For many years the world has been aware that “Diamonds are forever!” This stemmed from advertising by De Beers, who for a long time were the world’s largest producer of diamonds.
Opinion by Eric Bloch
It is correct that diamonds are virtually indestructible. But this has no substance for those who believe that a country’s diamond resources are of endless availability.
Ultimately, all that can be extracted from the diamond fields will have been taken out and the resource will cease to exist.
That was wisely foreseen by Sir Seretse Khama when diamonds were discovered in Botswana, whereupon he vigorously sought that that country’s diamond revenues should be applied to the development of other economic resources, to assure the country’s continued economic wellbeing as far as possible once the diamond fields had been fully mined and denuded of their deposits.
There is also a grievous misconception that the finding of diamond fields is an immediate trigger for bountiful national wealth.
That can be so, depending on the magnitude of the available diamonds and upon the available quantity thereof over a period of time, but this cannot be the fuel for vast economic transformation overnight.
And yet that has been the general misconception by the Zimbabwean government and the majority of the populace following the discovery of the Marange and Chiadzwa diamond fields.
Although some diamond resources in Zimbabwe have been known and exploited for many years — near Zvishavane and in the district of Beitbridge — it cannot be gainsaid that the finds in the eastern districts, a few years ago, were of far greater magnitude.
Moreover, there are almost undoubtedly other diamond fields in Zimbabwe that are yet to be identified and exploited.
Immediately following the discovery of the Chiadzwa diamond fields in Marange, a nationwide anticipation of an economic metamorphosis developed within the corridors of government among the residents of the eastern highlands, and to a very significant extent within other economic sectors, and amongst the population in general.
But, as yet, that has not happened, and it was an immense misconception of most to have expected that to occur instantaneously.
This erroneous expectation was especially pronounced in government in general, and within the Ministry of Finance in particular, and demonstrated a total absence of appreciation of realities.
First of all, before substantive extraction of the diamonds could be achieved, the diamond fields had to be developed, entailing considerable time-consuming labour and very considerable expenditures on development and equipment.
Secondly, customer markets had to be accessed and reciprocally beneficial relationships cultivated. Doing so necessitated vigorous constraints to contain inevitable misappropriation and smuggling of the diamonds, which was irrefutably existent from the moment of the first discovery of the diamond fields.
At the same time, in order to deal and transact with reputable and up-market diamond customers, it was a prerequisite that Zimbabwe attain Kimberley Process Certification (KPC), only available upon irrefutable evidence of intense containment of smuggling and on the diamonds not being “blood diamonds” from war or like events.
Thus, the indisputably advantageous discovery of the diamonds could not, and did not, trigger an immediately strong and viable economy, and a relief to the immense poverty which has afflicted the majority of Zimbabweans for far too long.
Notwithstanding, the discovered diamond fields and those yet to be found will progressively become very major elements of a virile Zimbabwean economy, and of the wellbeing of many Zimbabweans.
The misplaced expectations of huge inflows of diamond revenues into the fiscus, ameliorating the state’s gross inadequacies of funds, were as intensively misconceived as the erroneous anticipations of most of the populace.
Over and above the fact that treasury received no direct revenue from the proceeds of smuggled diamonds, it could also not do so until the formalised, KPC-approved sales commenced.
Once those sales were being achieved, the fairly rapid fiscal inflows could only emanate to the extent of 15%, being the legally prescribed royalties payable on all diamond sales.
Moreover, the pipeline for the inflow of the diamond revenue inflows was, and is, an extended one, as such royalties are payable in the first instance to the Minerals Marketing Corporation, which in turn must onward transmit them to treasury. In time, other diamond-related revenues will accrue to the fiscus, primarily in the form of income taxes on profits from the diamond field operators.
But taxable profits only materialise once the operators’ revenues exceed their operational costs and the tax allowances on expenditures incurred on plant, equipment and other assets that were used to make the fields productive.
Indirect revenues will also progressively accrue to the state, such as taxes on salaries and wages of the employees, and from the increasing numbers employed within the country as a whole as the economy surges upwards in response to downstream operations. This includes increased employment created by the expenditures of the diamond field operators and their employees.
Similarly, that downstream economic beneficiation becomes a stimulant for greater inflows of value added tax on the enhanced consumer spending, and of income tax on improved profits of the businesses benefitting from the increased consumer spending.
In due course, once the diamond field operators have recovered their establishment and developmental costs and are realising meaningful profits, the fiscus will also benefit from the withholding taxes on dividends declared by the operators to their shareholders.
Further, massive economic benefits will be forthcoming once value-addition operations in respect of diamonds come into being.
When Zimbabwe is no longer only selling uncut, unpolished diamonds to world markets, but has established the long talked-about diamond-cutting and polishing industry (that could possibly include the production of diamond and gold-based jewellery) many further revenues will inflow into the economy, and to the exchequer. But, despite the apparent issue of some licences that has yet to occur, there will be a transitional period before such projects become significant economic contributors.
Also key to the diamond finds being catalysts of economic growth and stability on an ongoing basis is that, as was the case with the late Sir Seretse Khama in Botswana, it must be recognised that the diamond resource will progressively be depleted and that, therefore, some of the wealth that will flow from the diamond fields operations must be injected into the development and creation of other fields of beneficial economic activity, including agriculture, manufacturing, tourism, and infrastructure development.
The diamond revenues must not be used exclusively for the funding of recurrent governmental operational expenditures. If this is assiduously and constructively pursued, then indirectly Zimbabwe’s diamonds will be “forever”.