Home » Business » Diamond Industry – Is Consolidation the Way to Go?

This year’s Independence celebration message has somewhat been different from yesteryear. In the Independence message, economic agents were urged to honour their loan obligations and were also informed that the indigenisation law was not cast on stone. The corruption monster was also highlighted with heads of most parastatals urged to desist from such value destructing inclinations.

Such statements have been taken by economic players as possibly foretelling an imminent review of domestic economic policies as a way of attaining macroeconomic objectives such as sustainable economic growth, employment creation and price stability.

The Mines and Mining Development Ministry in the same vein also made an announcement last week of its proposed move which may possibly change the face of the local diamond industry.

According to the ministry, Government has formally informed diamond mining companies in Marange that only one or two of them will be left to mine, after they failed to properly account for revenue realised from their operations.

The firms have reportedly not been forthcoming with regards to honouring their obligations to the Marange-Zimunya Community Share Ownership Trust.

Currently there are seven diamond miners in Chiadzwa: Anjin Investments, Diamond Mining Company, Gye Nyame, Jinan, Kusena, Marange Resources and Mbada Diamonds.

The major motivations for the proposed consolidation have been to curb revenue leakages, which are a result of rampant corruption and opacity in the sector.

Though it is too early to tell which firms will survive the chop, the remaining one or two firms will operate as joint ventures with Government.

The proposed joint ventures with private investors are intended to improve accountability and increase revenue to the national treasury.

In light of this announcement by Government through the respective ministry, a million dollar question has been raised: Does Government really need to change the sector’s composition to curb revenue leakages?

In as much as the subject may be broad and open-ended, few areas may assist in addressing this issue.

The first one relates to the nature or structure of the diamond mining industry. In the past five years, Government has allowed numerous players to set up their mines and this explains the reason why seven firms were mining these alluvial diamonds.

Despite the relatively high number of these players to other diamond-producing countries, revenues to the local Treasury have not increased in line with the rising activity.

Such a trend has among other factors seen the Ministry of Finance failing to grow the Government revenue base.

From this end one would be forgiven, even within the policymakers, to aocate for a structure where there are few players.

Furthermore, Government also announced that they intended to mimic the Botswana diamond industry. Botswana is regarded as the biggest diamond producer by value, accounting for an estimated 23% according to Kimberley Process.

In Botswana the state retains a controlling stake in all miners such as Debswana and Botash and this has to a greater extent led to an increase in revenue generation and remittance.

It is from these two areas that a local diamond industry with few players may result in relatively low leakages and subsequently result in economic progress.

While acknowledging such a move, which in the current state is regarded as a step in the right direction, there is need for other areas to be focused so that the Treasury and the economy at large benefit from this industry within the mining sector.

Addressing the opacity in the diamond industry may possibly go a long way in plugging leakages. This is a critical area which the policymakers need to focus on as most investors have lamented the lack of public knowledge concerning the diamond industry.

This has deterred potential investors with pristine balance sheets to inject funding. Accordingly, there is need for policymakers to carry out a comprehensive research study, including the estimated reserves of the minerals and their type.

Zimbabwe is known of being rich in alluvial and kimberlitic diamonds however, quantifying these reserves has been a mammoth task.

Proper research will support the moves by Government to revive this sector so that it becomes a success story such as the Botswana case.

Research is also key for the sector as currently there lies a debate on the amount of alluvial diamonds left.

This debate has been hinged on the fact that production in 2013 was 26,1% lower at 8,91million carats due to election uncertainty which affected most diamond miners.

In addition, most diamond miners also cited that most alluvial deposits in the Marange fields had considerably been depleted in the five years of formal mining in the area.

This led to miners reducing their production as it proved expensive while others did not have the appropriate machinery for underground mining0.

The later reason highlights the inadequate information that diamond players have and with proper allocation of funding towards the industry, planning may possibly be made with much ease and clarity.

With recent utterances of a case-by-case indigenisation approach, policymakers also need to continuously address this area as a way of attracting long-term huge capital.

This area is critical as it may bring in the much-needed funding — not only in the diamond sub-sector — but also in the entire mining sector. Attracting capital will allow growth in the sector as it will assist in the extraction and verification of the total diamond reserve in the economy.

Further to this, optimisation of diamond production and value addition of diamonds not limited to polishing and cutting will also be realised.

Such measures will not only see Zimbabwe increasing its market share but will also results in employment creation and growth in revenues as the industry grows.

Overall, with the possible evolution that is likely to take place in the industry, Government may also need to consider the impact consolidations will have on the existing labour force and investments that were made in the past five or more years.

More so, assuming this move sails through, a win-win situation will be required when cancelling its joint ventures with the various company shareholders it had entered into.

This is critical as a haphazard method may then push away possible investors, not only for the diamond industry but also other key industries.

Policymakers also need to consider skills development, capital attraction and beneficiation as important areas in developing the diamond mining industry.

Source : The Herald