PSYCHOLOGICAL scars of the violence that visited thousands of villagers in and around the controversial Chiadzwa diamond fields were reopened last week after State security agents were deployed to enforce a government directive that saw all companies which used to extract gems from the claims being shut out of the area.
This time around, it was not the 50 000 illegal diamond panners who were driven out of the world’s eighth largest gems fields as was the case about six years ago.
It was the nine companies that had been granted permits to exploit diamonds in Chiadzwa from 2009 that were on the receiving end of government’s often haste and ill-calculated heavy-handedness.
Mines and Mining Development Minister Walter Chidhakwa took the opportunity presented by the expiry of the companies’ operating licences to pull the plug.
Chidhakwa had spent about two years trying to arm-twist these companies to accept a take-it-or-leave it arrangement whereby they were to be swallowed into a purported “joint venture”.
Government argues that the compulsory merger was the only way through which it could enhance transparency in the running of the diamond fields as well as plugging loopholes that had led to smuggling, fraud and tax evasion.
The nine affected companies that include Mbada Diamonds, Anjin, Diamond Mining Corporations, and others, were last week caught flatfooted.
At the stroke of the pen, they have been left with equipment worth several millions of dollars, which now lies idle.
Some of these companies had valid commitments with their suppliers and bankers, which they can no longer meet now that they have been kicked out of business.
Interestingly, the State-run Zimbabwe Consolidated Diamond Company (ZCDC), which was all along meant to go into joint ventures with the private diamond mining firms, is yet to be established.
In the meantime, at least 5 000 workers who were dependent on the nine diamond companies that have been stampeded out of Chiadzwa, have been thrown out of employment.
Looking at it from another perspective, it means that a combined 30 000 people have been condemned to downright poverty, if the families of these affected employees are to be taken into account.
In the coming weeks, these affected workers will face a cruel world outside the diamond fields.
There is serious gnashing of teeth countrywide already following the emergency of the ruthless El Nino weather phenomenon this year, which has caused a drought.
Three million people are facing starvation and the cash-strapped government has to scrounge around for US$1,5 billion to buy food aid.
With those in Chiadzwa losing their jobs, the number of families in need of government support can only grow.
Economist, John Robertson, said the authorities have created a very unstable and threatening investment environment by being hostile to business.
“No matter which sector you invest in in Zimbabwe you will be interfered with,” said Robertson.
Sentiments by Robertson are being echoed internationally.
Reuters, a global news agency, noted last week that the latest move by President Robert Mugabe’s government could further tarnish the country’s image as a risky investment destination, with investors already unnerved by his drive to force foreign-owned firms to sell majority shares to locals.
In a way, these sentiments are spot on.
Investors have been skirting the country, as can be gleaned from figures from the Zimbabwe Investment Authority.
Also, there has been lack of transparency and accountability in the running of the Chiadzwa diamond fields.
Observers believe millions of dollars, which were meant for the fiscus, could have gone into the back pockets of individuals.
In 2014, about 4,7 million carats of diamonds were extracted from the fields, but only US$23 million was received in royalties.
This demonstrates the depth of lack of accountability on the part of State actors overseeing this critical area. It also reinforces suggestions that something untoward could have been going on.
The operations of these mines had remained clouded in secrecy ever since they moved into their claims, with government taking up about 50 percent shareholding in eight of them except Marange Resources, which is 100 percent State-owned.
The nine diamond companies also invited this upon themselves.
There was a sharp decline in taxes and fees due to government despite robust growth in production levels between 2010 and 2013.
At least US$1 billion in potential revenue due to government was being salted away because those entrusted to manage the diamond resource had either failed in their stewardship role, or were colluding with shadowy dealers.
In 2012, mismatches between government’s revenue projections from diamond mines and actual remittances hit US$555 million, while in 2013 Treasury received nothing out of the US$61 million originally earmarked to be earned from the diamond fields.
Yet output from diamond mines rose by over 500 percent to over 12 million carats in 2012, from about 1,3 million carats in 2009.
Revenues from the sector were expected to track the robustly growing output, but, instead, they declined.
Official statistics indicated that royalties from diamonds retreated by US$12 million to US$22,5 million in 2011, from US$34 million in 2010.
“There has been a steady decrease in terms of non tax revenue contribution by mining companies from 2010 to 2013,” the Zimbabwe Environmental Law Association (ZELA) said.
In a report, entitled; “Tracking the Trends: An assessment of diamond mining sector tax contributions to Treasury with particular reference to Marange diamond fields,” ZELA warned of extensive pillage of the gems through the manipulation of taxes and related fees.
The increase in diamond production and the number of companies operating in Marange has, regrettably, not been matched by a corresponding increase in diamond non tax revenue contributions to Treasury.
During the same period when diamond resources were not transparently managed, a few connected people have been amassing wealth from the resource.
There has been luxurious spending inside the corridors of power which could be linked to these leakages.
“There has been a significant expenditure by individuals and firms linked to Marange (Chiadzwa) including expenditure on luxury apartments and houses, even high rise buildings in South Africa and substantial investments by certain individuals connected to the Marange operations in many areas of Zimbabwe, including the purchase of buildings,” observed former legislator, Eddie Cross.
The Consolidation of diamond firms has worked in other jurisdictions.
In Botswana, where a joint venture along these same lines has functioned for many years, the State receives two thirds of gross sales, noted Cross, who has carried out independent investigations in Zimbabwe’s diamond fields.
“Education is free and the people do not pay personal taxes. Botswana has an income per capita today of nearly US$9 000 (2012) and is rated a middle income country. Zimbabwe has an income per capita of just US$390 in 2012 and is rated one of the poorest countries in the world,” Cross said.
He criticised at government’s refusal to take up an offer by African Consolidated Resources (ACR) in 2006 to consolidate diamond mines.
Had government agreed to ACR’s offer, this could have created a workable model for Zimbabwe.
Now, the frenzy of networks created by a mish-mash of mostly shadowy investments has made it difficult for the country to enforce the complex consolidation strategy.
“ACR proposed a similar arrangement to the Ministry of Mines for the exploitation of the fields as that used in Botswana through a joint venture between the State and De Beers mining company. In their proposal, ACR suggested that a new company be formed with the equity held by both the Government of Zimbabwe and ACR in the ratio of 50/50 – with ACR being responsible for management and all mining activities. Such an arrangement would have meant that over 70 percent of the revenues from the diamond fields would have accrued to government. For unknown reasons, this proposal was rejected by the Ministry of Mines and ACR was forcibly removed from the claims which were then taken over by the Zimbabwe Mining Development Corporation, even though they had no expertise or the required capital to exploit the discovery,” notes Cross.
What is important to note in Zimbabwe’s case is the involvement of government in the proposed nationalisation of diamond operations.
With a poor track record of managing parastatals, very few would be happy to partner government in any business.
Even now, private firms are resisting government’s overtures for partnerships.
Yet this is seen as the only way out of the plunder of diamonds by an elite few which has persisted for many years.
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