Diamonds have long been treasured as indicators of wealth; the trade in diamonds has ancient roots dating back to the 4th century BC, when diamonds were mined in India and traded throughout the world. Today, South Africa has become the world’s biggest diamond producer, while the city of Surat in India has become the industrial center for the cutting and polishing of these precious gemstones. In addition, the city of Antwerp in Belgium serves as a trading hub for rough, cut and industrial diamonds.
However, the increase in demand for diamonds as commodities (partly due to DeBeers’ exceedingly successful engagement ring campaign starting in the 1930s) has had numerous social and economic implications. Most importantly, the problem of “blood diamonds” (mined in conflict-prone areas) has resulted in the implementation of the Kimberly Process – a production protocol aimed at alleviating human rights abuses in countries producing diamonds.
This news analysis will examine the controversy over diamonds mined in the Zimbabwean Marange fields as well as economic implications for the future of the diamond industry.
In June 2009, Human Rights Watch (an international NGO) released a report alleging that the Zimbabwean military, headed by President Mugabe, used revenues from seized diamond fields in Marange to enrich party leaders and pay soldiers. Diamond revenues have been used to pay restive soldiers whose wages have steadily decreased in value as a result of hyperinflation crippling the Zimbabwean economy.
The New York Times summarizes the history of the Marange takeover:
Zimbabwe’s state media depicted the military blitz, code-named Operation No Return, in the Marange district as a push to restore order in the midst of a lawless diamond rush in the area. But the Human Rights Watch report charged that the military killed more than 200 miners and used the push to seize the Marange fields. Villagers from the area, some of them children, are being forced to work in mines controlled by military syndicates and have complained of being harassed, beaten and arrested, the report says.1
Another report illustrated some of the human rights abuses perpetrated in the Marange fields:
The Kimberley team collected what it called credible accounts of the army and the police using extreme force including [reports of] two helicopters, attack dogs and AK-47s, [used] against illegal miners. Some victims told the investigators that military officers had repeatedly raped them. In one case, the team’s truck approached seven illegal miners carrying sacks of diamond gravel who tried to run away but agreed to talk after being promised anonymity. The miners told the team that they worked for military officers who let them take 10 percent of the diamond proceeds.2
Faced with investigations into their conduct, the Zimbabwean government responded in the following manner:
The information minister, Webster Shamu, of ZANU-PF, said in a telephone interview that the report’s aim was to tarnish the country’s image, block the sale of its diamonds internationally and, “in so doing, deny Zimbabwe much needed foreign currency. […]The whole report is just not true,” he said.3
Furthermore, in a response to the Kimberly team investigation, the Zimbabwean government alleged that the report was an attempt at “criminalizing the government.”4
However, by November of 2009, the Zimbabwean government acceded to international pressures and announced that it would be withdrawing soldiers from the Marange fields. Despite this announcement, an economic backlash followed as key players in the diamond industry boycotted Zimbabwean diamonds. On November 25, 2009, it was reported that the Rapaport Group and the Rapnet diamond trading network issued a trade ban on Marange diamonds, urging other major players to follow suit.5
In addition, the world’s biggest producer of diamonds, DeBeers, announced that it had told its buyers not to deal with diamonds from Marange.6 This moratorium has continued due to fresh skepticism in the Zimbabwean government’s willingness to rectify the situation.7
Such human rights abuses had been the norm in other countries such as Sierra Leone prior to the implementation of the Kimberly Process. However, Zimbabwe is not the only country facing corporate divestment. The war-torn Democratic Republic of Congo has also faced similar concerns. In December of 2009, the International Diamond Exchange (the first online diamond exchange used by dealers and jewelers) reported that:
Gem Diamonds is slowly walking away from its holdings in the Democratic Republic of Congo, announcing on Tuesday that it has completed the sale of its shares in two of its three companies in the country. The sale of the third company is expected to be completed in January 2010.8
The issue of human rights abuses perpetrated during the production of diamonds remains particularly salient. Stringent monitoring by bodies such as the Kimberly Team is needed to ensure that diamonds remain conflict-free.
Future prospects for the diamond trade seem mixed; encouraging news about the recovery of the industry is tempered by concerns over new developments, such as the development of synthetic diamonds. This section summarizes certain key developments in the diamond industry and their implications.
An article from the Jewish Telegraphic Agency in December 2009 chronicles how the Jewish community of Antwerp, once heavily involved in the diamond trade, has been losing out in the global industry:
Most of the low-skilled diamond cleaving jobs have been shipped off to India and elsewhere. In their wake, international businessmen have gained a foothold in the diamond trade, relieving Jews of their once commanding position in the market.9
The societal consequences of this change are numerous, as outlined below:
The change has resulted in an enormous loss of Jewish wealth and vastly enlarged the rolls of Jewish welfare recipients. It also has forced Jews to seek out new means of livelihood Perhaps most significant, it has brought to a close decades of job security during which virtually anyone could, after a few months of training, acquire work that reliably provided the means to support a vital Jewish life.10
This shift in economic power from Europe to other markets has gained attention from national governments seeking to cash in on the lucrative trade. The Indian Business Standard chronicles attempts by the Indian government to turn India into the second Antwerp:
Official sources told Business Standard that even though the Ministry of Commerce and Industry is eager to expedite the issue in order to promote diamond exports, the proposal is stuck with the Ministry of Finance, which cannot afford to offer any more sops at this stage.11
Sabyasachi Ray, executive director of the Indian Gem and Jewelry Export Promotion Council also weighed in on the economics of the diamond trade:
We require a diamond bourse followed by government policies to ensure its smooth functioning. Currently, rough diamonds go directly to the trading hubs. India and Israel are producers of polished diamonds and the market is in the US. But places such as Belgium, China and Dubai are earning billions of dollars being the leading diamond trading hubs. India deserves to get its share.12
Not to be left behind, the Russian government has also begun undertaking measures to ensure its dominance in the diamond market. In May 2009, the New York Times reported that the state-owned diamond agency of the Russian government was stockpiling diamonds in anticipation of higher prices in the future:
Russia quietly passed a milestone this year: surpassing De Beers as the world’s largest diamond producer. But the global market for diamonds is so dismal that the Alrosa diamond company, 90 percent owned by the Russian government, has not sold a rough stone on the open market since December, and has stockpiled them instead.
As a result, Russia has become the arbiter of global diamond prices. Its decisions on production and sales will determine the value of diamonds on rings and in jewelry stores for years to come, in one of the most surprising consequences of this recession.13
Not to be outdone, the city of New York has facilitated the construction of the International Gem Tower in the Diamond District. The 34 story, 750 million dollar project was lauded by government officials and gem traders alike:
“For the first time,” Mr. Barnett, a former diamond dealer [and chief executive of the Extell Development Company, which has taken on the responsibility of this project], told the crowd, “New York City’s diamond district will have an international gem and jewelry center on par with other global markets.”
Hoping to counter any notion that New York is grinding to a halt, Mayor Bloomberg applauded Mr. Barnett’s decision to forge ahead, saying that the tower would provide more than thousands of construction and permanent jobs and help New York City “compete with worldwide gem markets like Shanghai, Dubai and Las Vegas.”14
The multi-billion dollar diamond business represents a significant economic opportunity. However, the relatively tender market for gemstones has been distinctly bear-like in the wake of the financial recession. Despite the initial freeze in diamond sales, the Botswana Gazette reports a possible upturn in global demand. The report quoted the Managing Director of De Beers, Gareth Penny as saying:
Rising unemployment, low expectations of holiday sales and the static price of polished goods in the US are compelling reasons for being cautious about the recovery of the diamond industry. [However] demand for diamonds has been consistently increasing for many years and, as the world recovers from the recession, this trend is expected to continue in the long term, particularly as more high-net-worth individuals emerge in the developing markets of China and India.
At the same time, there have been no new major diamond discoveries in more than a decade, and the growing demand is likely to significantly outpace what is forecast to be lower levels of diamond supply for many years to come.15
Given the expectation of future rewards in the diamond industry, the justifiable angling for dominance by countries such as Russia and India may be of utmost importance in order for these countries to capture lucrative benefits.
However, the market for gemstones may face obstacles due to the emergence of synthetic diamonds as a viable alternative. A December 2009 report by China Central Television highlights the growth of the synthetic diamond industry in the United States, where
Gemesis Corporation in Sarasota, Florida has been growing diamonds since 2002. They specialize in vivid yellow and orange diamonds that are extremely rare in nature. A finished synthetic stone sells for about a third of the price of mined gems.16
Given that synthetic stones are chemically identical to natural diamonds, any growth and developments in this industry would have significant consequences for the gemstone industry at large.
In a related development, the Jerusalem Post reported in December 2009 that artificial diamonds synthesized by the Technion-Israel Institute of Technology were being tested at the international space station to determine if they were suited to future uses in satellites.17 If synthetic diamonds replaced industrial diamonds in such uses, this change would have a significant negative impact on the trade in natural diamonds.
Conclusion
The diamond industry, being large and powerful, has numerous economic and social consequences for countries where diamonds are produced, traded and processed. Human rights abuses in the production of diamonds are still a major concern, despite the implementation of the Kimberly Process. In addition, the industry itself faces a revolution as synthetic diamonds pose a threat to the trade in “natural” diamonds, and as national and local governments vie with each other to cash in.
Diamonds have long been treasured as indicators of wealth; the trade in diamonds has ancient roots dating back to the 4th century BC, when diamonds were mined in India and traded throughout the world. Today, South Africa has become the world’s biggest diamond producer, while the city of Surat in India has become the industrial center for the cutting and polishing of these precious gemstones. In addition, the city of Antwerp in Belgium serves as a trading hub for rough, cut and industrial diamonds. 