December 5, 2010

WHY ZIMBABWE'S NEW DIAMONDS IMPERIL GLOBAL TRADE

Posted by The Himalayan Voice:
[On Aug. 11, four private jets touched down at Harare airport and taxied to the side of the runway, pulling up at a red carpet leading to a large hangar. Several groups of men in suits—according to a TIME reporter present, they were Lebanese, Israelis, Indians, Russians and Americans—were escorted inside by Zimbabwean officials. One by one, the men were given a body search, then led into a large vault. Inside were 1.1 million carats in diamonds, according to the government. During the next five hours, the buyers bid a total of $56.4 million. Then they packed their diamonds into briefcases and flew out. The government was ecstatic. Zimbabwe's Mines Minister, Obert Mpofu, a Mugabe supporter, told TIME, "With all these buyers and our diamonds, what can stop me being happy?"]

By Alex Perry / Manica 

Risking the wrath of  Jimbabwean  authorities young boys
sell rough diamond on the road of  Mozambique. More photos
Francisco leads me to a storeroom at the back of the hotel and shows me a small pile of glassy brown and pink pebbles in a piece of folded newspaper. He recounts how three years ago, as Zimbabwe's economy collapsed in hyperinflation, the citizens of Mutare—in the east of the country, just 12 miles (20 km) from Manica, across the border—discovered billions of dollars' worth of diamonds under their feet. Most countries deem it illegal to trade in rough diamonds without some sort of certification, but those rules are easily circumvented in a sleepy rural town in western Mozambique. Rough stones began showing up in Manica, says Francisco. 

And as the reputation of the Marange diamond fields in Mutare grew, illicit buyers began arriving from around the world. They in turn attracted more smugglers, not just from Zimbabwe but also from diamond fields in Botswana, Namibia, Angola, the Democratic Republic of Congo, even Guinea-Conakry in West Africa. In months, little Manica (population perhaps 20,000) became a global hub for illegal diamonds. A whole new economy sprang up. Scores of the town's pretty Portuguese bungalows were repainted, fitted with satellite dishes and rented to gem dealers from South Africa, Lebanon and West Africa, who roared around in 4×4s. (See "Political High Tension in Zimbabwe.")

Francisco wants to set me up too: "An office, some place to put all your equipment, licenses, security. You just bring the investment." He walks me to a turquoise-and-white bungalow where he installed a Lebanese dealer two years ago. Ali (he didn't give his full name) is in his 50s, unshaven and wearing a tracksuit. Behind lace curtains in his front room, he explains that dealers like him act as quality control for the illegal trade. They inspect and value stones. Then they buy the ones they like and sell them to secondary buyers who fly in from the U.S., Europe, Israel, Lebanon and India. These second-tier dealers smuggle the diamonds to polishers in their home countries, where the rough stones are cut, mixed with legitimate gems and sold to high-end jewelers.
In 2009, the diamond-industry analyst Tacy valued global annual production at $8.46 billion and retail sales at $58.7 billion. The Zimbabwean government reckons Marange's production could reach $1.7 billion a year—no less than a fifth of the world's diamond output and the sort of money that could prop up Zimbabwe's aging dictator, Robert Mugabe. With the state down to its last few million dollars in early 2009, Mugabe agreed to end 29 years of one-party rule and share power with the opposition Movement for Democratic Change (MDC). Poverty was the opposition's leverage. But an influx of diamond cash before a new constitution is agreed to "has the potential to change those dynamics at a stroke," says a senior MDC leader in Harare, the capital. (See the Reign of Robert Mugabe.)

Certainly, after several public displays of unity with MDC leader Morgan Tsvangirai, Mugabe has suddenly reverted to form. After stringing out negotiations over sharing power and the new constitution for more than a year, on Oct. 15 he announced he wanted all talks over by next February and a fresh election by midyear. He no longer had any need for Tsvangirai, he said, adding, "Some of the things that Tsvangirai does are stupid and foolish. That's why we need to have elections to end this inclusive government." The prospect that diamonds might cement one of the world's most notorious tyrants in his fourth decade in power only underlines the weaknesses of the diamond trade's regulatory body, the Kimberley Process. As delegates from industry, government and rights groups assembled in Jerusalem on Nov. 1 for Kimberley's annual plenary session, they faced an agenda of one item—Zimbabwe—and two questions: How badly has Zimbabwe damaged Kimberley and the diamond trade? And can anything be done about it?

Oppressor's Stone

In the late 1990s, the natural-resource watchdog Global Witness exposed how diamonds fueled bloody conflicts in countries like Angola, Congo, Sierra Leone, Liberia and Ivory Coast—civil wars in which a total of more than 4 million people died. The issue returned to the headlines this summer because of the war-crimes trial of Liberia's former President Charles Taylor in the Hague. (Taylor is accused of using $2 billion in diamonds from Sierra Leone to fund war in that country.)

The Kimberley Process was meant to end all that. It takes its name from the South African diamond-rush town of the 1860s, where in 2000, governments, Global Witness and other civil-society groups met diamond-industry representatives to work out how to clean up the trade. Many in the industry, it turned out, understood the problem all too well. All natural-resource production in Africa—oil, timber, minerals—is dogged by scandals over how it pollutes the environment and promotes inequality, corruption and even war. But whereas most commodities possess an intrinsic value as a raw material, gems do not. A jeweler will tell you a diamond's price is based on the four C's: carat, clarity, color and cut. But as a commodity, diamonds' value lies in their association with beauty, prestige and marriage. If they are linked instead to crime, war or starving orphans, customers won't buy them.

In 2003 the Kimberley participants unveiled a global certificate scheme to separate legitimate diamonds from so-called blood stones. To be certified, a diamond must come from a country with laws and institutions that enable it to verify a stone as conflict-free. To prevent blood diamonds from being mixed in with legitimate stones, Kimberley countries can trade only with fellow participants. In its seven years, the process has had successes. Today there are no diamond wars. Conflict stones are a negligible part of the diamond trade, down from 15% a decade ago. And Kimberley certifiers, sent out to monitor compliance by an executive rotated annually among member countries, have caught at least one attempt to thwart them: in 2006, they found Ghana was certifying as its own blood diamonds smuggled from Ivory Coast.(See pictures of Zimbabwe at the Polls.)

But Kimberley's failures are also ever more apparent. Just 75 countries are members—and they don't include Mozambique. The verification process can be slow. A Kimberley team that visited Guinea-Conakry in August 2008 to investigate its 500% increase in diamond exports since 2006 took more than a year to produce a report, by which time the nation had had a coup. Ian Smillie, who helped found Kimberley and has two decades' work in diamond regulation, estimates that Congo, next year's Kimberley chair, does not know the origins of 40% of the diamonds it certifies.

Some countries openly circumvent the process. Venezuela has filed no statistics on diamond output since 2005 and in 2008 suspended its Kimberley membership and, it claimed, production. Bizarrely, the Venezuelan government said these steps were designed to reinforce regulation. In reality, according to Global Witness, the country continues to mine and move stones, smuggling them to Brazil and Guyana for certification. So far, Kimberley's inspectors have been unable or unwilling to confront the Venezuelan authorities.

The workings of the Kimberley Process are secret: meetings, reports and reviews are confidential. And the process has a narrow focus, defining blood diamonds as "rough diamonds used by rebel movements or their allies to finance conflict aimed at undermining legitimate governments." By that definition, blood diamonds have indeed all but disappeared. But Kimberley says nothing about gems sold by criminals or repressive governments or those whose production involves human-rights abuses or poor working conditions—which are rife in the industry. (See the top 10 old leaders.)

Manna for Mugabe
                                                                                                                               
On Aug. 11, four private jets touched down at Harare airport and taxied to the side of the runway, pulling up at a red carpet leading to a large hangar. Several groups of men in suits—according to a TIME reporter present, they were Lebanese, Israelis, Indians, Russians and Americans—were escorted inside by Zimbabwean officials. One by one, the men were given a body search, then led into a large vault. Inside were 1.1 million carats in diamonds, according to the government. During the next five hours, the buyers bid a total of $56.4 million. Then they packed their diamonds into briefcases and flew out. The government was ecstatic. Zimbabwe's Mines Minister, Obert Mpofu, a Mugabe supporter, told TIME, "With all these buyers and our diamonds, what can stop me being happy?"

But if the Zimbabwean government is happy, those trying to clean up diamonds are not. The Marange fields first became problematic in 2006-07 when word spread about the finds and 30,000 people descended on the area. In 2006, Mugabe's regime had already appropriated the two working mines on the Marange Seam, then operated by a London company, African Consolidated Resources. In late 2008 the police and army, using two attack helicopters, seized all the remaining undeveloped land from the freelance diamond diggers, killing 200 of them, according to a Mutare-based watchdog, the Center for Research and Development.

Zimbabwe was suspended from the Kimberley Process in November 2009 over the Mutare killings. But it was allowed the August sale and another in September, with the caveat that the stones sold had to be produced from its two mines—and only after the Kimberley monitor, Abbey Chikane, a South African who helped found Kimberley, determined the mines had complied with the process. Announcing the sales, Kimberley's Israeli chairman, Boaz Hirsch, declared, "If this is a victory for anyone, it is a victory for the Kimberley Process. Not only does the Kimberley Process have teeth. It also is able to achieve results."

Others disagree. African Consolidated Resources, the original owner of the mines, warns that Kimberley is certifying stones stolen from them. The U.S.-based Rapaport Diamond Trading Network, a clearinghouse connecting buyers and sellers, says it will expel any member dealing in Zimbabwean gems, explaining that "there is no assurance that diamonds with [Kimberley] certification are free of human-rights violations." At the Jerusalem meeting, the E.U., U.S. and rights groups opposed granting Zimbabwe full Kimberley certification. Even Chikane, whose report allowed the sales to go forward, admits that the Kimberley Process leaves a lot of questions unanswered. In a speech at the auction, he said, "The issue of human-rights abuses keeps coming up, and it must be addressed." (See "Zimbabwe's Leaders Trade Positions.")

Killing Kimberley

But by whom? The Zimbabwean government knows its own power. When Zimbabwe was first suspended from the Kimberley Process, Mugabe's government threatened to sell its entire diamond stock on the uncertified market--a warning it repeated in Jerusalem. Given the richness of the Marange fields, that would have blown a hole in the regulatory regime and depressed global diamond prices. Zimbabwe's police then arrested Farai Maguwu, head of Mutare's Center for Research and Development, who represented the people of Mutare inside Kimberley. (In July, Maguwu was freed on bail after six weeks in detention, and in October the case against him was dropped.) "Without Zimbabwe, there is no [Kimberley]," Mpofu told TIME. "We are a major player [and] a force to be reckoned with." He says the government earned $30 million from the August sale, and the second authorized sale in September—this one held in secret—would have likely raised tens of millions more. The sales have also boosted illicit trade in places like Manica, where dealers like Ali can now hide illegal Zimbabwean stones among certified ones. But Smillie says those are reasons only to toughen the Kimberley Process and broaden its mandate to include criminals, governments and human rights. That's a view echoed by Zimbabwe's Finance Minister, Tendai Biti, who is from the anti-Mugabe MDC. "The way to address [those issues] is bringing us into the [process] and strengthening it," he says. (See the top 10 contested elections.)

Some in the diamond industry recognize that even a rewritten Kimberley would be insufficient to clean up the trade. De Beers, which controls 35% of the world's diamond trade, has inaugurated a series of additional voluntary initiatives, including the Responsible Jewellery Council, whose members abide by a code of conduct; a best-practices code, which De Beers imposes on itself and its clients; and the Diamond Development Initiative, now run by Smillie, which focuses on spreading the wealth that diamonds bring to their countries of origin. De Beers' latest innovation, the Forevermark, imprints each gemstone with a microscopic number that indicates where and how it was produced. De Beers now sells only diamonds it mines itself, and it hopes to persuade the rest of the industry to follow its example. "Yes, there are still people dealing diamonds who are completely amoral," says Andy Bone, head of international relations at De Beers and its representative on the World Diamond Council, which represents the global trade. "And no, [Kimberley] is not a perfect construct, and there is a way to go. But we will get there. It's in our interest."

It's also in the interest of 1.3 million people employed in informal diamond mines around the world. Back in Mutare, Gamma, 29, is frequently forced to work for Zimbabwe's illegal police and army syndicates, hacking at rock and bare earth. Gamma says he once found a million-dollar stone—23 carats—but was never paid. I ask him what he thinks of diamonds. "It's very different, what a diamond means to you and what it means here," he says. "Here it means beatings, shootings and trying to get something just to survive."

This article originally appeared in the Nov. 15, 2010, issue of TIME.