Where has diamond revenue gone?

via Where has diamond revenue gone? | The Financial Gazette  14 Nov 2013

IN our last week’s issue, we reported that alluvial diamonds mined at the controversial Chiadzwa diamond fields are declining in terms of both quality and quantity, diminishing prospects of the gems ever rescuing Zimbabwe’s troubled economy.Former mines and mining development minister, Obert Mpofu is on record saying the precious stones had the potential to earn the country over US$2 billion annually, nearly half the size of the 2012/13 National Budget.

Interestingly, Mpofu exited the portfolio to take up another assignment at the Transport Ministry miles away from realising that target.

In fact, there has been hullabaloo over the diamond sector’s poor contribution to the fiscus amid suspicion that not every cent generated from the Chiadzwa diamond fields has ended up where it should be.
In the court of public opinion, much of the revenue has gone unaccounted for through leakages, which could be benefitting individuals at the expense of the nation.

Tendai Biti, who was the finance minister during the inclusive government, was most vocal about the alleged leakages but his cries went unheeded.

Biti was forced to revise the 2012 National Budget from US$4 billion to US$3, 4 billion after the US$600 million that had been earmarked from diamond proceeds did not reach the government purse as a result of the opaque nature of the operations of companies in Chiadzwa.

Biti had also budgeted to fund the July 31 harmonised polls through diamond revenues, but government had to scrounge for resources elsewhere because nothing significant had flown into the fiscus.
While Biti’s sentiments were shared by many, the ZANU-PF side of the unity government, whose life ended with the conduct of elections, teamed up to dismiss the Movement for Democratic Change (MDC-T) secretary general as seeing shadows everywhere, symptomatic of the mistrusts that followed the coalition government to its grave.

Government had even ignored reports from the other arm of the State, the legislature.

In June, the Parliamentary Committee on Mines and Mining Development issued a damning report alleging that millions of dollars in potential revenue could have been lost from the Chiadzwa diamond fields due to smuggling, underhand dealings and a weak policy on investment in the sector.

It said ministry officials had frustrated the work of the committee and discouraged officials from the diamond companies from co-operating with the parliamentary team.

Mpofu was also accused of violating the Zimbabwe Mining Development Corporation (ZMDC) Act by appointing board members to the parastatal’s subsidiary firms when the law prohibits him from doing so. The unilateral appointments to subsidiary companies saw a number of individuals with conflict of interests being appointed as board members to the extent that some of them even owned their own diamond-trading companies.

Crucially, the committee said it had observed with concern that the government had not realised any meaningful contributions from diamonds because there are “serious discrepancies between what it receives and what the diamond mining companies claim to have remitted to Treasury”.

Surprise, surprise, surprise!

Biti’s successor, Patrick Chinamasa seems to have finally seen the light. Chinamasa was recently quoted by one of the daily papers saying nothing had reached the government purse from the Chiadzwa diamonds in the past nine months.

Unless the minister was misquoted, there appears to be convergence emerging between the ZANU-PF official, his MDC-T predecessor and the Parliamentary Committee that something was definitely not adding up.
Interestingly, the new Mines Minister Walter Chidhakwa has  promised that every cent from diamond proceeds must be accounted for with all those found on the wrong side of the law facing prosecution.
We however, hope that this will not be the case of shutting the door after the horse has bolted.

Indications are that there is now insignificant diamonds in the alluvial ore at claims allocated to the diamond mining companies operating in Chiadzwa. The little that is found now is of poor quality than before.
While it is only natural that any finite resource gets exhausted as it is mined, what is regrettable in this case is that the companies operating in the Chiadzwa diamond fields seem not to have invested in the required equipment to allow them to mine the gems underground since there are indications that there could be economic grade deposits below the surface that would require state-of-the-art equipment to extract.
It would also appear that most of these companies pumped a lot of money into none-core activities without reinvesting in the business which had the effect of straining their cash-flows.
Unless these company are given fresh claims rich in alluvial diamonds which are cheaper to mine, significant amounts of money would have to be found to invest in equipment to enable them to extract the gems underground.

This is at a time when a string of grievances and other undertakings are still outstanding amid reports that the few structures built for villagers relocated from the fields are already falling apart because of poor workmanship and use of sub-standard materials.

What this means is that the government, which is desperate for cash, would have to revise downwards its revenue forecasts for diamonds from Chiadzwa.

Resultantly,  ZMDC, which has a shareholding in all the companies operating in Chiadzwa would have to look for resources to fund the acquisition of the mining equipment.
Even worse is the fact that the alluvial diamonds mined to date have not improved the livelihoods of ordinary Zimbabwe, 80 percent of whom are wallowing in poverty.
One hopes that Chidhakwa will get to the bottom of this. In case things were not done properly, the current miners should not be granted new claims because they would have failed the nation.

The long arm of the law should also catch up with all those found to have acted improperly.
Going forward, government should act transparently in awarding claims and follow that up by demanding accountability in the activities of those allocated claims in Chiadzwa.