The Kimberley Process and the Chiadzwa Diamonds in Zimbabwe: Challenges and Effectiveness - Resource Governance

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The Kimberley Process and the Chiadzwa Diamonds in Zimbabwe: Challenges and Effectiveness

A diamond panner attempts to sell a diamond behind the backs of the military and police who demand all sales go through them. Photo by Robin Hammond

July 8, 2010
By Claude Kabemba

Introduction

The diamond boom in Chiadzwa, Marange district that occurred in 2006 coincided with the total collapse of state institutions in Zimbabwe.  This discovery is said to be the largest in the last 20 years. The Chiadzwa diamond rush should be understood in the broader context of the governance problems afflicting Zimbabwe. People from many countries and all walks of life descended on the diamond fields to informally mine and trade in the alluvial diamonds. Initially, politicians in the area encouraged the villagers to dig for the diamonds. However, the government later deployed security forces in Chiadzwa to chase away informal miners. The security forces themselves became involved in diamond panning and trade, forming syndicates to pillage and smuggle diamonds. The state was unable to control and protect the resources. Chiadzwa quickly became a free-for-all and a paradise for illegal diamond smuggling on a scale never seen before in a country not at war. The security involvement militarised and politicised both the extraction and the trade. Reports of serious violations of human rights in Chiadzwa attracted the attention of the Kimberley Process (KP).

The Kimberley Process Certification Scheme

In May 2000 in Kimberley, governments, international diamond industries and a range of civil society stakeholders met to discuss how to track illegal diamonds and stop them from entering the international market. The initiative was officially launched in January 2003. Under the KP, participants are required to export rough diamonds in tamper-resistant containers and provide certificates validating that their diamond exports are conflict-free. The certificate is defined as a forgery-resistant document with a particular format that identifies a shipment of rough diamonds as being in compliance with the requirements of the Kimberley Process Certification Scheme.  Its overall objective is to ensure that conflict diamonds do not enter the legal diamond trade.  The initial target was to stop the sale and trade of diamonds that were used to bolster the coffers of rebel armies and rogue states, but more broadly it has come to be seen as an important tool that seeks to reduce smuggled diamonds as well. 

The KP has played a significant role in reducing the trade in illegal diamonds, especially from war torn countries but it has not stopped it completely. It is estimated that at the time of the launch of the KP, 4% of all traded diamonds came from conflict ravaged countries such as Angola, DRC and Sierra Leone. Since the KP was introduced in 2003, the level of illicit diamonds entering the international market is said to have been reduced to only 1%. 

Kimberley Process intervention in Zimbabwe

With the end of wars in Angola, Sierra Leone and the DRC, the KP seems to have lost its momentum, and the trade in illegal diamonds is increasing again. The KP was put in place to deal with conflict diamonds, and it was designed to deal with diamonds originating in war situations. It seems the KP is failing to adapt and become proactive in dealing with illegal diamonds coming out of countries not at war (such as Zimbabwe). The KP was conceptualised as a reactive and not as a preventive mechanism. The situation in Zimbabwe caught the KP by surprise, and it only intervened late when the situation was already out of hand. The KP sent a monitoring team to Zimbabwe on a fact-finding mission. An interim report recommended a six month suspension of importing and exporting of Zimbabwean rough diamonds.  In general, despite assertions in the KP annual reports and responses to review visits in 2007 and 2008 that internal controls and security measures were to be strengthened, the production and export processes remain largely unchanged in Zimbabwe. The KP plenary meeting in 2009 in Swakopmund, Namibia, on November 5 which focused on the situation in Zimbabwe refused to vote on the case. This was not surprising considering the fact that the KP chair was Namibia and the plenary was being chaired by Bernhard Esau, Namibia's deputy Minister of Mines.

Instead the KP gave the Zimbabwean government until June 2010 to regularise operations in line with the KP requirements. A joint plan was adopted to resolve the issues of the Chiadzwa diamonds. In February 2010, the South African businessman Abby Chikane was appointed as a KP monitor. His final report to the KP found that Zimbabwe has met minimum KP standards and should be allowed to sell its diamonds which were extracted from November 2009 by the two companies Candile and Mbada. However, with regard to goods produced before November 2009 the KP report argues that there is a need to wait for the auditor’s report. At the KP inter-sessional meeting from June 21-23 2010 in Israel, Chikane’s report divided the members into two. The first group constituted by Western countries (Canada, USA and Australia) and civil society rejected the conclusion of the report. Most African countries, especially SADC countries together with China and India endorsed the report and requested the KP to abide by the KP monitor‘s recommendations. Because decisions in the KP are taken by consensus, Zimbabwean Minister of Mines Obert Mpofu returned home empty handed. The KP refused to allow Zimbabwe to sell its diamonds. However, the Zimbabwean government has since decided, following a ministerial meeting, to go ahead with the selling of the diamonds. It is estimated that Zimbabwe has a stockpile of approximatively 4 million carats of diamonds extracted between November 2009 and June 2010. 

The difficulty in the Zimbabwean case is that the KP is faced with a government that insists that it is in control of the diamond trade, despite the fact that information on the revenue being generated from the diamonds is not available and illegal trading continues. The question is how the KP should deal with Zimbabwe?

The situation in Chiadzwa

The ownership of some of the diamond mining claims in Chiadzwa is contested between the government of Zimbabwe and African Consolidated Resources (ACR). The United Kingdom based mineral exploration company obtained the right to mine diamonds in 2006. However, the government of Zimbabwe cancelled ACR's diamond mining licence, arguing that it has lacked capacity to extract, and has accused ACR of pegging. ACR has appealed the sentence. In the meantime the government has offered mining concessions to two private companies (Mbada and Canadile) even though the case has not yet been finalised in the courts. The issuing of mining concessions to the two companies whose ownership structures are not very clear has raised questions as to whether correct and transparent tender procedures were followed, and whether the companies have the capacity and experience to mine diamonds. It has been revealed that one of the foreign investors involved in the two companies, Grandwell Holdings, does not have previous experience in diamond mining, but is involved in waste reclamation in South Africa.

The contracts signed by government with Mbada Investments and Canadile Miners are questionable as they seem to benefit the foreign investors more than the country in terms of profits and revenue distribution. This situation indicates possible corruption, underhand dealings, and political manoeuvring as well as a general lack of transparency and accountability. The Zimbabwean Minister of Mines Obert Mpofu has admitted that he didn’t follow proper procedures when he allowed the two mining firms to operate at Chiadzwa, confirming reports that the mining permits were issued fraudulently. Mpofu was giving evidence at a parliamentary committee hearing set up to investigate operations at Chiadzwa.

Surprisingly, in all this confusion, the KP has been discussing possibilities of granting Mbada Investments permission to sell 2.5 million carats of diamonds mined from Chiadzwa. The confusion which continues to exist as to who has the mining rights in Chiadzwa is also creating an environment for illegal extraction. In the current situation, it seems that no one is in control of the area.

In the meantime, while we are not seeing open conflict in Zimbabwe, a silent violence is taking place in the Marange district. Societal violence is on the increase and it is consuming communities through environmental degradation, water and air pollution, HIV and AIDS and forced relocation which are all causes and consequences of the absence of a responsible government. There have been many deaths in Marange, especially during the operation coded “Hakudzokwi” (“no return”), which was led by Zimbabwean security forces and aimed at the removal of unlicensed local miners in 2008. Other deaths have been caused by the collapse of mines. The discovery of diamonds also brought with it commercial sex workers. According to information obtained by Southern Africa Resource Watch (SARW) during research in Marange in 2009, at Marange Hospital HIV infection has increased since the discovery of diamonds. In May 2010, Chiadzwa’s villagers were under threat of relocation without compensation from the Zimbabwean government. The government, through the District Administrator of Mutare Rural District Council, gave a verbal two-week notice to more than 10 families of Chiadzwa to start preparing for relocation to Arda Transau farm. 

In addition, the silencing of human rights activists working in the diamond sector is a serious concern. For example, the Director of the Centre for Research and Development Trust, Farai Maguwu, was arrested because he exposed some of the human rights atrocities at the Chiadzwa diamond fields. The arrest of Maguwu has demonstrated the vulnerability of the KP and the need for it to evolve and meet new challenges.

Kimberley Process effectiveness in Zimbabwe

Critical questions are now being asked: Are the scheme’s hands bound or is it just unwilling to act? What are the reasons for the hesitant behaviour?

The effectiveness of the KP varies from country to country, but as a rule it is easier to implement in democratic and functional states. These states have the capacity to regulate, monitor and protect the extraction and commercialisation of diamonds. However, it is virtually impossible to implement in countries where state machinery is dysfunctional and resource spoliation is part of an elite culture.

The KP has developed a number of tools that have been designed to facilitate compliance. These tools include regular statistical reporting, annual reports and other verification measures, including review missions to participant countries and ad hoc missions where credible indications of significant non-compliance are detected. From the above, it is evident that what is lacking in the mining sector in Zimbabwe is transparency and accountability, as the majority of the people are not aware of the contents of the mining contracts and agreements signed with foreign investors. The government does not give people information on revenue generated and how it is distributed. Neither do the companies reveal the money they pay to government in royalties and resource depletion fees. Of late, it has been revealed through media reports and parliamentary hearings that for 20 years the government-owned companies have not been declaring dividends to government from mining operations around the country. Revenue from natural resources like diamonds risk being misappropriated and spent on projects that do not positively change people’s livelihoods and spur economic recovery. There is urgent need to improve transparency in the management of natural resources wealth.

Unless Zimbabwe makes a swift transformation to an orderly state, it will be difficult to implement the KP. Corruption is on the increase in Zimbabwe. The absence of the rule of law compromises the implementation of the KP. The systems are so weak that illegal diamonds find their way into Mozambique, South Africa, and Dubai on a daily basis. The Zimbabwean state is not able to produce reliable statistics on which to base an accurate conclusion about the state of the diamond trade. If the KP is to curb the illegal trade in Zimbabwe diamonds, it must be able to trace Zimbabwe diamonds entering another exporting country, but currently the precious stones exit a massive and largely uncontrolled territory. The lack of official statistics reflects the fact that the figures are likely to be so distorted that the government is not prepared to publish production and revenue figures. As a result, it is not clear how much revenue government receives from legal diamond sales. According to the Reserve Bank of Zimbabwe the state loses out on US$1.2 billion worth of diamond revenues per month, money that could be used to fund the country's reconstruction after eight years of economic collapse. While most observers agree the amount is exaggerated - given that global production hovers around an average of less than US$ 1 billion a month - it reflects the lack of government control at the Chiadzwa diamond fields.

Limitations of the Kimberley Process

There are six interlinked limitations of the KP in general, and they all apply in Zimbabwe.

The first limitation is linked to the KP’s voluntary nature. The KP is a voluntary mechanism, which can only be effective with the support and determination of the implementing country. Because of this, its effectiveness is dependent on the goodwill of member states. It seems the KP has no capacity to stop illegal trade if the relevant government is not committed. The illegal trade continues, not because it is difficult to stop it but because officials in the Zimbabwe government are themselves involved in the illegal trade. The KP’s sanction (which is to suspend a member-state) is not punitive as far as officials are concerned, because of the enormous financial return that illegal diamonds give them, it matters little to them whether they are part of the KP or not. In fact the Zimbabwean government has threatened to withdraw from the KP if demonised.

The second limitation is linked to weak state capacity. An effective implementation of the KP is only possible in countries where the state has minimum capacity to enforce regulation, and where the political will exists. It is important to note, however, that the capacity of the state is not determined by peace and democracy alone. The implementation of the KP requires commitment from governments. The political will to enforce the law must be present in order for a government to devote sufficient energy and resources to the initiative. This political will does not exist in Zimbabwe.

The third limitation is linked to the existence of a powerful network of government officials involved in the illegal trade. In a situation where the state is unable to protect resources, foreign and local players use the opportunity to extract resources. The formal diamond trade is being replaced by an informal diamond trade. Despite the state’s efforts to curb the informal diamond trade, it is in fact becoming increasingly sophisticated. The problem of the informal diamond trade in Zimbabwe is exacerbated by the existence of a network of powerful political figures in whose interests it is to maintain the illicit trade. It is impossible for the KP to produce positive results in countries where government officials are themselves preying on the mineral wealth of their countries. This situation challenges the design of a system that focuses on the diamond trade and not on governance within countries.

The fourth limitation is unequal redistribution of resources. The trade exists in this informal form in order to maximise profit by evading taxes that would otherwise be due to the state. Situations such as that which has developed in Chadzwa arise because of deep-seated divisions in societies. One of these divisions is the unequal distribution of resources. The problem of the illicit diamond trade in Zimbabwe is fundamentally the problem of a dysfunctional state. To assume that only illicit diamonds fuel conflict is simplistic. The possibility also exists for legal diamonds to fuel conflict, especially when diamond revenues are not equitably shared among the population, but instead are used to strengthen and enrich a few who are close to the regime. The Chiadzwa diamond rush in Zimbabwe has benefited senior ZANU-PF officials and those close to them. Systematic corruption, economic mismanagement and patrimonial rule (often associated with resource abundance) may fuel political and economic grievances by undermining the state’s legitimacy and by weakening its capacity to perform core functions. The state's failure to put in place natural resource management systems strongly influences the opportunities for non-compliance. This is why governance of natural resources needs to be made a central element of the KP if it is to remain relevant. The KP macro approach - certification and verification - is insignificant in the case of Zimbabwe, when the issues of illegal diamonds are so intertwined with socio-economic conditions. The KP does not deal with issues related to human rights abuses and poverty. But this is the Achilles’ heel. The absence in its mandate to look into issues of distribution of revenues and local socio-economic conditions create difficulties of definitions and scale that have important implications for its efficiency. It is not the presence of diamonds in a country that create conditions for war but unequal distribution of resources and poor socio-economic conditions.

The fifth limitation is linked to the existence of the market of the illegal diamonds. The existence of markets especially in neighbouring countries which are not members of the KP poses a limitation to the effectiveness of the KP. Diamonds are a fungible commodity, which means that they are a particularly attractive means of moving value across borders – i.e. money laundering. As Tim Hughes has argued in the early years of the Chiadzwa rush, “reports of conflict and illicit diamonds seeping into South Africa from the DRC via Zimbabwe are a timely reminder that, despite significant victories, the war on conflict diamonds has not yet been won. In the situation of lawlessness, it is possible that fraudulent KP certificates are being used. The government does not have a system to carefully examine the authenticity of certificates”.

The sixth limitation of the Kimberley Process is linked to the structure of diamond production. The KP has a serious challenge in countries where there are wide and entrenched artisanal mining operations, as in Zimbabwe. In the past three years, most diamond production was by artisanal labourers using simple tools and equipment, and living in conditions of insecurity and poverty. The problem with artisanal mining is not that it is bad, but rather that it is unregulated and disorganised. The absence of any form of organised structure for these miners poses multiple challenges to the KP. Artisanal miners are largely unregistered, and they operate in conditions that make them vulnerable to buyers. They tend to have few livelihood options, which means that they will often sell their stones to whoever comes first. In addition, the distribution channels of diamonds from this sector are not always clear, making it difficult to monitor diamond transactions. The weakness of the KP has been that it focuses more on the trade and export end of the industry, and less on the production of diamonds. The fact that the government in Zimbabwe is incapable of producing reliable statistics is in part a consequence of the high number of under-regulated artisanal miners who are involved in the industry. It is reasonable to assume that plenty of diamonds from the artisanal mining sector go unrecorded through an informal network. The tracking process can only be effective if it begins at the sites of mining activities, including those where artisanal mining is happening under tight security control. However, the situation in Marange does not permit a proper securing of the area for two reasons: first, the area that is supposed to be monitored is extremely large at approximately 70,000 hectares (18% has proven deposits). Second, the area is controlled by security forces which are suspected of trading in diamonds themselves. Also, people are being prevented from accessing the area. For example in early April 2010, police barred a group of 18 lawmakers from the parliamentary committee on mining from visiting the controversial Marange diamond field on a fact-finding tour.  The KP can not be implemented in such a situation of lawlessness.

Resolving the Chiadzwa situation: what role could South Africa and SADC play?

The human rights abuses that are taking place in relation to the Chiadzwa diamonds are not necessarily because of illegal diamond diggers. In Zimbabwe, due to the collapse of governance structures and unprecedented levels of human suffering, it is difficult (if not impossible) to bring normalcy to the Chiadzwa diamond fields. Only when there are strong governance structures and when citizens are paid reasonable wages that can carry them to the next pay day, will Chiadzwa cease to be a hotspot. For as long as there is no accountability over who is benefitting from the diamonds and the increase in poverty the illegal activities surrounding the diamonds in the area will continue because someone will be benefitting from the confusion. South Africa and the Southern African Development Community (SADC) should pressure the government of national unity to become functional. South Africa and SADC must continue to put pressure on all parties to the Global Political Agreement (GPA) to work towards a stable government that is able to discharge its duties without hindrances, including ending illegal trade in diamonds. Equally, SADC should encourage Zimbabwe’s direct neighbours, especially South Africa and Mozambique to put in place a mechanism to prevent illegal diamonds from Zimbabwe entering and transiting their territories.

Certain SADC countries with expertise have to come forward to help Zimbabwe. Namibia sent one expert to Zimbabwe to work with the KP monitor in order to set up a system that is compliant with the requirements of the KP. South Africa is also ready to provide support. One area where Zimbabwe needs immediate assistance is putting in place a system for small scale miners which will include their identification, registration and monitoring of their activities including production and commercialisation. There is a need to develop a strategy that will convince illegal diggers to join the mainstream. While diggers have difficulties engaging with police and the army this would be an opportunity for the Zimbabwean government to work with civil society. Because of the number that is expected to register, it would be strategic to allow small scale miners to form cooperatives which would ease the control burden, especially in production and commercialisation. 

Further, civil society organisations working with the KP in Southern Africa and around the world must mobilise to name and shame what is happening in Zimbabwe with the only objective of ending the scourge of conflict diamonds.

Resolving the Chiadzwa situation: what role for the Zimbabwean government?

The cause of the illicit trade is bad governance in the management of diamond revenues. Smuggling and human rights abuses are simply the all-too-familiar consequences of poor management of resource revenues and distribution. The only way Zimbabwe will be able to stabilise the diamond industry again is through government ownership and control of a domestic resource management system that can be reinforced by the KP mechanism.  In this situation - as in Angola and the DRC - the KP should play a supportive rather than primary role.

The illicit diamond trade will not end unless Zimbabwe introduces fundamental reforms to the structures of resource management. The reform must aim to enhance accountability and transparency in resource management systems. Perhaps this is where the KP’s biggest weaknesses reside: one cannot rely on externally driven mechanisms to deal with a problem which is mainly caused by internal structural weaknesses. In Zimbabwe the system of resource management (including the management of diamonds) are not clear. The Ministry of Mines and Mining Development is responsible for the overall KP implementation and related policy. The Minerals Marketing Corporation of Zimbabwe (MMCZ) remains the KP exporting authority and, in addition, is mandated by statute to sell and coordinate the export of all rough diamonds (and other minerals). In most instances, MMCZ acts as a seller on behalf of a producer or related company, for which it receives a small commission; in some cases, however, MMCZ may also purchase rough diamonds from a domestic producer outright and sell on its own behalf. MMCZ controls the export process for all rough diamonds. MMCZ is responsible for the evaluation of all diamonds prior to export, which results in the breaking of the seals of their original containers. Production from Marange is transported to the Zimbabwe Mining Development Corporation (ZMDC) offices in Harare, where it is sorted and evaluated prior to export. Security measures for the sorting and movement of this production do not appear to be reliable. Tenders are held periodically in Harare for Marange production, with domestic and international buyers participating.

There are five licensed cutters and polishers in Zimbabwe, however, because of certain legal issues, they are not yet permitted to manufacture rough production from Zimbabwe. The MMCZ is not entirely in control. For example, it appears the new mining companies have obtained exclusive marketing and selling rights of the diamonds from Chiadzwa through the contracts they signed with government, and this is contrary to regulations. According to Global Witness the Minister of Mines has led efforts to block oversight of companies, Canadile Miners and Mdaba Investments, by imposing his allies as board members, and sidelining the state mining company, ZMDC.  

Another huge challenge is to demilitarise the Chiadzwa diamond fields. There is a call for all security forces to vacate the area. However this approach is risky. A quick withdraw of security forces could lead to a new diamond rush. Others from the KP have asked the Zimbabwean government to bring in new investors as a security mechanism. However, Zimbabwe, or any other country, should not be forced to sell mining rights without having in place a transparent system for contract negotiations and the capacity to monitor the activities of companies.

Conclusion

In recent years the KP has been accused of losing its vitality and focus. Many people are now asking what does the future hold for the scheme if it fails in Zimbabwe. Zimbabwe has demonstrated by its actions that it does not respect the KP and cannot meet its minimum standards for internal controls and exports. This opposes Chikane’s report, which concluded that Zimbabwe has demonstrated its commitment to meet the minimum requirements of the KP. 

Now, more than ever before, the KP must seriously consider introducing new dimensions to deal with emerging situations. For this to happen the KP is in need of decisive and credible leadership from government, companies and civil society which was not apparent at its inter-sessional meeting in Israel in June 2010.

Equally, the KP should clarify its position on how to deal with human rights abuses linked to the extraction of diamonds. At the KP meeting in Israel the question was raised whether the KP should consider human rights in its work or leave it to other international forums specialised in human rights. It is important to conclude by celebrating the position of civil society that human rights have always been the core of the KP. 

Zimbabwe presents a real test to the KP. But it is not the only country posing serious challenges to the KP. Other countries such as Venezuela and Guinea, which are experiencing diamond smuggling and fraud respectively, pose equal challenges. However, failure in Zimbabwe will send a negative signal about the relevance of the KP and capacity for self-regulation of the diamond industry.

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