The Diamond Industry Essay Example

and Sierra Leone are the main contributors to global diamond production accounting for approximately 65% of total production. Hence it is crucial to primarily focus on African countries when studying the effects of the diamond industry due to their significant contribution as the largest producers of diamonds. (Source: Diamond Facts.Org's "About Diamonds")

The diamond industry has direct impacts on the economic, social, and political structures of a country. To study these effects, South Africa and Sierra Leone were chosen due to their differing standings in these fields. De Beers played a significant role in the development of the diamond industry, both physically and figuratively. In 1870, massive diamond deposits were found in Orange River, South Africa, leading to the formation of Consolidated Mines, Ltd by major investors in the diamond mining sector. De Beers dominated the industry from then on, having incorporated the company in South Africa in 1888 (Epstein1). As the biggest player in the market, the company influenced the economic conditions of African countries, particularly South Africa and Sierra Leone (De Beers Group).

De Beers made significant contributions to funding health services, social development projects, training and skill development programs, building infrastructure, opening business opportunities, and creating jobs in South Africa. However, despite the seemingly immaculate attributes of diamonds and its industry, there is also a dark side. Diamonds have been used as fuel for wars, instigators of human rights violations, regulators of smuggling, and promoters of corruption. This negative aspect has been brought about by bad politics, economic difficulties, and poor management. Sierra Leone and South Africa have both experienced the negative impact of the diamond industry due to rebellion and wars. Illegal activities

by rebel groups and their allies also affected the diamond industry in these countries. (De Beers Group, Brima1)

Exploitation of rough diamonds and purchase of arms using the profits worth billions of dollars gave rise to conflict or blood diamonds (Pomeroi). The rebels resorted to the mining of these diamonds in rural areas to fund their armed conflict. However, this illegal activity caused widespread death and suffering without any regard for humanitarian principles.

The crisis led to the United Nations Security Council instructing sanctions prohibiting diamond import and export in conflict-ridden countries (United Nations 2). To safeguard legitimate diamond trade and prevent human exploitation in diamond mines, an international certification program called the "Kimberly Process" was established in May 2002 (Pomeroi). Collaborative effort from the United Nations, De Beers, African nations, and other major diamond industry players resulted in agreements to end hostilities, disarm fighters, and rebuild national unity (United Nations 5). While the diamond industry has faced negative perceptions, it remains evident that diamonds contribute to economic growth and development reflected in government economic policies of African countries.

South Africa and Sierra Leone have focused their economic policies on extracting mineral resources, particularly diamonds, to reduce poverty and expedite economic recovery. The diamond industry has the potential to bring substantial benefits for both economic prosperity and social/political advancements. Data from these countries shows that the industry is integral to their nations, with positive outcomes outweighing negative implications. African world leaders also recognize its importance and actively participate in it for the benefit of their respective countries. Nelson Mandela emphasized in 1999 how critical the diamond industry was to South Africa's economy and its ability to

advance human rights issues. He recognized that through this industry, African nations could combat HIV/AIDS by funding education and counseling services, testing programs, treatment initiatives, building clinics and hospitals (Diamond Facts).

According to Diamond Facts.Org, South African President Thabo Mbeki acknowledged in 2004 the diamond industry's contribution to enhancing the overall economic welfare of countries and communities. Mbeki identified diamonds as sources of employment, tax revenue, foreign exchange, and other investments. Additionally, President Festus Mogae of the Republic of Botswana recognized the diamond industry's significant role in achieving excellent economic accomplishments in 2006. Mogae noted that diamond revenues benefit people by providing food and water, healthcare services, shelter, and better living environments in his speech (Diamond Facts).

According to Org's publication "The Facts," the diamond industry has the potential to bring economic and social benefits to Sierra Leone and South Africa. Nevertheless, hurdles arise in any industry, and conflict diamonds have been a significant challenge for the diamond industry. Conflict diamonds emerged during Angola's war in 1992.

Jonas Savimbi, leader of UNITA (Uniao Nacional para a Independencia Total de Angola), directed his attention towards the abundant diamond fields of Angola as a means of financing his army and expanding his smuggling enterprise. According to The International Consortium of Investigative Journalists (4), by 1993 Savimbi possessed the world's largest diamond smuggling network, with South Africa's De Decker Diamonds being among his partners. This company had acknowledged selling diamonds to De Beers. The practice of laundering diamonds was also observed in other countries such as Sierra Leone, as stated by Diamond Facts. Org's information on "The Facts".

In 1998, the United Nations launched an investigation into the issue of conflict

diamonds triggered by the violent conflict in Sierra Leone. The UN Security Council responded by imposing sanctions on diamond transactions involving countries facing conflict, which brought global attention to the matter (ICIJ 4). Global Witness, a London-based NGO, later coined the term "blood diamond" to further highlight the issue (ICIJ 4). Meanwhile, South Africa responded to the growing concern by initiating the Kimberly Process, a certification scheme aimed at halting the trade in conflict diamonds and safeguarding its diamond industry (ICIJ 5). The matter gained even greater significance in 2001 when media reports linked conflict diamonds to the Al Qaeda attack on the United States (ICIJ 4). The global community needed to cooperate, not only with South Africa, but with one another if it were to effectively control and eliminate this pervasive problem through the Kimberly Process.

The United Nations, Partnership Africa Canada, Amnesty International, and Global Witness were among the groups that participated in the Kimberly Process alongside the international diamond industry. This marked the first time that a global industry worked with governments and social organizations to address a humanitarian issue ("The Facts" by Diamond Facts.Org). The Kimberly Process was launched in May 2000 and received unanimous support from all members of the United Nations General Assembly by December of the same year (ICIJ 4). The Certification Scheme of the process was also enacted into law by 52 governments by January 2003.

By August 2007, the Kimberly Process had amassed a membership of 74 countries, among them Sierra Leone. This guarantees a 99% worldwide production of rough diamonds that are free from conflict (Diamond Facts. Org, "The Facts"). The Kimberly Process established a global

system wherein the origins of diamonds are identified and documented, all in coordination with the World Diamond Council (ICIJ 5). Any rough diamonds that cross international borders must have a government-endorsed Kimberly Process Certificate and be encased in unalterable packaging. Each certificate must be fraud-proof, featuring a unique number and a summary of the contents within the shipment.

The import and export of rough diamonds are only allowed for members of the Kimberly Process. Those dealing with diamonds must ensure they are Kimberly-certified. When importing, the contents of the shipment should be checked with the Kimberly Certificate by the importing country's customs to prevent illegal trade. Violators of these procedures will face consequences including confiscation or rejection of parcels and possibly criminal charges as indicated in Rapaport. The effectiveness of the Kimberly Process will also be gauged by its ability to prevent the proliferation of conflict diamonds from the source. In 2002, rumors suggested that South Africa was a major center for laundering illicit diamonds, especially in Kimberly, despite not being implicated in the production of conflict diamonds.

This can be attributed mainly to the unexpected discovery of diamonds in areas that were previously considered unproductive. Digging in these areas suddenly yielded significant quantities of diamonds, comparable to those produced by small mines in the past (International Consortium of Investigative Journalists 1). Another contributing factor was the effortless process of selling diamonds at the Kimberly Diamond Exchange, where dealers deemed simple invoices sufficient for transactions.

Dealing with diamonds doesn't require consideration of their origin, as long as invoices are provided to the Kimberly Diamond Exchange. However, proving or disproving the origin of diamonds is challenging, and investigations

in Kimberly haven't resulted in charges for those dealing in conflict diamonds (ICIJ 2).

According to ICIJ (3), the inefficiency of the government regulatory board is likely the most effective fuel for rumors surrounding illicit diamond laundering. The responsibility of monitoring and regulating diamond mining and exportation in South Africa falls on the South African Diamond Board, who neglected their duties when Chris Potgeiter declared diamond sales worth $40 million from areas purchased from De Beers in 1997. However, the areas in question did not contain the wealth described in De Beers' prospecting notes. Additionally, during 1999 to 2001, diamond buyers or bourses reportedly sold $360 to $490 million worth of diamonds to the United States, yet these diamonds were not examined by the South African Diamond Board. Hence, it is suggested that illicit diamonds were being laundered through the bourse (ICIJ 7).

De Beers, being the entity that pioneered the diamond industry in South Africa, was often associated with the actions of diamond authorities due to its prominent status in the industry. As the industry grew, the influence of De Beers expanded and people in key positions within South African diamond institutions were likely to have connections with the company, prompting doubts about its claim of never being involved with conflict diamonds (ICIJ 5). One compelling argument presented was the close relationship between the South African Diamond Board and De Beers.

According to ICIJ 8, the board members and committee heads had a close relationship with De Beers. It was reportedly said that De Beers utilized their political power to benefit the company. Benny Steinmetz, a favored sightholder of De Beers, held a significant influence

in South African politics. Steinmetz was associated with Tokyo Sexwale, a South African congress member who also happened to be a business partner of De Beers (ICIJ 6). Additionally, De Beers' integrity was put into question during the time when the company was purchasing diamonds from Angola throughout the country's war period, until it ended in 1998 (ICIJ 6).

It was difficult to establish the origin of diamonds once they entered De Beers' vault due to opaque operational procedures, which rendered allegations impossible to verify (ICIJ 6). Abbey Chikane, who had close ties with De Beers, led the formation of the Kimberly process, causing speculations regarding De Beers' underlying intentions in participating in the initiative to arise. The prevailing belief was that De Beers aimed at consolidating its grip on the diamond sector, given the increasing competition (ICIJ 7, 8).

In addition to media coverage, the report from the General Accounting Office - the investigative arm of the US Congress - cast doubt on the effectiveness of the Kimberly Process in addressing conflict diamonds (ICIJ 5). This prompted De Beers to change course and begin contributing to the mandate of the Kimberly Process, including the creation of "branded diamonds" engraved with their logo to signify a conflict-free source (ICIJ 5). De Beers also stopped purchasing diamonds from previously warring countries, unless it was guaranteed to be conflict-free, thus distancing themselves from blood diamonds. Cooperation with the United Nations allowed De Beers to actively raise awareness and work towards eliminating conflict diamonds (ICIJ 9).

Several economic indicators demonstrate the validity of African leaders' declaration regarding the crucial role diamonds play in improving economic and social status. Examining diamond production,

the contribution of diamond exports to overall exports, Gross Domestic Product (GDP), and Human Development Index (HDI) provide valuable insights into Sierra Leone and South Africa's economic and social status (Globalis). The diamond export market for these countries is closely tied to their GDP, which serves as a measurement of national income and output. GDP provides a general indication of a nation's standard of living (Investopedia).

Globalis states that the Human Development Index combines education level, health, and standard of living to measure human development. The Human Development Index rankings can benefit national economies, according to Diamond Facts. Org in their article "Making a Difference." However, Levin reports in his study that estimating overall diamond production in Sierra Leone is difficult due to the lack of a geological survey conducted on alluvial sites in the country (6).

Sierra Leone has experienced an increase in diamond exports since 2002, with the highest recorded figure of over $140 million in 2005, surpassing 2004's figure of $126 million. The artisanal diamond sector in Sierra Leone contributes to 90% of the country's total diamond exports, as reported by Gberie in "Money Trail" (1). Legal artisanal diamonds made up a significant proportion of the total diamond export in 2004 and 2005, accounting for more than $112 million and $116 million respectively, as indicated in Table 4 by Levin (20).

South Africa is unique in that it contains all three potential sources of diamonds. Kimberlite deposits account for 90% of diamond production in the country, while alluvial fields contribute 9.2%. The remaining 0.8% comes from other sources.

According to Hazleton, undersea mines contributed 8% of the total diamond production. Meanwhile, South Africa produced an estimated

11.2 million carats of rough diamonds in 2002.

Approximately 8 million carats of diamonds are from kimberlite fields, while the remaining 400,000 carats are estimated to have come from small mines (Hazleton 14). The diamond industry in South Africa also features a distinct characteristic in the form of De Beers. De Beers owns almost 95% of all diamonds mined in South Africa by value (Hazleton 2). In the year 2000, nearly 10...

According to Hazleton (15), De Beers' owned or co-owned companies were responsible for 95.4% of the worldwide diamond production, totaling 3 million carats. Africa accounted for 65% of the global rough diamond production in 2006, as per the Rapaport International Diamond Conference report. Table 1 from the same report shows that South Africa held 11% of the market share, ranking fourth, and Sierra Leone held 1%, ranking tenth (Rapaport Group 26). African countries had a market share percentage of $8 in 2006.

According to Diamond Facts. Org’s report “Making a Difference,” African countries such as South Africa and Sierra Leone produce $5 billion worth of diamonds annually, resulting in $1.5 billion and $0.6 billion respectively. Figure 1 depicting 2005 GDP estimates ranks South Africa highest at $12,160 while Sierra Leone ranks among the lowest at $903.

Between 1975 and 2002, South Africa's GDP per capita experienced a gradual increase. Conversely, Sierra Leone saw progress in its GDP between 1975 and 1990 but suffered a decline from 1990 to 2000. However, the country's GDP picked up again in 2002, reaching $520 compared to $470 in 2000, as per Table 2 (Globalis). While South Africa had a consistent GDP increase, the diamond industry only contributed 0.88% to the country's

GDP.

Although small in size, the diamond industry contributed 8% to South Africa's overall export value (Hazleton 15). Diamond Facts' Figure 2 reveals that South Africa ranked highest on the 2005 Human Development Index, scoring 0.658 points. Conversely, Sierra Leone scored one of the lowest rankings at only 0.298 points.

From 1991 to 2001, Sierra Leone held the lowest position in HDI rankings as a result of the violent civil war that took place during that period (Hazleton 20). Moreover, Sierra Leone's situation was exacerbated by a prohibition on importing rough diamonds imposed by the United Nations Security Council (Diamond Facts.Org, "The Facts"). This ban on diamonds was anticipated to create job opportunities and stimulate economic growth; nonetheless, it added to Sierra Leone's difficulties.

According to Diamond Facts. Org's report titled "Making a Difference," the global diamond industry has provided employment for 10 million people around the world via direct or indirect means. In South Africa, specifically, the industry's workforce is comprised of 28,000 individuals engaged in various activities such as mining, jewelry fabrication, and diamond retailing. This figure accounts for 0.10% of the formal labor sector in South Africa, as noted by Hazleton in their research.

Both Koidu Holdings and African Diamonds plc are among the companies that mine diamonds in Sierra Leone. Koidu Holdings has made a commitment to sharing 20% of its profits with the local community as well as the national social safety net where they mine, which is considered a positive social impact (Diamond Facts. Org, "The Facts"). In the period between March 2005 and March 2006, the Namaqualand Diamond Fund Trust of South Africa was granted $4.

According to Diamond Facts Organization,

Trans Hex Group, a mining and exploration company, has provided 8 million dollars to fund community development projects in support of social empowerment and sustainability.