A sleepy backpacker lodge and bar outside the border town of Mutare in Zimbabwe became a thriving hangout overnight for Zimbabweans with smart cars and bricks of money during 2007.Author Douglas Rogers, whose parents owned the place, were puzzled about what sparked a turnaround in the fortunes of their little business at a time when the country was bankrupt, he wrote in his best selling book about their lives, “The Last Resort”.
They discovered that the hordes of new visitors were living the high life from the proceeds of illegally lifted diamonds from the Marange fields that lay just over the hill from their front door, not far from the border town of Mutare. The revellers wanted a place to celebrate away from the prying eyes of the authorities.
The diamond-driven excesses that Rogers describes in his book appear to be a thing of the past – Zimbabwe has had to clean up its act to be approved by the Kimberley Process, which certifies diamonds as being conflict-free, in order to sell the stones legally on world markets.
The Marange field holds diamonds valued at billions of dollars making it key to unlocking development in Zimbabwe, given the lukewarm response of international donors and development institutions to funding the unity government.
Mining Minister Obert Mpofu has suggested that neighbouring Botswana, a significant diamond producer, envies Zimbabwe’s find, saying: “In Botswana it takes mining companies more than 100 tonnes to produce one carat of diamond but in Zimbabwe one tonne can produce 15 carats.’
While the World Diamond Council debated the merits of allowing Zimbabwean diamonds to flow into international markets, Zimbabwe was sitting on a stockpile of 4.5 million carats of diamonds valued at $1.9bn – a third of the country’s debt.
But realizing this asset means Zimbabwe has had to convince the industry that its stones are not “blood diamonds”, loosely defined as a resource that has caused human misery in its extraction and funded conflict.
The diamond rush to Zimbabwe’s eastern highlands drew many thousands of people, who left their homes and jobs in search of riches at a time of economic devastation. After initially encouraging people to become mining entrepreneurs, seemingly to create goodwill for a government in which most people had lost faith, the state decided to crack down on diggers after claims that Zimbabwe had lost $400m in potential revenue from smuggling in just nine months.
The military conducted a three-week offensive in 2008 in which more than 200 diggers were believed to have been killed. Although the government tried to suppress the extent of the humanitarian disaster, the news quickly filtered out.
At its meeting in Russia earlier this year, the Council gave the go ahead for limited sales of Zimbabwean diamonds after Kimberley Process certification and the government’s own insistence that it had undertaken the required reforms, including removing soldiers from the area of commercial production.
Two supervised auctions were scheduled for 2010 were to be followed by a Kimberley Process review to decide on future exports. The first auction of 900 000 carats raised $72 million
Interest in Marange has peaked since the World Diamond Council ruling and the mines ministry says it is evaluating applications by more than 200 local and foreign companies to operate there.
But the industry, which could contribute as much as $200m a month towards economic restructuring and recovery in a cash-strapped Zimbabwe, remains plagued by concerns and controversies.
One concern is that significant looting of the diamond pot will rejuvenate the fortunes of Zanu-PF, already calling for an early election to end the unity government arrangement. The mining companies working in a joint venture with the government are fronted by former military heavyweights and the Mining Minister himself is a Zanu-PF stalwart.
Already there are claims of missing money, with Finance Minister Tendai Biti saying $30m from the diamond auctions cannot be accounted for.
A second controversy that has dogged the diamond fields is the contested ownership rights to the concession. The prospecting rights were originally held, in the early 1980s, by mining giant De Beers, which released its exclusive prospective order in March 2006 because the alluvial nature of the field did not suit their mining portfolio.
A locally owned, London-listed company, Africa Consolidated Resources, took up the rights. But just months later, the government cancelled the licence, claiming it had been issued in error.
The field fell to the state-owned Zimbabwe Mining Development Corporation (ZMDC), which began commercial exploitation in a joint venture with two controversial companies with local and South African shareholders – Mbada Holdings and Canadile Mining.
The choice of partners was criticized by Zimbabwe’s mining committee in parliament. Legislators questioned the companies’ experience in diamond mining and the reputation of their directors who were not subjected to proper scrutiny in the awarding of the contracts. According to reports, they include not just ex-Zimbabwean military but also dodgy dealers from the Congo and Sierra Leone, as well as former mercenaries.
The two companies refused to be questioned by the parliamentary committee and attempts by committee members to visit the diamond fields were blocked by the minister, raising questions about what was actually happening on the ground.
The detention of a Zimbabwean NGO worker at Marange compounded the impression of undue secrecy around the diamond fields.
Questions have been raised about Mpofu’s new found wealth, with parliament noting that he had, in 2009, paid cash for 27 properties in his home town of Victoria Falls and in Bulawayo.
The minister faces court action for allowing diamonds from Marange to be sold in violation of a Supreme Court order earlier this year banning the sale of stones when it upheld the claim of ownership made by African Consolidated Resources in terms of its original licence.
Security is still an issue and soldiers continue to patrol the non-commercial areas of Marange, and smuggling has proved hard to rein in, particularly given the area’s proximity to a long and open border with Mozambique.
The pace of the country’s reconstruction is likely to become inextricably linked to the success of the diamond industry, given the funding potential it offers.
But for this to happen, the Treasury needs to find a way to ring fence the proceeds from diamond sales in a development fund that has legislated priorities in terms of sectors and projects that are agreed on by all parties with timeframes for delivery and proper oversight.
This should be complemented by a strict auditing process that has real consequences for actors in the supply chain if money is found to be missing. There needs to be multiparty oversight on any new mining licences, especially given that the mining minister is himself under scrutiny for his decisions and actions.
This is a real chance for Zimbabwe to dig itself out of a hole. But governance issues, political infighting and transparency challenges may continue to make the gems a poisoned chalice for this troubled state for some time to come.