The KP: Brilliance, Fire, Scintillation
KPCS owns the largest database of rough diamond shipments in the world, encompassing greater than 99% of world production. Identifying discrepancies between a country’s reported imported and exported diamonds, or unexpected jumps in the country’s average price per carat, helps identify which countries are in non-compliance, for example the expulsion of Congo Brazzaville in 2004 (if we have a country with no substantial imports or production, but 5.2MM carats recorded as being exported, then where did those diamonds come from?). Additionally, the threat of suspension and the incentive of legal export forces countries to maintain internal controls on their own diamond trade. Cameroon is currently in such a predicament, whereby should diamonds from neighbouring CAR infiltrate its own supply, they as well could be suspended from export. Côte d’Ivoire has recently been unsuspended by the UN for export, and here, KPCS’s minimum requirements for reporting and a System of Warranties require the country to put in to place systems for reporting and monitoring it never had previously. This is all very clear evidence of the KPCS working as intended, and as a model for other extractive industries to follow.
The late Zimbabwean MP Edward Chindori Chininga had noted that “the KPCS has also helped stabilise fragile countries and supported their development. As the KPCS has made life harder for criminals, it has brought large volumes of diamonds onto the legal market that would not otherwise have made it there. This has increased the revenues of poor governments, and helped them to address their countries’ development challenges.”
Indeed there are many accomplishments of the KP, and many well-intended individuals, businesses and governments that are working to see it adapt to new realities. Pilot initiatives have been undertaken in the DRC, Ghana, Guinea and Côte d’Ivoire to register artisanal miners, establish internal controls, monitor and report on production, and raise the standards of those in AADM.
The Kimberley Progress
All regulators have a continuing responsibility to maintain the system by closing loopholes, “[fixing] the parts that are not working and [adapting] the system to new realities”. Should KPCS’s definition of “conflict diamonds” more properly reflect the spirit of the agreement, and be broadened to include violence in general, irrespective of “rebel groups”? I respectfully defer to the President of the WDC and some of the most powerful companies in the industry in saying that it should. How about corruption, money laundering, off-budget funding of the secret police or misconduct from private security companies? On the other hand, other established, funded, internationally-recognized bodies — such as the United Nations Commission on Human Rights and Amnesty International, Oxfam, Transparency International — exist for the protection of human rights, eradication of poverty and as a watchdog for corruption, respectively.
Attempts have also been made to redefine “conflict diamonds” to include human rights abuses at the KP’s yearly plenary meetings in 2012 when the USA was chair and in 2013 when South Africa was chair — both which failed to reach consensus (which should not be surprising, given that any one member can thwart consensus, and members at the original KP meetings amazingly squabbled over whether certificates should be printed on A4 or 8.5×11″ paper, landscape or portrait). China is the KPCS chair for 2014, and Angola — one of the countries currently opposed to such a move — will become chair in 2015.
Even without an expanded KP, the diamond industry may be forced to more carefully consider sourcing (and be able to prove it) as a result of legislation such as Dodd-Frank (which is also not without its own complications and unintended consequences). Furthermore, the industry may be forced to become more transparent by banks who have become increasingly reluctant to offer funding to a notoriously-secretive industry (that until recently conducted business largely through undocumented cash transactions) and by De Beers, who have demanded financial transparency as a selection criteria for being sightholders.
The consumer-facing jewelry and diamond industry can ill afford another PR disaster that followed the late ’90’s “blood diamond” controversy, so many vigilant retailers (Blue Nile, Ritani, Tiffany, Brilliant Earth, Hacker Jewellers) have struck out on their own to publicly declare efforts to go beyond KP minimum standards, such as not sourcing stones from Marange, Zimbabwe. Additionally, trade in green-tinted stones (a sign of possibly being from Marange) is banned on the online diamond trading marketplace RapNet.
In addition, a slew of industry initiatives such as the Responsible Jewellery Council and the Diamond Source Warranty Protocol (DSWP) was created by some of the most powerful companies in the industry and by the Jewellers of America, Diamond Manufacturers & Importers Association of America and the Jewellers Vigilance Committee, respectively. However the immediate problem with such well-intentioned efforts, is that AADM — “precisely the people we need to protect and nourish” — could be “‘left behind’ in the move to higher standards by larger companies”.
Diamonds Doing Good: Exceptions to The Curse
It is all too common that the discovery of diamonds in an economically weak but resource-rich country is the event which precedes corruption, conflict, misery and misfortune, commonly known as “the resource curse”. However, a few countries have shown that this often ugly reality — not unique to diamonds — need not be the rule, and that diamonds can in fact be a source of economic growth and sustainable development.
Much has been written about the southern African nation of Botswana — responsible for over a quarter of world diamond production by value and repeatedly recognized by Transparency International as the most transparent country in Africa as well as one of the least corrupt in the world — which is commonly cited as a role model for what can happen when natural resources are exploited responsibly and for the benefit of a nation. In 1967, following twelve years of searching, prospectors for De Beers announced the discovery of a diamondiferous kimberlite pipe at Orapa. What resulted was a marriage of convenience with the mining giant, and in 1969, De Beers and the Government of the Republic of Botswana (GRB) formed a joint venture mining company called Debswana, a partnership that continues to this day as the largest non-government employer in the country.
As of 2004, De Beers has been 15% owned by the GRB (this fact was also news to a Forevermark retailer I spoke to), and in 2013, De Beers’ rough diamond sorting and selling operation, Diamond Trading Company, was moved from London to Gaborone. Nearly “80 percent of royalties from diamonds mined in Botswana go to the government”, funding free healthcare and education for all Botswanans.
In the early years of its nationhood, Botswana was one of the poorest countries in the world, with a per capita income of about $80 a year. Today, it is among the most prosperous countries in Africa, with a real middle class, and a per capita income approaching $6,000 a year. By contrast, the average citizen in Angola earns about $2,500 a year, while in the Democratic Republic of the Congo, it’s a little more than $1,500, according to the World Bank.
There is also no question, though, that Botswana was greatly aided by something else: De Beers’s own sense of — to use the current term of art — corporate social responsibility. Unlike most big companies that have exploited Africa’s resources over the course of its tragic history — indeed, unlike most Chinese companies operating in Africa today — De Beers did not simply plunder Botswana. “We think our approach is a competitive advantage,” said Gareth Penny, the cherubic 45-year-old South African who has been the company’s chief executive since 2006. It’s hard to disagree. Botswana’s citizens need roads — but so does De Beers, to transport its diamonds. De Beers needs a healthy work force, so its emphasis on H.I.V. awareness and treatment is clearly in its self interest. Indeed, a more prosperous Botswana helps De Beers in every way imaginable, not least by providing a stable environment in which it can do business.
A similar arrangement exists in Namibia, when in 1994, De Beers Group formed a joint venture with the Government of Namibia, called Namdeb. Here, diamonds account for 8% of total GDP and 40% of export earnings.
Clearly, diamonds can play an extremely positive role in economic development. What’s happened in Botswana can, with proper stewardship, happen throughout Africa, too. Judging solely on the complete surprise of nearly every open-minded listener I’ve yet found, it’s unfortunate that this story is left mostly untold and unheard.
Diamonds Doing Better: Beneficiation
More often than not, raw materials may leave their African countries for further processing elsewhere. Obviously if you’re a country with high employment yet ample natural resources, it might slightly bother you (putting it mildly) that your diamonds are creating thousands of jobs and more “good” elsewhere than at home. Moreover and ironically, diamonds aren’t exactly “forever”: mines do eventually run out, and so many diamond-producing countries have sought to develop a more diversified economy — less reliant on the export of rough diamonds — by participating in value-added activities downstream, such as diamond cutting, polishing and jewelry manufacturing.
Southern African countries have made such a practice to be the law, mandating that a minimum percentage of a country’s diamonds be cut and polished locally — a practice referred to as beneficiation. De Beers proudly flaunts its commitment to beneficiation and economic diversification on its own website, likely due to fulfilling government policy. This has also not been without its challenges, as Indian cutter/polishers maintain an extreme competitive advantage over their African counterparts on the price of labor and productivity.
Diamonds Doing Good: The Diamond Development Initiative
Approximately 16% of the world’s rough diamond production comes from artisanal miners. When diamonds are mined in this way — without mechanization, basic geological prospecting skills (knowing where and how to dig), or best practices to mitigate environmental impact (filling in the holes after you’ve dug them) — mining can leave the land like a barren moonscape, unsuitable for farming, as well as a breeding ground for diseases such as malaria. These conditions usually provide poor returns, which results in a poor standard of living and therefore even poorer future returns in a vicious, endless cycle. Regardless, these diamonds are an essential part of the industry and do end up behind a jewelry case — especially by way of traders and manufacturers not lucky enough to procure rough from De Beers through its sights — it is in the interest of the jewelry industry to support efforts to break this cycle. Artisanal mining is also ineradicable (and not unique to diamonds), and so a more proactive approach is therefore needed.
The most promising initiative to raise the standards and livelihood of the people that work in these tough conditions is Diamond Development Initiative (DDI), which is supported financially by both governments and some of the largest and most influential companies in the industry. With the long-term goal of bringing “development diamonds” to market, the DDI has undertaken efforts to register and educate artisanal miners, and is seeking to introduce pilot initiatives to bring mechanization to their operations. “Development diamonds” may not yet be available to consumers, but the DDI is the group making this future possible.
One of the most exciting attempts to bring “development diamonds” to market is The Clarity Project, which in 2013, “worked directly with diamond miners in Kono District, Sierra Leone”, in partnership with the DDI.