Harare, Zimbabwe


At Harare’s Bronte Hotel, an elegant old-style colonial mansion, situated just across the road from the Central Intelligence Organization (CIO), two species of people frequent the bar, restaurants, and gardens: chatty development-types from abroad, playing the usual ping-pong with poverty, and government-types, some with ominous countenances, all of them donning the same sleek, dark suits.



Walking to the local Spar early one morning, I spotted a lanky soldier slowly trawling the road alone. He stopped, casting a long glance at the people exiting the hotel—two middle-aged white men and myself. Then he moved on. Suddenly, the wariness that so neatly hems in the behavior, speech, and even thought patterns of everyday Zimbabweans, became less cryptic. One Zimbabwean academic said, “I used to have to walk past a police station every morning. Every morning, many others too, would hear the screams of torture. You learn to shut it out. Or it will be you. There is very little value to the moral currency now.” She went on to explain that it has become second nature to avoid getting involved.


There is one form of currency, however, that has consistently remained invaluable: dollars. The grimy and moist one, two and five dollar bills, circulating the country, sometimes tucked away in inconspicuous locations, is the stuff of life and death. However, dirtier than the money used by the ranks for basic needs is the revenue generated from what has been called the world’s largest diamond find in history, that is, Marange.


Estimated at $800 billion, with an implied 60,000 to 70,000 hectares of resources, Marange has now been approved by the newly elected Kimberley Process (KP) Certification Scheme chair – the US (under Ambassador Gillian Milovanovic). The diamonds are also set to devalue the price of global diamond rough by 50 percent. Since the nascent rise of Zimbabwe’s diamond industry, it has also quickly evidenced a new pipeline partnership between emerging nations, chiefly China, the leading foreign producer through several entities, and India, the world’s primary “rough” factory (handling 11 or 12 global rough diamonds). India is also Zimbabwe’s leading cutting and polishing (C&P) hub, and over 30 percent of diamonds currently treated in Surat, India’s key C&P center, are of Zimbabwean origin.


To date, the volume of diamonds exploited at Marange, which was discovered in 2006, is not known. The value of Marange's reserves was labeled by a survey report from De Beers as more than eight times higher than average diamond fields at a ratio of more than 1000 carats per hundred tonnes (CPHT). The report, prepared for De Beers by noted geologist John Ward, draws Rio Tinto's concession in Zimbabwe's Midland province, estimated at CPHT 120.


Of course, Africa has always been a major producer of rough. Presently, the continent generates over 65 percent of the world’s rough, via South Africa, Botswana, Angola, Namibia and now, Zimbabwe, the world’s seventh largest producer. Until recently, a handful of companies including Russia’s Alrosa (28 percent market share by volume and 25percent by value) and De Beers (26 percent by volume and 35percent by value), produced over 70 percent of global rough production. The United States still remains the world’s largest consumer of finished diamond products, thanks to the deeply entrenched impact of De Beers’s advertising campaign. The campaign equating diamonds with love, was an anthem that began in the 1940s by agency NW Ayers, which created the infamous slogan “Diamonds Are Forever.”


 



 


But China’s production and India’s consumption of rough changes the landscape of the diamond pipeline (extracting, sorting, cutting, polishing, and manufacturing), informed both by cheapened access as well as depreciated costs of specialization threats in the process to flood the diamond industry. It is no wonder then that De Beers—directly corresponding to Zimbabwe’s diamond coming on tap—quickly exited the diamond industry, selling interest to parent company Anglo-American.  The move marked an end of an ‘era’ of Africa’s last colonial empire: De Beers corresponded to the rise and shine of the global diamond industry developed under the leadership of African colonialist Cecil Rhodes and many other tentacles of occupation. But it was also an end to the myth of diamonds as scarce carbon resources. Zimbabwe is perhaps the world’s only diamond producer en masse, that refuses to play by the rules of the game.


Murky Markets


Historically, diamond pricing has always been a controlled affair, even during the heyday of the Cold War via the “Single Channel” created by De Beers to absorb the mass of high quality one-carat diamonds produced by the Soviet Union. Harry Oppenheimer was publicly quoted as saying, “ ‘A single channel’ is in the interest of all diamond producers whatever the political difference between them may be.” This single channel refers to the most absolute rule of the diamond industry: one buyers to absorb - and vault - the bulk of surplus to prevent diamonds from losing the scarcity value , artificially created, by slow release onto the market.


Andrei Polyakov, spokesperson for the inheritor of the Soviet Union’s diamond industry, 90 percent state-owned entity Alrosa, would echo this decades later when he confirmed, “If you don’t support the price, a diamond becomes a mere piece of carbon.” Though De Beers has always constituted the center of the diamond world, Russia’s Alrosa’s direct entry coupled with the European Union’s anti-trust law dismantled the monopoly between the two entities (supporting the single channel)  catalyzed De Beer’s first shift away from the center of the diamond market.  Another critical factor was the company’s losing battle in Zimbabwe: locking down concessions (that is, preventing exploitation of diamonds) is another way that mining companies control supply and demand. During the 15 years stay in Zimbabwe, De Beers held over 45 Exclusive Prospecting Orders (EPOs). Despite having discovered Marange diamonds in 2001, De Beers–present in the country since 1993—failed to exploit resources. ZANU-PF, however, has countered--without evidence--that De Beers looted diamonds throughout their corporate prospecting venture. The company’s documents have all disappeared without a trace.


But here comes the real conflict: unlike other African partners, including Botswana and Namibia, Zimbabwe has refused to play ball by agreeing to a controlled supply of diamonds, threatening instead to release them as revenue is required. Citing the “environment of uncertainty regarding the status and future of the concession,” De Beers opted out in 2006, when the license expired.  The concession was acquired by African Consolidated Resources (ACR) whose shareholder included General Solomon Mujuru, Mugabe’s only serious rival in ZANU-PF. ACR head, Andrew Cranswick, would soon lose control of the mines when the military came in.


Sources claim that Cranswick lost out when he bet his money on the wrong political horse. Though Mugabe is closely aligned with the army, he holds little influence. In fact, several decades back, it was Mujuru who convinced the army to accept Mugabe, freshly emerging from prison, who had never used a weapon and was largely unknown to them. Mujuru’s influence was placed not only in political circles, but also via the military and intelligence fields.


 



 


Last year, Mujuru, who owned or held stock in several diamond mines, was allegedly murdered in his farm house, ahead of forthcoming elections in Zimbabwe.


Why the Change?


According to Keiron Hodgson, Charles Stanley Securities analyst on the diamond sector, “Zimbabwe really does have the potential to upset the applecart.” He notes, “Zimbabwean officials anticipate that diamond production could generate between US$1 billion and US$2 billion per annum to an economy that has a GDP of around US$7.5 billion so I would understand the urgency to produce diamonds from Zimbabwe, but I don't think they're going to go out and produce as many as they can because they are quite price aware.”


So when a Zimbabwean state-owned paper, the Herald, claimed that the United States—previously considered the most vociferous opposition to the export of Zimbabwe’s “conflict” stones—was alleged by the paper as ready to cave provided African states support their bid for KP chair in 2012, NGOs quietly scoffed. But in early November, the US did precisely this, after verification from a KP-certification team, citing the compromise as a means of “affecting change.” This means that Zimbabwe – desperately in need of development revenue – stands to generate as much as $1 billion annually from diamond sales, according to officials from the Zimbabwean government.


According to Zimbabwean officials, overtly and covertly, had the glittering gates not opened legitimately, thanks to the assistance of emerging governments such as China and India, Zimbabwe would have simply unleashed dozens of good and not so good stones. Supa Mandiwanzira, a representative of Zimbabwe's Diamond Consortium, even publicly stated that they had " the potential to destroy the whole industry" by flooding the markets. This attitude stands in contrast to the carefully guarded and vaulted Russian diamonds, stockpiled to the value of multi-billion dollars in rough, to preserve the artificial scarcity of the diamond market. Hodgson told local media that “China and Zimbabwe are likely to be very close trading partners.”


For MDC Finance Minister, Tendai Biti, whose humble offices, located just across the road from the Crown Plaza, were under scrutiny by the Zimbabwean police forces during my visit, Marange’s diamonds represent a windfall that could well finance a significant percentage of Zimbabwe’s still struggling economy. His Ministerial budget for 2012, presented to Parliament in early February, banked at least 20 percent of the budget - $600 million – on diamond revenue. Biti, who previously admitted that just $80 million of conditional diamond sales, approved by the KP in prior years, had reached the Treasury, did not make mention of the estimated $100 million that disappeared into thin airThe KP may not have made the decision public at the time, but diamonds from Zimbabwe’s contested Marange field are finally being tendered, half a decade after their discovery in 2006.


The decision was controversially approved in Kinshasa, Democratic Republic of Congo via the Kimberley Process Plenary Meeting, under South African business magnate Abbey Chikane, a former KP chair, and Mark van Bockstael, an architect of the KP system and the Antwerp World Diamond Centre's Department of International Affairs & Trade director.The move is supported by the MDC’s Biti, who wrote a strongly worded letter to the US government, which supported the KP decision to lift the ban on Zimbabwean diamonds but failed to remove sanctions on Zimbabwean diamond traders, including Mbada and Marange Resources. “I want to place it on record that we as Ministry of Finance, writing on behalf of the government of Zimbabwe, find your measures contrary to the spirit of engagement and harmful to the generality of Zimbabweans. Zimbabwe is a poor fragile economy and therefore, it must be allowed to sell and benefit from its resources. In my budget, there are capital projects of US$600 million which are totally dependent on diamond revenues.”


 



 


President Mugabe immediately countered that diamond revenues – a "utopian" source of income, should not be depended on to meet budgetary needs for civil servants, who called for a national strike in early February. He stated that MDC Labor Minister Lucia Matibenga and Biti had failed to find ways to finance the civil servant budget and implied they were clutching at straws.


 While the KP’s Working Group did not publicize the decision, the International Diamond Exchange revealed, “The approval spread by word of mouth from the miners to possible bidders, mainly Indian and Israeli rough traders and manufacturers.”


Zimbabwe’s Diamond Mining Corporation (DMC), 50 percent owned by the US-sanctioned ZMDC, has scheduled a tender, offering 400 000 carats, while Anjin, a joint venture with the Zimbabwean government, will auction a further 500 000 carats. Two other companies, Marange Resources and Mbada, a South Africa-Zimbabwe JV, will auction a further 350 000 carats each. The tenders are expected to generate $64 million at $40 per carat.


In their final conclusion, Bockstael and Chikane wrote that based on the documents provided and their findings during the compliance verification visit to the DMC, the KP monitoring team perceived ‘all operations and procedures’ fully KPCS compliant.


 For Bockstael, a central figure in arguably the world’s largest international diamond center, alongside Israel, Antwerp, “Further stalemate would have reduced the KP to a simple trade regulatory regime without any moral or ethical importance or aspect. It would have lost any relevance to the industry.”


But other founding members of the KP disagree, including Global Witness, one of the first environmental and human rights-focused NGOs. The organization pulled out in December 2011, after the Kinshasa approval, alleging that examples such as Zimbabwe, Venezuela and Cote d’Ivoire violated and undermined the purpose of the KP. Global Witness would claim that nine years after the KP’s launch, consumers could still not be sure of where their diamonds came from, and whether they were financing abusive regimes or armed violence. The JV Anjin was never accused of any wrong doing, unlike other companies, including Mbada. But as investigations by these authors revealed, key members of Mugabe's faction, including Emmerson Mnangagwa, General Constantine Chiwenga of the Zimbabwe National Army (ZNA) and key architect of the opaque Joint Operations Command (JOC), and Colonel Sedze, a senior member of the ZNA, allegedly represent the top military personnel involved in the daily management and operations of another Chinese company mining for diamonds, Anhui Foreign Economic Construction Co. Ltd, via a joint venture with the Zimbabwean government (allegedly represented by an opaque entity, Matt Bronze Pvt Ltd), known as Anjin.


The same month that Anjin, the second company to begin diamond-mining operations in 2009 with a 10,000 hectare claim at Chirasika, declared record outputs of one million carats, General Chiwenga was flown to China for emergency medical treatment. Our sources, speaking to high-level contacts, claimed that these trips were designed to acquire other types of assistance, including military deals, further negotiations on a military academy, and purchase arms for the ZNA.


Anjin would soon discover new deposits in lucrative Chiadzwa, at a location known by panners as “Jesi,” connected to the main plant at Chirasika via a wide gravel road. The excavated gravel is ferried in dumpers to the plant where processing and separation of diamonds is carried out. The company, which had a staff of 188 Chinese nationals and 285 Zimbabweans in 2011, currently boasts more than 30 000 hectares of prospected diamond fields, with 25 years of projected diamond mining forecast.


 



 


Our sources alleged to us that Anjin’s shareholding “was largely a private affair between China and Zimbabwe” but “blatantly evident” was the strong presence of the military. Colonel Sedze, the head of the government’s food relief program for the province (Operation Mugata) was also the head of security at the company.


“Both the head of the human resource department, his deputy and other senior managers at Anjin are active senior members of the Zimbabwe National Army. The command structure in the administration of Anjin diamonds on the part of Zimbabwe is military in nature,” alleged one high-level contact who requested anonymity citing threats to his life.  


In mid-September 2011, the KP sent a team to assess Zimbabwe’s diamond industry. Anjin was allegedly one of the mines scheduled for inspection, part of the agreement negotiated in the DRC, by Mathieu. The company, which has invested—mainly via China—over $300 million did not until recently have a license to export diamonds. But it did claim to successfully relocate families in the area to a new settlement, complete with tapped water and paved roads. Anjin was confident that it complied with the minimum KP requirements.


The company utilizes a dual form of administration: the Chinese manage their own affairs regarding staff management while the Zimbabwean military is tasked with security-related issues. The labor relations between Chinese staff and local Zimbabweans were said to be rife with tension due to China’s ‘importing’ professionals whose qualifications were described as suspect. These professionals were appointed to technical positions including engineers and geologists, and the low salaries paid to such quasi-hires were alleged to have deflated the salaries owed to Zimbabwean professionals, working in the same sector, at the company.


Unskilled workers at the mines were estimated to receive US$88 per fortnight, while semi-skilled received about US$280 per fortnight. Skilled workers, we were informed, received close to US$1000 per month. (At the time, a local geologist allegedly resigned due to poor remuneration).


A high-level source claimed that, “In January 2011 the president addressed the chiefs’ conference in Kariba and briefed them on the situation in Marange highlighting that the company had not started mining diamonds at Chiadzwa but was busy building houses for resettling people at Arda Transau in Odzi.”


Another imprisoned diamond researcher, described by The Economist magazine as a “first class” source, and who has also been labeled a ‘Western agent’ by pro-government newspapers, is Zimbabwe's Farai Maguwu, director of the Marange-based Center for Research and Development (CRD). “Whilst I can't commit myself to mentioning names, our observations indicate that some very senior military personnel and well placed politicians are directly involved in the mining operations of Anjin. The involvement of the army in diamond mining in Marange is the saddest thing that has happened to the find of the century,” he said. Maguwu’s story brings to mind the potential Faustian pact that may link regulation of “blood diamonds”—self-regulated under the KP by governments themselves, who do not qualify as “blood diamond” agents, and that of those charged with regulating the industry, seemingly neutral.


 



 


 How did Mugabe “coup” the KP? Two years ago, Farai Maguwu, head of the Marange-based Center for Research and Development (CRD), was arrested in Mutare for allegedly endangering ‘national security’ by possessing information about the military’s violation of human rights in Marange. Maguwu’s arrest appeared to be contrived: he met with the KP-appointed monitor Abbey Chikane, who arranged for Maguwu to meet him at a place and time coordinated by Chikane, a former South African diamond business magnate, allegedly three days before his KP Fact Finding Report was dated.Maguwu arrived, but so did Zimbabwean State intelligence officials, informed by Chikane. This was despite Chikane, brother of Frank Chikane, former director-general in the Office of the President, claiming that the meeting was confidential. Maguwu believed, and stated publicly, that he had been ‘set up’ by Chikane. Chikane would claim that he allegedly received state security documents drafted by the army, from Maguwu. Maguwu would reveal that Chikane was fishing after said documents at the meeting. “I was arrested on the 3rd of June,” Maguwu stated, “and the conditional sale was agreed in St Petersburg, on July 14, exactly two days after my release from custody.” Some believe that Maguwu was meant to be “out of action” while the conditional sale was being negotiated, inspected by Chikane, and auctioned.


Ironically, Chikane was allegedly not granted a mandate by the KP to assess Zimbabwe’s diamond mining activities at the time for the intention of conditional sale, approved twice in 2010 (of which US$100 million would disappear). But Chikane never had to face the music: despite jeopardizing the KP’s legitimacy, there were no public press statements and no resignations. In fact, there was nothing but congratulations from Mugabe’s government for a job well done.


The KP – ‘Couped’?


Since the discovery of Marange's diamonds in 2006, the military has largely supervised mining. Mass looting by political, corporate and military elites has occurred, accompanied by violent displacement and human rights violations. Companies based in secret jurisdictions such as Mauritius and Hong Kong have been granted "due diligence" approval. There exists complete opacity over volumes extracted, exported, and sold.


But to what extent does the vehement opposition stem from political objections to a nation controlled by the blatantly anti-Western Mugabe? More broadly, was the KP system—propagating that less than one per cent of global diamonds constitute "blood" minerals—built for the purposes of eliminating corporate and state-sanctioned exploitation, or normalizing, and sanitizing it?


Arguably the best thing about the much-lauded and oft-applauded KP system, an international initiative created and backed by governments, multinationals, and civil society organizations to diminish the trade in conflict or "blood" diamonds, is that the KP's very definition of blood diamonds, by default, excludes the world's primary agents of "conflict:” governments. It also excludes the private mining corporations that partner with the governments in developing countries to extract the diamonds.


By default, the KP's definition excludes Zimbabwe as a "conflict" agent.


This is because, according to the KP, "Conflict diamonds means rough diamonds used by rebel movements or their allies to finance conflict aimed at undermining legitimate governments.”


 



 


The KP secretariat did not respond at the time of publication. When asked whether Chikane may in fact have been part of the “gravy train,” ene source close to the KP and active within the system in previous years, stated, ‘It was not clear to me whether Chikane turned Farai in because he was scared by what Farai told him (i.e. for his own safety), or whether it was because he had the kind of connections suggested. Chikane is certainly well connected, very wealthy. He should never have been made KP monitor.’


Ian Smillie, known as one of the world's leading conflict diamond experts and a key architect of the Kimberley Process (KP) said, “We don't know where all the diamonds went that were ‘approved’ by Abbey Chikane. Chikane was a mistake on several levels. He was closely allied with the Government of South Africa, which had demonstrated a pathological inability to be critical of Zimbabwe's horrendous human rights abuse in Marange. “And he has extensive personal business interests in the Southern African diamond industry that should have disqualified him from the outset,” he said.


Smillie stated that while some in the KP perceived Chikane—a past chair of the KP—as an inspired choice for “special monitor,” he was selected only after the KP allowed Zimbabwe to reject one well-qualified candidate (on the basis of his British nationality), and after several other potential candidates claimed, “they would not touch the job with a barge pole.”


Smillie also said that had Chikane been afraid, he could have left the country, and used the information while protecting his source. Alternately, “having turned him in, he should have resigned' after witnessing the response of the Zimbabwean government. Disgracefully, he did neither. And equally disgracefully, the Kimberley Process allowed him to muddle on, approving diamond exports without authority and acting as though what he had done to a human rights activist was acceptable.”


Chikane, he said, examined only diamonds offered for export by Marange companies, specifically whether they were “mined, as stated, in Marange,” citing his terms of reference as a failure of what the KP was meant to stand for and protect against: “It was like checking to see if Tony Soprano was using a crosswalk.”


In his farewell letter, Smillie stated, “there is a basic truth: when regulators fail to regulate, the systems they were designed to protect collapse.”


The Fundamentals Apply


When asked whether the human rights definition should be included into the KP definition, and the possible impacts on Zimbabwe, Milovanovic claimed that the original definition and system, which allows for governments to voluntarily self-regulate what constitutes conflict diamonds, was “doing extremely well.” She further said that when it came to Zimbabwe, “everyone involved needed to know” what the rules were.


 



 


Yet while the KP seeks to present itself as a “neutral” initiative, identifying and regulating a problem strictly located in diamonds, the definition is not only highly political, extremely selective in its approach and subject to the nature of the diamond producing country involved, but also structured in geopolitics extending far beyond the diamond industry. Dirty governments, as the case of Zimbabwe reveals, receive a clean bill of health thanks to powerful protectors, vast reserves, the opaque wheeler-dealer nature of the industry, and foreign policy gaming.


In short, the KP may have nothing to do with diamonds, and everything to do with power, spring-boarding off regulatory gaps such as mandatory independent accounting, democratic rather than absolute consensus, and diamond industry transparency, including that of vaulting per country basis, source countries, and pipeline pricing disclosure. Diamonds should be laser-tagged at source by independent bodies and the system of accountability should extend to polishing hubs and retail counters, rather than remain limited to producing countries. After all, the single channel syndrome that ended the stalemate in Zimbabwe’s favor, began with multinationals such as De Beers, and colluding governments.


Zimbabwe’s Anjin, now the world’s largest diamond producer and Marange’s total area of deposits has been extended from 53, 000 hectares to more than 120,000. If the KP cannot catch up quickly, Zimbabwe’s rise signals the downfall of the diamond industry – for which bride envies a diamond if diamonds possess no inherent scarcity value, and worse still, are likely to be drenched in blood?


 



Khadija Sharife is the Southern Africa correspondent for The Africa Report magazine, senior researcher with the Center for Civil Society (UKZN) and EJOLT initiatives; and Africa project fellow at the US-based World Policy Institute,  and author of Tax Us If You Can (Africa).