A NEW report on diamond mining says Zimbabwe has lost billions in revenues through illicit parallel market activities, including price manipulation and pillaging, deflating official feverish claims at this week’s World Diamond Conference in Victoria Falls that Western sanctions were the main reason for rampant leakages.
Report by Tendai Marima
President Robert Mugabe told more than 3 000 delegates at the conference on Monday sanctions had mainly negatively impacted on Zimbabwe’s diamond sales.
“The diamonds have been marketed at depressed prices owing to a negative buyer perception resulting from these illegal sanctions. I do not even know why they exist,” Mugabe said.
However, a Canadian non-profit human rights organisation, Partnership Africa Canada (PAC) released a report titled Reap What You Sow: Greed and Corruption in Zimbabwe’s Marange Diamond Fields, saying at least US$2 billion in revenues had been lost through corruption and a parallel-pricing of Zimbabwe’s gems in international markets in the past four years.
“Conservative estimates place the theft of Marange goods at almost US$2 billion since 2008”, the report says. It notes although the drop in global prices could partly explain why diamond revenue has declined, there is a sophisticated parallel market in Surat, India, selling diamonds for a higher price.
The majority of the Marange diamonds are sold in India for less than US$100/carat while on the parallel market the stones fetch more than US$100/carat for the benefit of Zimbabwe’s political elite.
“In recent years the average price of legal Marange goods dropped from US$80-$90/carat in 2011 to between US$50-$60 in late 2012. Some of this may be legitimately explained by a worldwide drop in rough prices, yet the same goods have been noticed miraculously exiting Dubai trading houses for sister-owned factories in Surat with an average value of US$100-$105/carat.” the report says.
PAC says price fluctuations have affected diamond revenues, but also underscores a sophisticated price-manipulation scheme, run by Indian buyers and their Zimbabwean partners-in-crime, is depriving the country of millions.
PAC further alleges in 2010 government signed an exclusive US$1,2 billion deal with an Indian company, Surat Rough Diamond Sourcing India Limited, to supply diamonds under shady circumstances.
According to the report, the deal was overseen by Mines minister Obert Mpofu who is said to be good friends with Asit Mehta, the head of Surat Rough Diamond Sourcing. Mpofu was unavailable for comment.
“Asit Mehta is the driving force behind the Surat Rough Diamond Sourcing India Limited (SRSDIL), a consortium of companies, which signed a US$1,2 billion deal with the Government of Zimbabwe in October 2010 to obtain exclusive access to Marange diamonds,” the report says.
“The deal signalled Surat’s willingness to court Marange diamonds, despite the Kimberly Process (KP) ban and associated reputational risks. Mehta is known to have visited Mpofu in Zimbabwe at least six times between September 2010 and April 2011, and personally chaperoned the minister around Surat on several of his trade missions there.”
PAC report also draws attention to discrepancies in tax and royalty structure paid by Zimbabwe’s diamond mining companies.
According to the report, firms should pay up to 33% in mining taxes.
“Technically, the tax and royalty structure in Zimbabwe requires mining companies to pay 15% royalties, plus an administration fee of 0,875% to the MMCZ (Minerals Marketing Corporation of Zimbabwe) (not Zimbabwe Mining Development Corporation ‘ZMDC’ or Zimra) prior to export. All other taxes (corporate and withholding taxes for example) are only due at the end of the fiscal period, after calculating a company’s net profit. When all is told, however, deductions would amount to approximately 33%,” it says.
Finance minister Tendai Biti told parliament early this year Zimbabwe ought to get at least 75% in taxes and revenues from firms, in which government has a 50% stake, operating in Marange.
He complained of under-remittances by firms such as the Chinese-owned Anjin Investments (Pvt).
ZMDC chairman Godwills Masimirembwa last week said the diamond industry is this year expected to contribute only a quarter of the US$600 million Treasury had projected.
While 2012’s US$4 billion budget was based on projected diamond revenues of US$600 million, Biti was forced to revise it downwards to US$3,6 billion during the fiscal policy review in June as a result of low remittances.
PAC says US$600 million could have been lost through small scale miners and estimated that a further 60 000 carats/month are lost through illegal mining.
“The scale of illegality is mind-blowing,” the report says.