Diamonds: New Economic Powers Fight for Control

Concerns over the Marange Diamond fields in Zimbabwe are growing. The fields are home to the infamous ‘blood diamonds’ used to fund ethnic warfare and genocide. The Kimberley Process Scheme (KP) was created to certify diamonds that were ‘conflict free’ because of the human rights violations in African nations such as Zimbabwe and the Democratic Republic of Congo. The ability of the Kimberley Process to effectively deal with such concerns has been called into question by Zimbabwe’s government. China is looking to increase its diamond polishing sector, which only produced $3 billion in exports in 2009 compared to India’s $17.5 billion in exports. It seems a fight is brewing between the world’s two fastest growing economies, China and India, over control of natural resources.

According to new reports, a deal has been struck between Zimbabwe and the Chinese Government to supply weapons in exchange for a steady supply of diamonds. China, looking to grow its diamond processing industry, is reportedly sending military soldiers to oversee the operations. China, which has a long history of human rights violations, may not have many concerns over the Kimberley Process, and domestic consumers of stones seem to care little over the origins of the gems.

Recently the mines minister for the government said: “If the KP is unsatisfied with our efforts and wants to be difficult, saying that we have failed to comply with their requirements…we will not lose sleep, but rather, we will just pull out and not lose anything,” as previously reported on Diamond Investing News.

This reluctance to work with the KP and cut down on human rights violations to ensure stones are conflict free is calling into the question the validity of the KP to effectively change anything. New reports are claiming that Zimbabwe’s government is secretly giving mining permits to soldiers of the Chinese military.

“The idea of hiring members of the Chinese army in mining Zimbabwe’s diamonds stems from relentless squabbles among politicians and interested parties over the Marange diamonds. Gen Chiwenga believes that with the disciplined Chinese army, mined diamonds will be easily controlled for his benefit and those close to President Mugabe,” reported The ZimDiaspora,a Zimbabwean news organization.

The deal between Mugabe’s government and the Chinese is supplying the struggling African nation with weapons. The report went on to state: “It has also been confirmed that Zimbabwe, whose foreign currency reserves are at its lowest, also barter diamonds for weapons with Chinese defense industries.”

On top of the deal with China, reports from human rights organizations show that up to 2000 carats worth of diamonds are being smuggled out the country, avoiding KP certification. “According to human rights groups, around 2,000 carats of Zimbabwean diamonds are smuggled out of the country each day… Given the militarisation of the diamond fields and continued reports of violence in the area, these illicit movements of diamonds compromise the legitimate international trade in KP-certified diamonds, and are a clear signal that Zimbabwe is no longer able to control its diamond exports,” stated a Commodity Online report.

This new development may have major effects on the world diamond market. China is the second largest consumer of diamonds in the world, and with the increasing use of diamonds as wedding stones, they may move quickly into the number one spot. China is one of the main consumers of India’s diamond industry, responsible for up to 60 percent of the diamond processing market. In 2009, India exported $17.5b worth of stones; this year, with the recovery of the diamond industry, the number should be much higher.

“The scramble for African diamonds reflects intensifying competition between the world’s fastest-growing large economies for natural resources, particularly energy, minerals and land. China wants to develop a competitive cutting and polishing industry as domestic demand expands. India sees this as the biggest threat to their country’s 60 percent share of the world’s diamond cutting and polishing business,” stated James Lamont, for the Financial Times.

India’s diamond industry has been lobbying the New Delhi government to combat China’s efforts to secure supply lines by providing Zimbabwe and other diamond producing African nations with medicines and infrastructure projects. The Financial Times report quoted Vasant Mehta, the Chair of India’s Gem and Jewellery Export Promotion Council: “some Indian companies had already done barter deals with African mining companies, exchanging diamonds for help in setting up polishing factories.”

Surat, India’s diamond polishing industry, looking to secure rough stone supply has made deals with Russian diamond giant Alrosa, and may be looking to Canada’s diamond miners for increased supply. “There are some diamond manufacturers, who are keen to invest in the diamond mine projects in Canada. This will open up new vistas for Surat’s diamond industry,” stated Rohit Mehta, President of the Surat Diamond Association. A meeting is set for July to negotiate a deal for rough stone supply.

“Canada is one the world’s largest rough diamond producing countries and we are keen to have some tie-up with mining companies there which will allow us direct imports of roughs… A delegation of the association will visit Canada to try and enter into direct import pacts,” said Rohit Mehta.

Which companies stand to profit from any deal with Surat’s diamond industry is still unclear because of the pact with the Diamond Trading Corporation, an arm of De Beers. Large Canadian diamond mines trade through the DTC, which controls rough stone trading with a monopolistic power.