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(TALKZIMBABWE) State must promote diamond driven empowerment

State must promote diamond driven empowerment
By: Garikai Chengu
Posted: Thursday, November 18, 2010 11:35 am

AS Zimbabwe prepares to be the largest diamond producer in the world, the State must play an active role in ensuring that the majority of indigenous Zimbabweans are empowered by diamond production.

The State must protect the interests of the average Zimbabwean against entrenched foreign capital interests and corporate greed and corruption. The State can provide such protection in four ways:

Firstly, the State must draft legislation aimed at using indigenous diamond beneficiation as a means of empowering the average Zimbabwean, with particular focus on women, youths, war veterans and the disabled.

Secondly, for beneficiation to work the State must form a State Diamond Trading Company (SDTC). The SDTC's primary objective should be to buy rough diamonds from miners, to sell to local cutters and polishers, in order to boost the downstream sector. Thereby, creating jobs, adding value to diamonds and boosting revenues for government coffers when they are exported at higher prices.
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Thirdly, prior to the State having a hand in empowering the majority through trading and beneficiation, the State must have a hand in helping indigenous small scale miners operate in Chiadzwa through access to claims, equipment, finance and technical expertise.

Finally, for Zimbabweans to fully benefit from the mining, beneficiation and trading of their gems they must know the value, extent and location of their stones. This can be ensured by the formation of the recently proposed State Diamond Exploration Company.

The global value chain of the diamond industry includes exploration, mining, sorting, polishing, dealing, jewellery manufacturing, and ultimately retail. Zimbabwe is able to conduct the first three stages but must focus on mastering the other four. In a nutshell this mastery is beneficiation.

This mastery is crucial because the mark-up value of diamonds increases exponentially as they pass through the links of the global value chain. In fact, cutting and polishing adds around 50 percent to the value of rough stones as well as much needed employment creation.

The world market for rough diamonds is currently valued at $19 billion annually, while the retail diamond jewellery industry is estimated to be $90 billion.

Zimbabwe is set to become the largest producer of diamonds in the world by 2013. The nation is expected to produce 40 million carats per year and earn annual revenues of approximately US$ 2 billion. The importance of focusing on beneficiation lies in the fact that were Zimbabwe to cut, polish and retail the gems internally this figure would quadruple.

As it stands, the government is struggling to deliver services and pay civil servants wages commensurate to their contribution, on a meagre budget of US$100 million per month. Set alongside this, revenues from Chiadzwa have the potential to transform the nation’s fortunes.

Crucial to the rapid growth and success of a beneficiation industry is the formation of a State Diamond Trading Company.

The State Diamond Trader’s mandate should be to purchase a percentage of all rough diamonds mined in the country and resell them to local cutters and polishers. The SDTC is to operate on a cost-recovery basis, passing profit margins on to its clients.

Local firms and craftspeople are then to purchase, cut and polish the rough stones, and then sell them on at market prices. The SDTC must also provide funding to assist with start-up capital for these indigenous small-scale beneficiators.

In fact, according to the Zuma Administration, in the two years that the South African State Diamond Trader has been in operation it has been a boon for the local downstream diamond sector. It has reportedly created thousands of jobs, added millions of dollars to the value of diamonds and thereby boosted government revenues.

Admittedly, there is not as yet a sufficiently large number of people with the requisite skills in Zimbabwe to realise such beneficiation plans.

Therefore, the SDTC should provide for an Indigenous Diamond Beneficiation Fund designed to provide young Zimbabweans with access to intensive training in diamond polishing and cutting abroad. Given the current lack of local cutting schools and traditions, this initiative will bring service and design knowledge back to Zimbabwe, so that the quality of cut diamonds, is up to the industry standards.

Locally, however, for beneficiation to truly empower the majority, thousands of skilled Zimbabweans will be needed to process the gems. Therefore, government must make a firm commitment to creating local schools and institutions to provide the workforce with the necessary skills.

Ideally the vast majority of diamonds bought, cut and sold by indigenous beneficiators will have indeed been mined, sorted and sold by indigenous miners. There is no group more likely to be indigenous, and therefore likely to retain the revenues within the country, than small-scale miners.

However, thus far, only a poultry 5000 hectares of the approximately 66,000 hectares that are potentially diamond rich have been allocated, all to large corporations, most of which are foreign owned and whose primary aim is to satisfy shareholders not the local community.

It is imperative that Government accelerates the provision of diamond claims to small-scale miners as well as provide them with equipment, finance and technical expertise. Preference should be given towards women, youths, war veterans, aids orphans and disabled groups.

This will not only empower the local population, but also provide a broad based catalyst for economic growth. Also, the ratio of societal value in large-scale mining is much lower than in small-scale mining. Small-scale mines employ more people rather than being mechanised, and the ability of small-scale mines to generate employment, income, and entrepreneurial skills in the rural areas can also act as restraint on urban migration.

For Zimbabweans to fully benefit from the mining, trading and beneficiation of their gems they must know the value, nature, extent and location of diamonds across the country. Accordingly, the recently mulled Zimbabwe Exploration Corporation Bill must be enacted.

The Zimbabwe Exploration Corporation's mandate will be to undertake exploration work on all mineral deposits. The company is expected to provide detailed reports on the types of mineral and quantum of each mineral found in Zimbabwe.

Encouragingly, Government intends to achieve 40 percent exploration of Zimbabwe’s minerals next year in order to establish the location and size of deposits by the end of 2011.

Such extensive mineral exploration would provide the State with sound information to attract and incentivise, both local and foreign investors. Primarily because the State would have details on the mineral type, geological nature, quantum and life span of discovered mineral ore bodies.

This comprehensive information is of the utmost importance because, as Mines Permanent Secretary Mr Thankful Musukutwa said, Zimbabwe could use its resources to secure offshore credit lines or sell outright to investors.

By playing an active role in the exploration, mining, trading and beneficiation of diamonds, the State can ensure that the country's most important natural resource empowers its human resources.

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By Garikai Chengu, a researcher at Harvard University's Faculty of Arts and Sciences. He can be contacted at chengu@fas.harvard.edu. The views expressed herein are solely those of Garikai Chengu.

Labels: DIAMONDS, THANKFUL MUSUKUTWA

posted by MrK @ 6:41 PM