board, the industry is likely going to increase output, thus cushioning the country’s struggling economy.

The move, will significantly increase opportunities for purchasing diamonds sourced in the country and help clear Government stockpiled stones.

Zimbabwe is believed to be sitting on about 3,2 million carats of diamonds.

However, although licensing the two international miners is a step in the right direction, there is need for reform in the diamond sector in order to attract more investors.

The Government should scrap the Indigenisation Act, which restricts foreign shareholding in platinum and diamond ventures to 49 percent as the country seeks to attract foreign capital.

The law, which was the centrepiece of former President Robert Mugabe’s campaign in the 2008 election, was amended and limited to platinum and diamonds by President Mnangagwa in November 2017.

Industry experts estimate that platinum and diamonds require a capital injection of US$3 billion and US$500 million respectively.

This could increase annual output to 28 tonnes and seven million carats for platinum and diamond respectively.

If the sector remains subject to 51 percent indigenisation restrictions on foreign equity investors, they will shy away from investing more, yet they have the capacity to change the sector for the better.

Amending the policy will increase our foreign direct investment since more investors will come to invest in Zimbabwe and the country’s imports will plummet, thereby increasing the country’s gross domestic product (GDP).

This also resonates well with the “Zimbabwe is open for business” mantra.

Secondly, Zimbabwe’s diamond sector has been shrouded in secrecy from the outset, with poor governance underpinned by a lack of transparency and accountability at all levels.

For instance, basic information on production and revenues has never been meaningfully reported, either by the Government or by the companies entrusted with Zimbabwe’s diamonds.

Although the ZCDC has published two or three audited annual reports, company reporting is more limited still, and is aggregated to a point that makes meaningful analysis almost impossible.

While the country has exported over US$2,5 billion in diamonds according to official figures from the Kimberley Process, limited Government reports show that only around US$300 million can be clearly identified in public accounts.

This has stymied efforts to estimate who is owed what, as well as attempts to verify whether the amounts have actually been paid.

During his 92nd birthday interview with the Zimbabwe Broadcasting Corporation (ZBC) aired on March 5 2016, former president Robert Mugabe, made the following claim:

“We have not received much from the diamond industry at all,” he said.

“Not much by way of earnings. I don’t think we have exceeded $2 billion or so and yet we think that well over 15 or more billion dollars have been earned in that area.

“So where have our carats been going? The gems? You see, there has been quite a lot of secrecy in handling them and we have been blinded ourselves.

“That means our people whom we expected to be our eyes and ears have not been able to see or hear what was going on and lots of swindling, smuggling has taken place and the companies that have been mining have virtually, I want to say, robbed us of our wealth.

“That is why we have decided that this area should be a monopoly area and only the State should be able to do the mining in that area.”

Given the lingering suspicion that revenues from the Marange diamond fields had been looted by connected politicians, Mugabe’s claim was readily accepted and even assumed the level of a major confession.

But does the claim stand up to scrutiny?

Moreover, the actual owners of the private companies which were present in Marange have neither been properly reported nor scrutinised.

A quarter of Mbada — the largest and likely most successful  diamond mining company — was anonymously held through a complex web of companies stretching from South Africa to Mauritius, Hong Kong and the British Virgin Islands.

Going forward, such secrecy cannot be in the interest of the Zimbabwean people and is highly inappropriate for the management of a lucrative national resource.

If the country is to pull herself out of the deep-rooted socio-economic hardships, and be an upper-middle income economy by 20130, part of the solution lies with good management of mineral resources.

It is a known fact that despite having a vast reserve of diamonds, Zimbabwe has not benefited much from same.

All what the country now needs is capacitated companies to boost the lucrative sector.

Lessons should be learnt from the past and the authority responsible for the diamond sector and mining in general should now do the right thing to revive the economy of the country.

Government should put in place a range of reforms aimed at bringing greater transparency and oversight to all levels of Zimbabwe’s diamond sector through regular and public reporting of key information on production, profits and revenue flows; as well as public disclosure of the true beneficiaries of all companies involved in Zimbabwe’s diamond trade.

The country should understand that diamonds are not really forever.

All diamond companies that will be given the floor to mine the precious mineral should ensure the profits of their trade find the right hands through robust supply chain due diligence in line with international standards.

Zimbabwe cannot continue to have its diamond looted.

Mismanagement of such a precious natural resource will be particularly disappointing given that Zimbabwe is currently in the midst of an economic crisis.

The Government should lead by example to these companies coming, showing commitment to good governance by expediting reforms in a transparent and accountable manner.

Zimbabwe missed an opportunity to turn around the economy from its rich alluvial diamond discovery in an effort to end the country’s dependence on foreign aid, and this time it should not happen again.