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We allowed things to go wrong at the beginning – Ex Zim Fin Minister on Marange diamond mining

28 march 2016

tendai_biti_xx.jpgWhen Zimbabwe discovered the vast Marange diamond fields in 2006, there was so much hope that the gems would bring economic relief as was the case in the neighbouring Botswana.

However, what happened is no secret and President Robert Mugabe recently admitted that Harare earned about $2 billion in diamond revenue from $15 billion realised since 2009.

Rough & Polished’s Mathew Nyaungwa spoke to the country’s former finance minister Tendai Biti, in Cape Town, South Africa prior to the directive by mines minister Walter Chidhakwa to the mining companies in Marange to seize operations and Mugabe’s admission of diamond revenue loss.

Despite the fast pace at which the Marange story is evolving, Biti looked at the issues that he handled concerning diamond mining during his tenure as finance minister under the uneasy government of national unity in Zimbabwe from 2009 to mid-2013.

He noted that the haphazard awarding of mining claims in Marange coupled with the outdated mining laws in the country, promoted opaqueness.

Biti said the same issues he raised on diamond revenue cloudiness, but were quickly dismissed by his political foes, were now being raised by the ruling party’s finance minister.

However, he lashed out at the finance minister for surrendering to “patronage” and “toxic looting”, as far as diamond revenue is concerned.

Biti also argued that diamond consolidation was not rational given the different corporate cultures of the companies that Harare wanted to merge.

Furthermore, he outlined the key issues that he thinks a new Diamond Act would help boost the industry.

Below are the excerpts.

What is your opinion on the consolidation of diamond mining in Zimbabwe?

It’s a model that doesn’t work, these are private companies with different sizes, different specialties, different balance sheets, so to try and force these companies to amalgamate is just a nightmare. Also companies are individuals.

So from a human rights point of view you can’t force someone to associate with someone that he doesn’t like, but you have got two problems in Zimbabwe. You have got companies that were doing alluvial diamond mining in Marange since 2006 and these include Mbada Diamonds, Marange Resources, Anjin and DMC owned by the Lebanese.

You also have the Russians that are at DTZ in Chimanimani. So to think the Russians, Chinese, Lebanese and Zimbabweans can come together and force them to work together, it won’t happen. So I don’t believe it’s a model that works.

The problem is not amalgamation or not amalgamation, the problem is simply that the government has failed to come up with a law that deals with diamond transparency, there has been opaqueness particularly around alluvial diamonds in Marange and that will not be resolved simply because these companies have come together with extremely different corporate culture.

The problem, too, has been the absence of regulation, if you go to Marange right now there [you will see that there was] a huge difference between the mining operation of Anjin and the mining operation of Mbada, for instance.

At Mbada you can see a deliberate attempt to conserve and preserve the environment, at Anjin they [were] cutting even baobab trees, they [were] digging huge dumps and so forth, so the regulatory framework had been weak, and again it will not improve because you have one huge company or not, so the bottom line of what am saying is that lets identify the mischief with the diamond mining in Zimbabwe and when you unpack that mischief it will certainly not be the fact that you have multiple companies.

Talking of regulation, I understand in 2013, you tried to encourage the then new minister of mines Walter Chidhakwa to ensure that the country has a new Diamond Act?

That’s correct.

What was the reason behind that, apart from what you have just told me?

There are three key things. [Firstly], we actually need a brand new mining, mines and mineral act. The one we have right now was essentially passed in 1923, so this is a law that was based on colonial mining, it is a law that recognise that the only reason a white man was in Zimbabwe was mining. So am sure directors and chief executive of the British South African Company (BSAC) would have something to do with it. So this Act places mining rights superior to everything. So if I discover a mining claim in your house, I can destroy it and start mining, which obviously is antiquated.

The other thing, which it does, is that once you have been given a mining concession you are a law unto yourself, so it needs absolute review, it will also have very weak mechanisms. You can be given mining asset but there is no obligation to develop it. Modern mining principles incorporate the ‘use it or lose it’ principle, so the bottom line of what am saying is that you have got an antiquated mining regime that needs changing. That regime doesn't respect new concerns around the environment, it doesn’t respect new concerns about sharing or resources, mining cake, so that’s why you need a brand new Mines and Minerals Act with clear provisions of how mining assets are given out, are bid, are tendered for, otherwise Zimbabwe is lagging behind.

Then with specific regards to diamonds, you don’t have a mining cake in Zimbabwe, you have got what is called a Precious Minerals Act, which is a tiny piece of legislation...and it was designed with gems that they had been found in Sandawana not with the diamonds, in particular. So given the huge discovery of diamonds in Marange you actually need a Diamond Act that will deal with seven key issues:

1) How do you allocate the mining right? That is key because alluvial mining is so cheap it doesn’t require a huge capital investment, yet it so fungible. Alluvial diamond mining doesn’t last, so you need to be able to say to the investor what are you bringing? We didn’t do that in 2006, so these companies came four to five years later the resource is gone.

2) You need [to be] clear, so the question of how the asset is given and who owns it is key. So if it had been done properly would have said, ‘ok, go the Botswana route. We are in partnership with you. You are going to do the management and so forth but we want our share’. That brings me to the other thing: the clear definition of the revenue stream when it comes to alluvial diamonds. In Botswana it’s clear the government gets up to 80 percent of everything, so any miner who is coming knows exactly that this is the game in town, just like in Norway, anyone who wants to invest in oil in Norway knows that the government gets the bulk, so that is key.

3) The government needs to deal with the compensation of displaced communities. That law has to deal with that. So if you go to Marange, thousands of villagers were displaced to make room for the mine, but there were no compensations.  These are villagers where those places had been their ancestral homes for decades and decades so how to compensate the local communities [should be clear].

4) The issue of the environment, when you go into conglomerate diamond mining. It’s very dangerous because you are digging holes, whatever, even the alluvial you are going to a riverbed and pump out huge quantities of sand, so environmental concerns are a big issue.

5) Regulatory authorities. We have got two issues here. Firstly, you have got the tax authorities who must be involved in the entire value-chain, and then you have got the marketing component, who markets these diamonds. In Zimbabwe we suffer because a layer of middlemen was created in Dubai and Israel. Israel became a major producer of diamonds, but there is not even a single diamond mine in Israel. Where are the diamonds coming from? They are coming from Zimbabwe and other dubious places in West Africa, so the marketing is one thing the law has to deal with. The best thing is to have an auction but an auction where international buyers come to. So, Antwerp becomes a natural home.

6) Community development, which I think is very, very key, if you go to Marange, it’s so poor, so poor, so poor, and yet there are billions of dollars that have been made from our diamonds.

7) Beneficiation. Our diamonds even the cleaning and cutting of diamonds is done outside the country. If you go to India there is little village in Gujarat called Surat, which is employing over 76 000 people who are cleaning Zimbabwean diamonds. It’s a village basically, I have been there, why can’t we do it in Zimbabwe? Can you imagine how many people [can be employed]? So surely we can cut our diamonds, we can polish our diamonds. So let’s also reserves some of these diamonds for our local industry. The law should have provided that.

So in a nutshell that law was required.

Do you think that Harare is doing enough to promote beneficiation or it’s just a mere talk?

No there are not. What happened was that unfortunately the discovery of the alluvial diamond mines coincided with the Government of National Unity (between the MDC formations and Zanu PF) and a minister from the opposition controlling finance and the Zanu PF powers did not want me to benefit from the resources, so they put an infrastructure of deception and unaccountability towards diamonds. Unfortunately, the thing with thieves is that they will not suddenly respect you. A thief is a thief, so you find that Chinamasa (minister of finance) is now speaking the same language that I was speaking about lack of diamond transparency because we allowed things to go wrong at the beginning. So we are not doing enough and we have not done enough. If you look at Murowa, it’s doing so well. It pays its taxes, one of the great companies that we have because the politicians stayed away from it, but with alluvial diamond mining, every crook, every slime puts its ugly fingers, dirty fingers in the pie and at the end of the day people of Zimbabwe did not benefit, the community did dot not benefit, and most importantly the environment has been damaged.

Speaking of Finance Minister Patrick Chinamasa, he has for the past two years completely overlooked diamonds as a source of revenue to fund government operations, when he presented the national budgets. Is he being sincere or there is more than meets the eye?

That is not honesty because if you are a little peasant with three cows and one of your cows is producing a lot of milk but thieves are stealing the milk it’s not honesty to ignore that cow when your children need to be fed, the whole village need to be fed. So by ignoring diamond revenue, Chinamasa surrendered to patronage. He surrendered to toxic looting and that’s not doing a good thing. Unfortunately, the people that are looting are Zanu PF and unlike me he can’t take them head-on, he can’t fight them, he can’t make noise about them.

Companies that were given mining claims in Marange once claimed at some point that their deposits had run out. Do you think they were telling the truth or it was just a subterfuge?

Look, the reports I got when I was in government from experts like Abbey Chikane acting on behalf of KP where that the alluvial diamond mining in Marange should last for 21 years, so [to say they were] gone in 7 years was wrong. They [said so] in order to demand more land… My suspicion was that they [were] pretty much aware of the cycle and life of their own mines and therefore they [had to put] pressure on a gullible government to give them more hectarage of diamonds.

So do you think Zimbabwe had the potential of earning between $2 billion and $3 billion in diamond revenues annually?

We should have been earning that and remember this was an incredible find where you were getting 50 stones per tonne, which is this was an extraordinary find but we let that get blown in the wind just like that.

But some critics can say 'of course we were producing a lot in terms of volume, but very poor when it comes to quality just like in the DRC'…

That can be correct, but you see, the problem with the Zimbabwean diamonds is that they were not tested. There was never an oversight committee that tested them, so everything was done opaquely. I remember going to President [Robert] Mugabe one of the days in 2012 and he showed me a picture of this huge diamond that the Chinese had mined in Marange, a huge, huge gem. So I think that we wouldn't have generated the excitement and the concern in the KP if our diamonds were industrial. So I don't buy the argument. It was certainly not supported by the reports that I was getting from the Kimberley Process inspectors.

Nothing much is talked about kimberlites in Zimbabwe. What do you know about kimberlite mining in the country?

I think if exploration is allowed, my suspicion is that we have lots of things on the Great Dyke and it is 575km long, so it’s just a question of allowing proper exploration to take place, which last took place in 1968, so I have no doubt that we should have more than Murowa, more than River Ranch as far as kimberlite diamonds is concerned in Zimbabwe, but of course no one is interested in that in Zimbabwe. People like to reap where they have not sown and alluvial diamonds allows them to do so not kimberlites.  With kimberlites you are serious because you are going down underground, even in Marange by the way, all these companies [that were mining there had] discovered the belts for kimberlite mining but they were not prepared to go that route because real mining requires investment.

Do you think Zimbabwe is resource cursed?

I think that every country with resources has the inevitable status quo of a curse. By curse we are referring to a situation where your feet and legs are sitting in a bowl of water but you are dying of thirst. So the resource curse reflects the inability of the authorities and policy makers to transform the resource into a benefitting model. So, yes, we are in a resource curse, so is much of Africa. We don’t understand these resources and we have not been able to harness them for the local economy and community.

Zimbabwe recently indicated plans to set up a diamond bourse. Do you think Harare is overambitious or it is attainable?

It doesn’t work. It’s like many things that come from Zimbabwe; it’s a lot of hot air, lot of slogans. We have the indigenisation, we have whatever, lots of hot air. To create a diamond bourse there has to be trust and Zimbabwe suffers from a trust deficit, we don’t trust our government, we don’t trust mining houses. So if this was being proposed by Namibia or Botswana, people would care to look at it, but not Zimbabwe. Besides there are so many trusted markets right now... remember most of the buyers are international buyers, an African like you and me, a diamond is just a dirty pebble, the first time I saw a diamond I couldn’t believe the hullaballoo and all the lives that have been lost around that dirty little stone. So the diamond buyers come from oversees so what is the point of trying to set up a bourse there when the buyers are in the Middle East, China, Europe or United States? So Antwerp makes sense, Dubai makes sense, not Zimbabwe. If you are going to have it in Africa, probably places like Johannesburg or Cape Town and certainly not Zimbabwe. But the key thing is that nobody trusts Zimbabwean authorities. We have a history of appropriation, land companies and so forth so who will put millions of dollars to start that bourse when tomorrow you can wake up without that asset?

So what do you think should be the way forward for the diamond industry in Zimbabwe given what you have narrated?

I think that just like mining in general, there has to be a rethink. We have to revisit the entire mining psychology. We need a paradigm shift, one that recognises that all mining resources are non-renewable, they are depleting, so let’s create a win-win situation between the miner, the investor and the communities and the government. With alluvial diamonds in particular, they are unique, they are cheap to mine. You can mine alluvial diamonds with the sole of your foot and also they are very fungible, so a rethink is called for and in my submission the Diamond Act, which I have proposed was a good starting point.

We cannot talk about mining in Zimbabwe without mentioning the issue of indigenisation.

Of course.

There is a lot of confusion around this issue...

There is no confusion.


It’s just insanity. The law is very clear, every company is subjected to 51 percent surrender to local communities but at the present moment in time it’s clearly a wrong policy because Zimbabwe is suffering from a kwashiorkor of capital, it needs capital. We are in a recession, we are in a deflation, so we need capital to startup companies so we can employ people, but more importantly it’s done in a very thuggish manner, very inconsistent manner, very opaque manner. We are not cleverer than the Batswana, than the Namibians, than the Mozambicans, than the South Africans, who understand that the best way of indigenising is to tax these companies. Africa Quantum in Zambia has been paying a cheque to the treasury of about $500 million if we had one company paying 500 million in Zimbabwe it will transform our budget. So we are just stupid.

The Indigenisation Act should simply be repealed and companies should be forced to say right from the onset 'what are you going to do in order to turn your high impact investment into a high value investment?' So the company will be able to say 'this is what we are going to do in terms of forward linkages and backward linkages, spatial linkages, this the road we are going to build, these are the experts we are going to send to universities, these are the clinics we are going to build, this is the technology which we are going to transfer, these are the taxes which we are going to pay'. Look at Zimplats in Ngezi, they have spent over $2bn, they have transformed Ngezi, a new town has been built there, new schools are being built there, so a high value industry is being turned into a high impact because the whole community is feeling it and there is no better model of empowerment than the Zimplats model so this idea that you can grab assets, shares for value, because remember we are paying for these shares and allow money to actually go out, doesn't work and the elitist [statements] that black Zimbabweans have got the millions that are needed to buy even 5 percent of Zimplats or Metallon and so forth, doesn’t work and it has never worked anywhere.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished