In the Mines: Making the Most of Sierra Leone's Rough Diamonds

Re post by : NGDlover

Author: Kenday S. Kamara

Improving the Environment for Investors

Since the commercialization of diamonds began in the early 1930s, Sierra Leone has produced over 500 million carats of diamonds to support the world’s need for diamonds. The diamond fields of Sierra Leone are estimated to extend over an area of perhaps 3,000 square miles, bounded by the Sewa River covering stretches of towns including Bo, Kenema, Yengema, Koidu, Tongo Field, and Kono, and extending as far as Liberia. Diamonds are found in these extensive alluvial deposits, in underlying dykes and pipes, and also from source rocks on higher ground. These areas still hold millions of carats of diamonds.

A good number of major diamond mining corporations—notably the Sierra Leone Diamond Corporation, AmCam Minerals, African Diamonds, Rex Diamond Mining, Mano River Resources—have spent heavily to accrue their own alluvial deposits in Sierra Leone, and many are evaluating opportunities to invest. In his September 2007 first session parliament speech, President Ernest Koroma spoke about revising mining policies to generate more returns from diamond exports for the development of the country. With the need for rough diamonds likely to continue to rise in value, rough diamonds could continue to yield billions of dollars in decades to come. However, the diamond mining industry has been one of the most corrupt sectors with billions of dollars in lost revenues been recorded from smuggled diamonds, making the rough diamonds sector Sierra Leone’s costliest corrupt sector.

There is a theory behind improving the environment for investors in the diamond industry. The theory is that a well-coordinated system of investments in the diamond industry can buffer the country against inflation shocks to the Sierra Leone economy. Strategic diamond exports allow the Sierra Leone government to generate more foreign exchange by millions of dollars of foreign investments in the industry.

The more of foreign investments in the country can help the government as a diamond-exporting country to grow its economy. Strategic policing of the industry promotes the image of the country that in turn attracts more investments. And it may reduce (to a great extent) the massive revenues that flow to corrupt scam hawks, helping to make them less formidable troublemakers. Thus, in theory, a properly regulated diamond industry is an important tool of both economic and foreign policy. In practice, it boosts foreign exchange earnings for the government that can support massive development projects when these earnings are handled properly. And on that front, the government really has to be firm in putting in place a system that effectively regulates the industry.

The country has had administrations with opaque and weak mining policies when public officials designates lined up their pockets with profits generated from under-reported production of rough diamonds. The Ministry of Mineral Resources makes decisions about mining policies. It also coordinates diamond exports. Sierra Leone diamonds are still appreciated as one of the best diamonds in the world, even when major diamond regulators in Antwerp controlled the reliability and pricing of rough diamond supplies because they hold most of the world’s excess production capacity.

Today's market, by contrast, has little excess capacity, and supplies are priced in diamond markets dominated by massive volumes of private trading. Yet stocks of quality rough diamonds are rarely handled with an accurate view of these markets, even though effective management would mean offering reliable supplies. Bigger supplies of rough diamonds could help improve Sierra Leone’s natural resource security, but until the Sierra Leone government better manages its strategic rough diamonds production, billions of dollars would continue to go away without growing the economy. Such an effort would be warranted only if the Koroma administration radically reformed its approach to the country’s mineral deposits and coordinated it to meet international standards in order to create a better atmosphere for foreign investors to inject more capital resources to strengthen the Sierra Leone economy.

Most important, the Koroma administration should shift control over its mineral deposits from the president (and his political appointees in the Ministry of Mines) to an independent minerals deposits board. Presidential and ministerial discretion, once thought to lend flexibility to the system and make the rough diamonds production a powerful foreign policy tool, now has the opposite effect. Presidential and ministerial control has politicized decisions about the deposits, especially as most Sierra Leone presidents have proved unable to move nimbly and credibly with the diamond trade.

Furthermore, because diamonds are a splendid global commodity, the Koroma administration must also promote better domestic coordination of national alluvial deposits. The current system for domestic coordination has generally worked profitably for politicians who have politicized decisions on mining policies, and has proved to help scam hawks as well who have been given greater latitude to corrupt the industry and are evidently helping themselves first. The current metric for assessing whether the GGDO is doing its part to protect against insecure rough diamonds exports and scamming of foreign investors is how much taxes are reported from Kimberley Processing calculations. A better system would focus instead on how well they manage the proper documentation of diamond purchases and how well foreign investors are informed about challenges of doing business in Sierra Leone with advice and protections on how they could successfully function in the country as private sector developers.

Read More Article Here