The Diamond Industry and African Socio-Economy


Neoliberal reforms in Africa, increasing global commodity prices and rising global resource demands have led to significant economic turnovers within the recent past decade for some African nations – Libya, Ivory Coast, Ghana, Nigeria, Liberia, Sierra Leone, South Africa, Egypt, among the rest .  In accordance, there has been a substantive growth in the extractive industry investment, especially in sub-Saharan Africa. A surge of investment within extractive industry has brought about a diverse number of feedback in mineral-rich countries. In Ghana, there has been a boom investment towards artisanal mining while violating national mining principles and regulations and also neglecting Cooperate Social Responsibility (CSR), main focus is trade! The situation is similar in most mineral-rich countries— varied concerns from society including rejection of the extractive industry or acceptance with high expectation of increased economic status of the society arising from gainful employment, and protest over labour conditions.

Amongst the minerals in Africa, the Diamond industry faces severe challenges than the other minerals utilized in fine jewellery sector. Prior to the “Blood Diamond” revolution, artisanal mining of Diamond in most parts of sub-Saharan Africa was profitable and somehow pleasant for traders, as there were few regulations regarding Diamond trade and customers caring less about the origin of Diamonds.  With the advent of synthetic diamonds and the controversy over “blood diamonds”, the Diamond trade industry faces some of the toughest challenges. Lack of effective CSR is a major factor to the difficulties experienced in the Diamond industry.

CSR, is an industry’s considerations of, and response to, issues beyond the narrow economic, technical and legal requirements of the firm to accomplish social (and environmental) benefits along with the traditional economic gains which the firm seeks’ – as defined by Spence (2007).  While CSR is a tool to disrupt harmful institutional norms and practices within such an industry, it requires the co-creation of new transformative business models and multi-stakeholder involvement including firms (SMEs and MNEs), trade associations, nongovernmental organisations and consumers. Solutions include national and international legislation, price adjusted certification routes for small firms, harmonisation of industry CSR standards to reduce overlap in certification and regulation and gem and precious metal ‘‘track and trace’’ schemes.

Conversely, Diamonds are responsible for the economic development of some mineral-rich economies. In Botswana, the economy is heavily dependent on diamonds. The country’s diamond exports account for over 70 per cent of exports. In Botswana, the Diamond industry directly accounts for 1 in 20 jobs in the country. Facing trade challenges, the government is keen to diversify the economy away from its heavy reliance on diamonds. Similarly, since implementation of Ghana’s Economic Recovery Program in 1983, Ghana’s extractive industries have come to account for 40 per cent of the total value of the country’s exports. Between 1983 and 1998, the mining industry brought approximately US $4 billion in foreign direct investment to Ghana. While large-scale gold mining has seen a significant increase, artisanal gold and diamond mining product have grown exponentially.

An adverse impact of this increase, however, has been increased extraction-related conflict due to heightened competition between large and small-scale operators over mineral-rich lands – with an investment boost from Chinese migrants in the small scale mining sector (usually illegal operators), the resulting effect is a large amount of resource competition between the large scale/legal mining sector and the small scale/illegal sector. A report by Ghanaian researchers indicates that more than half of the identified small-scale mining activity occurs within the boundaries of large-scale concessions.

Small-scale diamond mining in Burkina Faso began in the late 1980s, when the country was suffering from a severe drought. Given the persistence of the drought, which put pressures on the agricultural industry in Burkina Faso, small-scale gold mining became primarily a rural, poverty-driven activity to earn quick revenue for survival. It is estimated that there are approximately 100,000–200,000 artisanal miners in the country.

In the past, large-scale and capital intensive mining operations have only accounted for some 10 % of Sierra Leone’s diamond exports by value (Diamond Industry Annual Review, 2006). The bulk of the country’s diamonds have come from small-scale production, an activity demanding heavy inputs of unskilled labour.

Ghana consolidated diamonds are being taken over by small-scale mining as well. Between 1980 and 1989, the artisanal mining sector produced 207,272 carats of diamonds, in comparison to 5,328,054 carats by GCD. In contrast, between 1990 and 1999, small-scale diamond mining product drastically increased to 4,637,093 carats, while GCD production declined by about 50% to 2,244,240, reported by Kaakpema Yelpaala and Saleem H. Ali.

DOES THIS AFFECT PRICES?

Yes. Increasing number of artisanal mining affects the prices of minerals. In Ghana, where there are strengthened but yet rising number of artisanal diamond mining, prices are still stabilized through a number of trade regulations which prevents illegal trade that flouts major regulations and accreditations. The level adherence to rules and regulations, accreditation and conflict free fine mineral determines the final consumer price.

In a research report by Marylyn Carrigan indicates that with rising small-scale mining, voluntary certification processes that seek to eliminate unethical practices in the diamond and gold faces much criticism for not going far enough or for being inaccessible to SMEs in the diamond industry, which hinders the responsibility of accreditation process. Accordingly, purchasing diamond from artisanal miners seems relatively cheaper than larger firms.

Probably the biggest challenge at the moment is that the Diamond industry is still suffering on the back of the recession. “You know it’s hard to be selling luxury products. Stuff isn’t selling as much as it was so I think you’re still finding a lot of businesses are starting to go under as a result of that…You feel like you’re trying everything you can to keep your costs down, concentrating on surviving”, a trader said. .

SMEs think consumers do not care about CSR; consumers ask about provenance of Diamonds but not other stones/metals; lack of consumer appetite as barrier to change; some consumers more interested in CSR than others exist. So consumers worry about SOURCE of Diamonds but not the CSR of the mining industry – which is very bad.

Conflict Free Diamond: How Do You Know?

Prior to the adoption of the ‘Kimberly Process’ in 2001, some West African counties like Guinea, Liberia, and Sierra Leone have all had significant problems with conflict diamonds, which triggered socio-economic, political, and regional instability. Although, Ghana has not had significant difficulties with conflict diamonds, there are reports which indicates that foreigners bring diamonds to sell to licensed sellers in Accra, many of which are conflict diamonds from Guinea, Liberia, and Sierra Leone.

According to a buyer, in an interview during Marylyn Carrigan’s research indicated that Diamond trade is fully based on trust. “We have to have trust, I mean, the last diamond I bought, for something, I did ask at the diamond dealer, is this conflict free, is it? And he said, to the best of his knowledge, it was, you know, and that’s all…I’m not going to look for a certificate or anything, I’m just hoping that he’s trustworthy”. An SME also added “My diamond dealer…I trust him that he doesn’t sell conflict diamonds…All he does, on the bottom of the invoice each month, is put ‘we do not sell conflict diamonds’…So how do I know where them diamonds have come from? You can’t! And gold, how do you know they’re telling the truth? You see, the service has the facility to mark something but how can they prove it, I don’t know”.

Of the SMEs who were asked by consumers (albeit rarely) about the origin of their materials, many felt that this was simply down to the publicity surrounding the film ‘Blood Diamond’, in that consumers subsequently asked about the origin of diamonds but not about other stones or metals: You come up against people who just want Fair Trade diamonds after the scandal many years ago… I’ve had it a couple of times [people asking for ethical stones]; it needs to be an ethically-sourced stone… But no one’s ever then said what the mining conditions are?

Defects in The Industry (A Look at Botswana’s Diamond Industry).

In countries like Botswana, where there are institutionalized trading system, the country is not enjoying the Diamond economic boost it expected to gain. Khadija Sharife reports on Botswana’s situation through his paper, “Flaws in Botswana’s Diamond Industry”.

Far from the usual tales of corporate looting, Botswana’s primary business partner, De Beers, has been involved with the government in what is one of the longest running public-private partnerships of its kind. To operate in the country, De Beers founded the De Beers Botswana Mining Company in 1968, which became Debswana. Initially, Botswana held a 15 per cent share, but several years later, Botswana’s share was increased to 50 per cent. Then, in 2004, Botswana acquired a 15 percent share in De Beers itself. In 2013, for instance, De Beers recovered 31.1 million carats in Namibia, South Africa, Botswana, and Canada combined. Of that, Botswana accounted for about 22.7 million carats. By value, Botswana accounted for more than 70 percent, or $4.2 billion, of De Beers’ $5.9 billion in revenue. In short, De Beers needs Botswana even more than Botswana needs De Beers. But yet, the economic boost from the sector is not desirable.

Unlike other minerals bearing benchmarked prices, diamonds in Botswana are internally valued by De Beers. Depending on the quality of a diamond and the valuators involved, one carat can be worth $1,000, $100, or $1. According to a former De Beers director, Bertie Lincoln, in a rare quote given under oath at a South African court, the government’s only role is as “an auditor.” Lincoln told the court, “The value is the price which is in the [De Beers] Price Book. So the government valuator has got no input into the value of a diamond.” Through this process, De Beers can essentially set its own tax rate by determining the value of the diamonds on which government fees are levied.

There is no official exceptional diamond registry in Botswana, so it is impossible to know the volume and value of exceptional diamonds exported either monthly or annually. Another way of avoiding taxes is to import high-value and low-volume rough diamonds and then re-export those same diamonds in parcels with high-volume, domestic rough diamonds. In 2010, for instance, when the stated export value of diamonds is compared to the production value at mine-gate, over $438 million vanishes— an undervaluation of $19 per carat. As the sole valuator in Botswana, De Beers runs the show.

The structure of the exiting mining contracts and the exact value of extracted diamonds, as well as Botswana’s 15 percent share in De Beers, remain unclear. On a few occasions, a small number of unknown beneficiaries have received about 1 percent of the company. In a multi-billion dollar financial empire, this represents a fortune, but the use of tax havens for central financial structures makes it impossible to know who is really involved.

Khadija Sharife concludes that Botswana’s democracy has been perverted. A company needs a country to thrive; a political party needs the company to maintain its hold on the government; and a company benefits from a friendly party in power. Within this incentive structure, De Beers will help Botswana to a certain degree, and as long there are diamonds in the mine, revenue will continue to be generated. Yet Botswana’s paper success does not translate to the kinds of gains that the country should be receiving.


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