The KP Chair’s office in collaboration with the UAE KP office discovered that Blockchain could be immensely important to the future of the Kimberley Process, and help to eradicate false KP certicates and reduce the impact of human error while uploading data signicantly.
I personally think this is such a good idea, that I called for it in December, 2015:
There are many well-known complaints of the KPCS, but the process certificate issuance and integrity is easily the most addressable one and it’s incredible to see the UAE taking the effort to address the important issue. There really is little excuse for fake, forgeable, smuggle-able paper certificates as it regards to securing such an expensive good.
Limits, and The Reality on the Ground
A few months ago, I had a great lunch with my friend Rob Bates (insightful as ever), in which he quite easily parried my excitement with a reminder of what happens when the rubber hits the road: “So, every shipment would be accompanied by … a bar code? A QR code for its address on the blockchain?”
And here is where Silicon Valley hype and excitement often dies:
What if a KPCS officer doesn’t do his due diligence and waves a shipment through without looking up the certificate’s validity on the blockchain or that the shipment matches the data on the certificate?
What to do in geographic areas where internet connectivity is non-existent?
If an importing/exporting party becomes suspended, under what conditions do they get re-admitted to the process? Who/what controls that parties really are who they say they are? How is the integrity of KPCS officials controlled?
Is the KP going to consider amending their certificate issuance rules so that expiration dates become significantly less generous, sidelining the problem of certificate reuse?
Would the KP consider making notification of receipt of the shipment mandatory? (it’s currently not)
The perfect storm in diamonds is coming to a head, and the biggest wounds may be self-inflicted.
The first is the continued threat (or opportunity?) of the introduction of synthetics to the market. Only time will tell if consumers see an equally romantic story and/or value, in gems born in a lab rather than through a billion-year process from the depths of the Earth. This experiment has been tried before with colored gems, and yet it seems there is indeed a market for both natural and synthetic gems.
Leading the push towards synthetics is the well-funded and celebrity-backed startup Diamond Foundry, which I’ve previously written on here. Diamond Foundry has seemingly sought to capitalize off of the stigma that natural/mined diamonds are inevitably synonymous with environmental damage, corruption, exploitation, forced and child labor, conflict — none of which are unique to diamonds — and of course the favorite evil corporation in the world when they aren’t writing about Monsanto, De Beers. True accuracy of any of these terms seems to be subject to how much details truly matter to you, but no matter: if you’re intent on making a business based on exploiting the preconceived impressions of another, all is fair game.
Facing this threat, it is truly unfortunate that the response has been, and will be, truly weak. In fact, it seems that the other threats to the industry are its own self-inflicted wounds:
How can the industry claim that they care about perceptions of labor conditions when Development Diamonds aren’t yet available to consumers directly upon request, and perhaps more importantly, what has been done to educate consumers of the issues surrounding artisanal mining? FWIW, some good developments here.
How can the industry claim that it benefits its source nations when under-invoicing and transfer pricing — or, as one could call it, theft of sovereign resources — remains almost completely unaddressed?
All these factors contribute to an industry difficult to defend, which is a shame when there could be a great story to tell, but particularly a shame when the outside villains are so cartoonish, or when the inside villains so numerous.
It’s been difficult finding any positive news coming out of diamonds lately.
CAR, KP, and the Nice Narrative
A report from Amnesty International on the Central African Republic and a Time Magazine article on conflict diamonds and the KP offer a sobering reminder that, no matter, what positive narratives can come out of Botswana, Canada, Russia, South Africa or Namibia, no matter what the KP reports for how many carats come out of this and that country as a share of global supply, the temptation to focus on the sore points of the supply chain will always be too easy to pass up, and for good reason. Artisanal diamonds may take up only 15% of carats and 5% of gem production, but the press and public attention will always come back to the artisanal diamonds.
Foxes in Charge of the Chicken Coop
The KP released its figures for 2014, showing that, once again, a certain volume of rough diamonds enter the UAE, about the same volume of rough diamonds leave, yet somehow they magically increase in price by about 40%. I know “conflict diamonds” is a worthy news story and getting photography of such misery is easy, but how is the wholesale looting of national resources not worthy of significant press attention? Fittingly, the UAE has become vice-chair of the KP, and will become the chair in 2016.
Rough Diamond Gemologist resurfaces to remind us that rough buyers are most assuredly the most tough-as-nails street-smart people on the planet.
“When a man with experience meets a man with money, the man with the money gets the experience, and the man with the experience gets the money.”
Long break, but yes, I’m still interested in diamonds.
The KP Plenary is being held this week in Luanda, Angola. I’m excited to see what the figures will show for production for 2014. Some things in particular that I’ll be zeroing-in on:
Sierra Leone, Liberia, Guinea
Ian Smillie of the DDI had once directed me to look at the figures of both Sierra Leone and Liberia. Sierra Leone historically has very high-quality (and high price per carat) diamonds, while Liberia generally does not. Evidence that diamonds are being smuggled from Salone into Liberia could therefore be found in a high price per carat, matching or nearly-matching that of neighboring Salone.
This region also has been significantly impacted by Ebola during 2014, and this certainly impacted diamond production, as documented by Estelle Levin Ltd
Following the dropping of the ban on export by the UN and the KP, in 2014, Côte d’Ivoire re-enetered the diamond market. I’m extremely curious to see what the average price per carat will be, though I’ve been told it’s in line with other Western African countries.
Zimbabwe
Zimbabwe’s production should be shown to be down sharply as a result of the alluvial diamonds in Marange running out. Almost no good news has ever come from this country’s diamond production, even lately as the 7 companies currently mining in Marange are reluctantly nationalized and merged.
Seeing as the most non-industry news outlets don’t tend to do a very good job preserving important nuance or incorporating all the necessary complexities and caveats when trying to summarize such things — example here, where it was written: “The Kimberley Process system for certifying the origin of diamonds is meant to inform customers about where the stones originated” (it does no such thing) — I reached out to a friend of mine that has worked with the KP on such issues. My subject was this:
As expected, my friend’s response was awesome. What I learned:
Regardless of the ability/inability to keep conflict diamonds out of the supply chain, it would be bad policy to succumb to an apathetic “don’t bother” approach.
Yes they do work, as there are considerations and reputational risks all the way down to the retail level.
CAR diamonds, when banned in 2013, did not fit the KP’s own definition of “conflict diamonds”, as the suspension was not strictly matching the KP’s definition or scope, but as a result of a lack of guarantee of safety to the review team, as well as lack of monitoring and internal controls, due to the lack of governance.
There was no assistance offered to bring CAR back in to compliance, and thus, they are in a similar limbo-esque position as is Venezuela as it regards to the KP
This is therefore case-in-point, of how the definition of “conflict diamonds” needs to be broadened at the KP.
On an off-tangent note, is it possible for a journalist to title any diamond-related article without a variation of “Diamonds are a Girl’s Best Friend”?
While in the main research phase of my project, I wanted to learn what were the places in the world whose diamonds should be sought out by consumers, and which should be avoided, even if, in a perfect world, that sort of thing were possible (it’s not). Generally, recommending an entire country be considered on or off-limits is a risky and foolhardy errand, and as I’ve learned, conditions and operations can vary greatly within a country and region. For example, diamonds from Rio Tinto’s mine in Murowa, Zimbabwe have evaded all tinge and drama that have generally accompanied diamonds from Marange. Obviously Marange is an easy entrant in to the latter category and not in the category of “diamonds doing good”, though the American jewelry industry has done a good job at keeping these stones out of their jewelry cases. The quality of diamonds coming out of the DRC is extremely low (and therefore the chances that these stones end up set in jewelry) at $8.84/ct, with the caveat that this depends on KPCS statistics being an accurate representation of production.
But what about Angola? There, the quality of diamonds is generally high at $136/ct (for comparison, in Botswana, the world’s greatest producer of diamonds by value is $156/ct), but equally high is the corruption, yet also the opportunity and the growth. Unfortunately, I’ve had an extremely difficult time getting accurate information out of this country through the few sources in-country that I’ve been able to connect with, but what I have found has only made me more curious. My full thoughts are available here.
Once upon a time…
BICC has an excellent report entitled “Legacy of a resource-fueled war: The role of generals in Angola’s mining sector” detailing the history of diamond mining, and in particular, artisanal diamond mining in the Lundas. This report specifically details the often-intertwined nature between the military and artisanal diamond mining in the country.
“Conflict”
Angola is one of the countries against changing the term “conflict diamonds” to encompass all violence, no matter the technicality that the current definition is restricted to: that the perpetrators be rebels (thugs on the government or private payroll are kosher). This seems like a no-brainer to me as well as to the countries where most diamonds are bought (U.S.A and the E.U.), but is a harder sell to the Southern and Western African producer countries.
Angola’s national diamond company Endiama this year plans to purchase gold to make jewellery from the Central African Republic, the Democratic Republic of the Congo, Niger and Mali, the company’s chairman said in Cape Town.
“Value added activities in the diamond sector can have a positive impact on employment and economic diversification,” said the EIU in one of the most recent reports on Angola, while noting that these initiatives are just being launched.
Angola recently resumed diamond cutting and polishing, at a unit in Luanda and is planning to build a second unit in Lobito, Benguela province.
The Chairman of the Kimberley Process stated that the diamonds that were used to feed armed conflicts today are called in Angola “Prosperity and development diamonds.”
Eureka!
Australian mining company Lucapa has been pulling type IIa diamonds out of the ground at the Lulo diamond concession, including an exceptional 131.4ct stone. In fact, I’ve read that the Lucapa operation has the potential to replace the country’s Catoca mine as the country’s largest.
So…
What I, as an amateur observer, can see:
Current chair of the KP.
Opposition to changing the definition of “conflict diamonds”.
This is simply an appeal to better information about the diamond production in this country. In my report I concluded that consumers might consider avoiding diamonds from Angola almost entirely because of admitted stigma, corruption and uncertainty, though I must admit I can be swayed to the other side based on better information.
“The road to hell is paved with good intentions. Just because it doesn’t work doesn’t mean you don’t have good intentions, so you’re not a bad person, you just realize that the unintended consequences or your good intentions, that’s what’s gonna rule. So be careful with your intentions. And just because you’re a nice person trying to do a nice thing, doesn’t mean you are doing the “right” thing.”
Let’s assume you’re a resident of the DRC, specifically in the borderlands with Angola. Your economic opportunities are largely minimal, and one of the most promising paths is illegally entering comparatively more promising lands of the Lundas of Angola to mine for diamonds with a shovel and sieve. You risk torture and rape by Angolan private security companies, in addition to the usual risks of being an artisanal miner, such as death by cave-in, drowning, violence, malaria, etc. Or perhaps at no fault of your own, you live in Marange or the Central African Republic under similar circumstances. But you’ve also got hungry mouths to feed, so Dodd-Frank, the KP or other feel-good schemes be damned: the risks must be assumed.
Along comes a crazy-haired white New Yorker and self-styled researcher (really just a guy with an internet connection) who’s never lived in a war zone, and has been on TV a few times, specifically telling the relatively few consumers that do care about where their diamonds come from, to specifically avoid the resources that are your only economic option and livelihood, all because your government is corrupt and our country can’t meet some Western feel-good standard. Instead, he says, consumers should buy diamonds coming from your comparatively wealthy neighbors in Botswana. He’s certainly well intentioned, but how “good” is it to advise avoiding my diamonds (and everybody that brings them to market), just because, far downstream of me, they transit through Dubai or through some manufacturer with a checkered past and shady ties? How rational is it to essentially punish the people most ill-equipped to meet your “responsibly sourced”, “conflict-free” standards? Moreover, clearly it’s not rational to essentially sanction an entire large country because of problems existing in some regions with some companies and some resources, but that is what has apparently happened in the DRC. Shouldn’t the accent be on responsible sourcing, and on being “conflict-managed” rather than on a possibly unachievable “conflict free”?
The biggest thing I’ve learned through this whole experience is that complex problems imply complex solutions. The more I think about diamonds and the words “good” and “bad”, the more confused and less pointed I get. There is often very little connection between raw materials and finished products, and as far I’ve learned, little to nothing we can do on the consumer end to make that connection. We’re left to simply take a company’s word for it.
The WDC and The Southern Times highlight two opposing viewpoints fueling the current conflict in the diamond world as it pertains to, um, “conflict”, and a possibly expanded KPCS.
The Kimberley Process limits its scope to addressing the problem of “conflict diamonds”, which are defined as “rough diamonds used by rebel movements or their allies to finance conflict aimed at undermining legitimate governments”. Violence committed by “legitimate” governments and polished diamonds are beyond the KP’s scope. That the diamonds are ethically sourced, that their production is free of human rights abuses, or that they have not been used to assist in money laundering is unaddressed.
My initial reaction is of disbelief: “With abysmal consumer confidence, and a shrinking share of the luxury customers’ wallet, they’re really arguing about whether ‘conflict’ diamonds are only ‘conflict’ diamonds if they’re used to help rebels, and whether or not steps should be taken to limit their use in money laundering or terrorism? What the …”
But is it not coincidental that a country’s position in the value chain, and whether they stand to benefit or feel targeted from an expanded KPCS, seem to imply its position on the matter? Is it not in the interest of the entire industry encourage consumer confidence?
With diamonds, much like the other subjects (religion, politics, foreign policy, etc), the more I read about the subject and the more complexities I realize, the less-pointed and more confused I get. There’s few greater joys to me than stumbling upon a fact or quote that turns my entire world upside-down. Here are (some) of those which launched me down longer roads of reading, research and rethinking:
1. De Beers is now 15% owned by the Government of the Republic of Botswana (GRB).
In 2004, the GRB acquired 15% of De Beers. For what it’s worth, this was also complete news to a Forevermark retailer I recently spoke with (given that being accepted into the Forevermark program was described to me as being the toughest application process with the most invasive background check this person had ever consented to, how do they not know this?). The remaining 85% is owned by Anglo-American, who increased their share from 45% when the Oppenheimer family sold its remaining 40% to … the company founded by Ernest Oppenheimer (Anglo), naturally.
“Anyone closely following the governmental strategies towards diamond mining and diversification will come to the inevitable conclusion that Botswana will sell – and probably sooner rather than later. Selling its stake in De Beers is, for many reasons, in the best interest of Botswana.” — Chaim Evan Zohar
“for a major diamond producer like Botswana, it would be national folly to prescribe that any percentage of their diamonds needed to be beneficiated locally.”— Former Managing Director, Gary Ralfe (2001)
Curiously enough, this position was reversed six short years (and a 15% acquisition by the Government of Botswana) later, under a new Managing Director:
“For the African diamond producing countries, beneficiation is not optional, not a passing whim motivated by political correctness, but an imperative, an absolutely essential and critical part of their macroeconomic policy designed to uplift their economies to provide education and jobs and healthcare for their people and to make poverty history…. We [De Beers] don’t embrace this out of misguided enthusiasm or altruism. No, we embrace it because it makes good business sense and because it is the right thing to do.” — Mr. Gareth Penny, Managing Director, De Beers
A simple query of IMDB confirms this simple fact, but Ian Smillie, Executive Chairman of the Diamond Development Initiative, told me: “Small piece of info: the beach scenes in the movie were shot in Mozambique, but there are no mountains in the background in Mozambique, as in Freetown. But if you look at the movie, there actually are mountains – they used CG graphics to do it. Hollywood: dedicated to getting it right.” The country is still desperate to shake the stigma left from that movie, and of course now with the Ebola crisis, the urgency and difficulty of that job has increased dramatically.
EDIT: Rob Bates of JCK tells me: “You are correct about BD, but there were some stray shots filmed in Sierra Leone. (Zwick calls out one in DVD commentary)”
To compensate for the loss of diamond revenue caused by international sanctions, Taylor sold Liberia’s forests to logging companies – shifting his sources of financing from blood diamonds to conflict timber. Among those who received logging concessions during this period was international arms dealer Leonid Minin who, at the time of his arrest in 2001, was planning a large arms deal for Liberia.[xiii] Also holding major concessions was Dutch national Gus Kouwenhoven, who ran the notorious Oriental Timber Corporation, which was involved in importing arms into Liberia and developed infrastructure that was used to transport weapons to Sierra Leone.
Wars occur without the presence of diamonds; it does not follow that if there are diamonds then war will ensue. The rebels themselves say that if there were no diamonds they would use other natural commodities to obtain money. The diamond industry has been maligned for years now as a source of evil and too many people with absolutely no knowledge of the diamond industry and trade have jumped in to try to make our world a better place. There seems to be little equivalent activity to control the oil industry and, more important, the arms industry.
