Zimbabwe – Corruption in the Diamond Fields

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The government puts a stop to diamond mining and mulls nationalisation as it emerges that billions in revenue has been lost.

On February 22nd diamond miners in Marange were given a 90-day ultimatum to end operations, due to their rejection of proposals to amalgamate the industry. Mines Minister Walter Chidhakwa said in March that all mining operations would be placed under a single company, in which the state would have a 50% share.

The latest move comes after President Robert Mugabe publicly acknowledged US$15bn in lost revenue from the mines, and has declared a nationalisation plan for the industry, although opposition groups and others have called for his resignation, reported NewZimbabwe. 

Already, in Marange, the government owns a 50% stake in six firms; Anjin Investments, Diamond Mining Company, Jinan, Kusena, Marange Resources and Mbada Diamonds. The new entity, Zimbabwe Consolidates Diamond Company (ZCDC), is expected to embark on underground mining operations once fully capitalised, reported the Zimbabwe Independent.

The Marange diamond fields are a widespread area of small-scale production in Chiadzwa, Mutare West. Chiadzwa was the controversial scene of operations to drive out 50,000 illegal diamond panners in 2010. This time as many as 5000 formal employees have lost their jobs and security forces have been deployed to clear those who refuse to leave.

Despite a security presence, looting continues to be rife and there is an ongoing legal battle with some miners who are resisting expulsion. In some areas a new form of business is emerging where those with connections to security personnel are charging others for “protected” access to the fields. Some of these diamond panners are arrested but the majority of them evade the authorities, reported the Financial Gazette.

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There have been widespread allegations of a lack of transparency within the Zimbabwean diamond sector. Analysts believe that much of the potential revenue has been siphoned off by elite individuals; in 2014 4.7m carats were extracted but only $23m received in revenue.

In 2012 output from diamond mines reportedly rose by 500% to 12m carats, and revenues were expected to follow, instead however they declined, with royalties decreasing to $22.5m in 2011 from $34m in 2010.

A report entitled “Tracking the Trends: An assessment of diamond mining sector tax contributions to Treasury with particular reference to Marange diamond fields,” warned of extensive pillaging through the manipulation of taxes and related fees.

On March 6th sacked former Vice-President and now leader of the opposition Zimbabwe People First (ZPF), Joice Mujuru, caused uproar after he melodramatically claimed that India has built a whole town from smuggled Marange diamonds; Surat in Gujarat, India, is considered the world’s largest diamond cutting and polishing centre. The flow of cheap illegal diamonds was crucial due to a 20% price hike through formal channels.

The opposition Movement for Democratic Change (MDC) has demanded that Minister Chidhakwa must publish figures justifying the closure of the mines. “It is illogical for a government to close down mines and throw people into the streets without a convincing explanation,” said MDC spokesperson Kurauone Chihwayi.

“We are very much disturbed by the lack of transparency and accountability in the administration of natural resources by the Zanu PF government which has a bad tendency of prevaricating when caught engaging in criminal activities,” said Chihwayi.

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Activists and the opposition accuse the Zanu PF government of channelling resources towards the elite and its internal political fights. New Zimbabwe cited figures that claimed that the country earned $60m from 960,000 carats sold in Dubai, whereas Angola earned $117m from 780,000 carats.

According to the Zimbabwe Independent, the fact that President Mugabe has declared $15bn in potential losses, is the “clearest indication yet” that he does have the interest of the country and people at the centre. In 2008 Finance Minister Tendai Biti repeatedly warned over the looting of diamond revenue.

In 2009 a Human Rights Watch (HRW) report, ‘Diamonds in the Rough: Human Rights Abuses in the Marange Diamond Fields of Zimbabwe‘, the group accused the Zimbabwean regime of abetting illegal mining, with the Minerals Marketing Corporation of Zimbabwe (MMCZ), encouraging toleration if illegal activities.

Finance Minister Patrick Chinamasa, commenting on the proposed nationalisation, stated that all revenue will now go straight to the treasury. However the plans has been noted to likely put off many investors; with such a poor record of managing parastatal enterprises, very few would be happy to partner with the government, reported the Financial Gazette.

For a country with a budget of $4bn, of which 30% comes from diamond mining, the proposed move to nationalisation has important economic significance. However, the concerns are that it is largely the regime itself that is responsible for the corruption, both directly, and in driving the incentives that encourage citizens to seek risky, precarious, informal and often illegal employment. The Zimbabwean even commented that nationalisation plan could be understood as the next stage in Mugabe’s utilisation of corruption in the mines for his own gain.

Find out more in the Africa Research Bulletin

ZIMBABWE: Deflation Fears
Economic, Financial & Technical Series
Vol.52, Issue.12, Pp.21100C–21102A

COMPANY BRIEF: Mining
Economic, Financial & Technical Series
Vol.52, Issue.6, Pp.20901A–20901C

DIAMONDS: Zimbabwe
Economic, Financial & Technical Series
Vol.51, Issue.12, Pp.20685B–20685C

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