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Zimbabwe’ Diamonds Sale a Damp Squib for Expectant Locals

Published on Sunday 22nd August 2010

ZIMBABWE'S much hyped sale of alluvial diamonds has become a damp squib for locals who were hoping for a windfall that would contribute significantly to the revival of the country's economy, which has been in the doldrums for over a decade.

Zimbabwe sold 900 000 carats of what Mines minister Obert Mpofu said was just part of a six million stockpile after a protracted battle to get certification from diamond regulator, the Kimberley Process Certification Scheme. Finance Minister Tendai Biti says of the US$45 million realised from the sale, government pocketed US$15 million.

Government gets 10% from the Marange diamond sales as royalties and 25% corporate tax on profits while the remainder will be shared by the state-run Zimbabwe Mining Development Corporation (ZMDC) and South African companies, Mbada and Canadile. ZMDC will pay dividends to government.

Economists say even if the entire stockpile was auctioned, the figure would still be inadequate to ensure immediate, visible development. Reports of corruption in Marange further worsen the situation, they say.

"We should not expect quick returns from diamond sales. The impact of diamond sales is not going to be realised in the short-term but in three to five years," said Witness Chinyama, an economist with a local bank.

The country's underfinanced national budget for 2010 is US$2,2 billion, while the internal and external debt is estimated at US$5,7 billion.

Multilateral lender, the International Monetary Fund, in July noted that the extraction of minerals would not result in a dramatic improvement of Zimbabwe's economy.

Support from the multilateral institutions has been slow despite the formation of a coalition government in February last year that brought relative stability. The discovery of a vast field of alluvial diamond rich land in Marange lifted national spirits and hopes were high that the country is in for an immediate cash haul.

Politicians from president Robert Mugabe's party, Zanu PF, had celebrated the sale of the diamonds as the panacea to Western imposed sanctions. But they could have celebrated too soon, if figures from the maiden sale of part of a stockpile of Marange stones last week are anything to go by.

For a country coming out of a decade-long recession, and needing over US$45 billion to fully recover, amounts declared to have gone to the fiscus from last week's diamond auction are nothing more than small change, say economic commentators.

Zimbabwe is struggling with dilapidated social and industrial infrastructure, underperforming parastatals and biting electricity shortages caused by failure to pay for power imports.

The sale of diamonds from Marange was suspended in 2008 after human rights groups complained of gross human rights violations by the army against illegal miners. Zimbabwe got the Kimberley Process Certification Scheme nod to sell two supervised exports of rough diamonds by September after which the KP monitoring team will decide whether the country has complied with its standards before being allowed full exports.

Prime Minister Morgan Tsvangirai cautioned against exaggerating the benefits that could accrue from diamond wealth when he officiated at last week's diamond sale.

Still, this has not stopped the clamour for a share of the diamond cake. Civil servants, earning salaries half the poverty datum line, have said money from Marange diamonds should be used to improve their conditions. Mugabe, speaking in China last week, said the money should go towards agriculture, a sector his government in 2000 virtually killed following violent land reforms.

Economic commentator John Robertson says it is too early to lay claim to diamond funds, whose quantification is still subject to controversy and allegations of missing cash.

"It's not clear how much Zimbabwe will get from the diamonds because authorities are not clear with figures. The government's style of management is suspicious. They should tell people the correct information concerning the diamonds' value," said Robertson.

"We need to be cautious and really look at what is at stake for Zimbabwe from the diamond sales. Whatever little amount is realised from diamonds should be used carefully. There is no reason to splash billions on civil servants' salaries when parastatals are bleeding. Government should place its priorities right," said Robertson, a critic of Mugabe's economic policies.

Though underpaid, government employees still chew up US$600 million in salaries per year.

"Why should they (civil servants) get more money when service delivery is crippled," said Robertson.

Chinyama said new legislation was necessary to plug irregular licensing and illicit trade if Zimbabwe were to benefit in the long-term.

"If the diamonds revenue circulate in the country, that would help in solving liquidity challenges while regulations like the Diamond Act will increase accountability," said Chinyama. He was referring to Biti's proposal for a Diamond Act that would make state participation in all alluvial diamond mining a pre-condition.

Even at its infancy, trade in Zimbabwean diamonds faces resistance in some of the leading markets, leaving the stones vulnerable to under-pricing.

The New York-based Rapaport Diamond Trading Network, which links global diamond buyers, has warned that it would shut out of its network any buyer trading in Marange diamonds. Rapaport claims rights abuses by soldiers guarding Marange fields are still rampant, rendering the stones dirty.

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