Eric Bloch: Zimbabwe bedazzled by diamonds

IN the course of his marathon 2011 national budget statement, Minister of Finance Tendai Biti noted that Zimbabwe’s “diamond industry has huge potential”.  However, he correctly urged against over-reaction and excessive expectation as to that industry’s economic impact, saying that diamond revenues “will not necessarily be the panacea to all the challenges bedevilling” the Zimbabwean economy.

Emphatically, he said that “if we do not tread cautiously and transparently, this natural resource endowment might detract us off track from the necessary but painful initiatives we need to embrace”.

Biti added that Zimbabweans “need to manage expectations with regards to the scope and extent of diamond revenue realisations”.

Ever since the discovery of the Chiadzwa diamonds, there has been widespread hype that they would become the resolution of all Zimbabwe’s economic ills, and that great wealth lay ahead for the country, and all its people.

Most astutely, Biti has sought to bring to all awareness of reality, and that is as economically significant as the diamond resources may be, they are far from a “cure all” for the decimated economy.  He wisely cautioned that reality should prevail, stating that “the current opaqueness with regards to the mining of diamonds and resultant realisations can only serve to raise false expectations and public alarm over the extent of the perceived leakages”.

It is indisputable that the leakages of diamonds from Chiadzwa were considerable, with illicit trafficking of the diamonds across the Mozambican border, and elsewhere, by residents of Chiadzwa, some of the armed forces and politically connected.

But, undoubtedly, perceptions of the extent thereof were, and still are, extremely exaggerated. That that is so is strongly corroborated over past months. Belatedly, government took the necessary steps to curb and contain the unlawful mining and sale of diamonds to the extent that finally, in May 2010, Kimberley Process Certification (KPC) was forthcoming.

Since then, three KPC authorised sales of diamonds have taken place.  The first and second sales were conducted in August and September, generating proceeds of US$56 476 194 and US$29 914 789.  Therefore, total inflows to Zimbabwe from those two sales amounted to US$85 390 983.  Of that amount, US$17 154 745 flowed out of Zimbabwe as dividends (net after non-resident shareholders’ tax), yielding Zimbabwe a net benefit of US$68 236 238.

Obviously, as the diamond fields are developed and their potential fully exploited, these yields will increase exponentially, but not to an extent that will miraculously transform the economy.

Zimbabwe has a national debt of approximately US$6 billion, and in addition, the population as a whole needs to have an annual income of at least US$12 billion merely for all to be surviving at the level of the Poverty Datum Line.

Such an income, and the settlement of the national debt, cannot possibly be forthcoming wholly, or even substantially, from Zimbabwe’s diamond resources.

This does not gainsay that those resources cannot, and will not, yield a meaningful contribution to the economic needs, especially so if regard is given to the employment generation, the downstream economic activity which will flow from the diamond fields exploitation, and the revenue flows to the fiscus, directly and indirectly.

The reality of Zimbabwe’s circumstances is that it must not be bedazzled by the diamonds, even though their exploitation must be maximised.

Concurrently with that exploitation, in a constructive, productive, transparent and lawful manner, Zimbabwe must determinedly address the exploitation of its other resources which have the potential of greatly enriching the economy.

The resource wherewithal is there for Zimbabwe to progressively develop an exceptionally viable economy, with concomitant near total elimination of the widespread poverty and suffering that currently prevails.  However, achieving that development is contingent, first and foremost, upon genuine political will.

The resources are manifold.  Zimbabwe has a land of proven great fertility, capable of sustaining the nation and of generating great export revenues.

This was so for more than  100 years, until a myopic government embarked upon much-needed land reform in the most counter-productive ways possible.

Now, as a major step towards economic transformation, land reform needs to be reformed, with a key priority being the restoration of land tenure.  Concurrently, government has to ensure continuous timeous availability of agricultural inputs, at realistic prices, and that normal market forces drive the prices of agricultural production.

Under the fertile land, Zimbabwe has immense mineral wealth. Not only diamonds, but also gold, platinum, lithium, nickel, chrome, and much else.  Although a not insignificant mining industry exists, it could be many times greater if Zimbabwe desisted from deterring investment through political instability and confrontation, threatened “indigenous” domination of and supremacy over investors, excessive direct and indirect taxation, defective parastatal services, and other investor deterrents.

The manufacturing sector also has gargantuan potential, and particularly so in fields of value-addition to the high quality primary products that Zimbabwe can produce. But the development and growth of the manufacturing sector is greatly dependent upon substantial investment into it, and the deterrents to mining sector investors apply similarly to those interested in investing into manufacturing. Without downplaying those deterrents, foremost issues requiring resolve include reliability of energy supplies, ready access to working capital, and resolution of the prevailing confrontational relationships between employers and labour.

Yet a further economic growth opportunity is tourism.  Zimbabwe has vast wealth of remarkable, world-renowned tourist resources, waiting to be exploited to a greater degree than has been the case.  But investment into tourism requires the same conducive
environment as apply to the other economic sectors, concurrently with restoration of Zimbabwe’s international and regional image as an attractive, safe and secure investment destination.

If government would, at last, give recognition to facts, instead of recurrent submission to megalomaniac and paranoid hallucinations,  and would genuinely strive to transform Zimbabwe constructively, all its economic sectors would be diamonds. They would be jewels in the crown of a vibrant economy.

 

Eric Bloch

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