May 28th 2009
From The Economist print edition
Diamonds are a luxury, but not to some of the world’s poorest who mine them
THE people of Sierra Leone’s Kono district, in the east of the country, know all too well about diamonds — for better and for worse. In the 1990s, the drugged-up rebels of the Revolutionary United Front controlled Kono’s mines by means of rape, murder and mutilation. When that bloody civil war ended in 2002, mining companies replaced the rebels but brought their own problems. The largest firm, South Africa-based Koidu Holdings, was pitted against locals over blasting schedules and environmental issues. Small-time local miners, little more than licensed freelancers prospecting by hand, were disappointed to find that most of the mines near the surface had been exhausted. The jobs, the volume of production and Kono’s cut of tax revenue from exports disappointed almost everyone. “Progress in Kono has not been commensurate with expectations,” admits Ibrahim Kamara, who runs a kimberlite project for Koidu Holdings.
Such are the growing pains of a nascent industry in a dirt-poor African country. Yet Sierra Leone’s diamond mining has shown promise. Exports ballooned from a mere $26m in 2001 to $141m in 2007. Taxes on diamond exports helped finance the country’s post-war reconstruction; a quarter of the 3% tax on sales paid by artisanal miners, as the local small-timers are known, is returned to the people who live around the mines. Bigger companies, such as Koidu Holdings, have negotiated profit-sharing schemes that will benefit the locals once the mines start making money.
But now that virtuous circle may be broken by the collapse in the past ten months of world diamond prices, which have plummeted by nearly one-third. The country will be lucky to export $50m-worth this year. From Australia to Botswana and Canada, the industry is in the doldrums. Over the past few months De Beers, until recently the world’s biggest diamond producer, has seen the value of its “sights” – carefully calibrated sales of rough diamonds to a handpicked club of buyers called “sightholders”- fall from an average of $650m to a recent low of around $150m. In response to collapsing demand, mining companies have been temporarily closing mines or reducing production. This does not hurt countries such as Australia and Russia all that much. But it squeezes poorer ones, particularly in Africa, very hard.
Earlier this year, for instance, De Beers temporarily shut mines in Botswana and Namibia that it owns in partnership with those states. At least three-quarters of the companies in Namibia’s young cutting and polishing industry have closed. “We are suffering quite severely because of job losses,” says Bernhard Esau, Namibia’s deputy minister for mines. In India, home to the largest diamond cutting and polishing industry in the world, at least 100,000 diamond polishers are out of work. America, where half of all polished diamonds are eventually sold, is importing less than half the volume of polished diamonds compared with a year ago. “Diamonds are not necessary to live or to survive. It’s a luxury product,” said Philip Claes of the Antwerp World Diamond Centre, the industry’s leading promotional organization. “So it’s the first thing probably that consumers skip on their lists.”
But Sierra Leone relies on those consumers to help prevent it from slipping back into chaos. When Koidu Holdings temporarily halted operations and laid off 540 people, leaving only 60 in work, it was especially nerve-racking. For Kono has the highest concentration of former rebel fighters in Sierra Leone. Despite political stability and fairly harmonious elections since the war ended, the conditions that led to it still prevail. Back in 1991, the rebels gained early if short-lived support by arguing that a country as mineral-rich as Sierra Leone should give all its people a decent living. Yet it was at the bottom of the UN?s human-development index when the war started?and is still at the bottom. There is ?a time bomb of frustrated, disenfranchised youth?, says Joan Baxter of Partnership Africa Canada, a charity.
The diamond slump may have reached its bottom. The De Beers latest sight, last month, was worth around $250m, up on previous months. Some mines in Botswana have cautiously resumed operations. In Sierra Leone, Koidu Holdings says it will rehire a few hundred workers as the market improves. None of this is a guarantee against unrest. But a return to the diamond-fuelled warfare of the 1990s seems unlikely soon. For one thing, even rebels would have trouble finding a market for ill-gotten gemstones at present.
Besides, the diamonds’ recent lack of lustre may bring unexpected benefits. Many artisanal miners are going back to farming. In a country where food prices have doubled in a year, this is welcome. And companies are looking for other minerals that Sierra Leone has in abundance, such as gold, bauxite and rutile, a mineral that is used — among other things — to brighten the whiteness in paint, plastic and paper. In the longer run, a bit of diversity may be healthy.
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May 28th 2009