Delicate negotiations in Kinshasa as Kimberley Process struggles to avoid fissure

Delicate negotiations in Kinshasa as Kimberley Process struggles to avoid fissure Potentially damaging cracks have emerged in the diamond regulatory body as members fail to agree on diamond exports from Marange, Zimbabwe In the Diamond Industry 2011 Report, Equity Communications correctly predicted that divisions and cracks would widen in the Kimberley Process as members failed to reach consensus on Zimbabwe issues. Equity Communications also reasoned that Zimbabwe would eventually be allowed to freely trade its diamonds from Marange, in the second half of 2011, as members of the Kimberley Process realized that they had to move quickly to repair potentially fatal fractures in the industry regulatory body.

Recent reports suggest that a formal announcement could come as early as this week. Members of the Kimberley Process Certification Scheme are holding an intercessional meeting in Kinshasa, DRC, this week and it is widely expected that discussions on Zimbabwe will take centre-stage.

At the end of it all, we believe it is likely that members will still fail to find common ground on Zimbabwe. The stakes have never been higher and it is going to be extremely difficult to reconcile the different positions and interests of the various groups that make up the Kimberley Process. Going into Kinshasa, on one hand we have African producer countries, Russia, China and the World Federation of Diamond Bourses (WFDB) publicly stating that they fully support a resumption of rough-diamond exports from Marange without any new conditions. On the other hand, we have influential NGOs and member-countries in the key consumer markets of the West insisting that Zimbabwe still has not done enough to warrant a resumption of rough diamond exports from Marange.

As such, a formal announcement from the Kimberly Process sanctioning the resumption of exports from Marange will likely trigger a backlash from opponents of the Mugabe-led regime that is in power in Zimbabwe. Without doubt, this would result in a nasty public relations nightmare for the Kimberley Process – something the regulatory body and the diamond industry as a whole can ill afford. The stumbling block to consensus is the hostility towards Zimbabwe that emanates from the country’s political troubles that are proving hard to resolve. For as long as these political troubles remain, we do not see how a common position on Zimbabwe can be found.

What is likely to happen is that a formal announcement will be delayed for months and we could see individual countries following in the footsteps of South Africa. After the current Kimberley Process Chair from DRC unilaterally released a statement that sanctioned the resumption of exports from Marange, South Africa announced that it would immediately allow trade in Marange diamonds. China, a close ally of Zimbabwe, will likely follow suit if a formal statement is not forthcoming. Russia and India would be hard-pressed not to join in particularly since they are itching to also be part of the production process at Marange. However, all these countries have one thing in common: unlike member-countries from the West, they are not encumbered by the potential political fall-out that results whenever western countries are thought to be cosying up to Zimbabwe.

Ultimately, as competition for rough diamonds intensifies, we expect that most countries will eventually allow trade in Marange Diamonds. The economic reality is that Zimbabwe will become one of the top three diamond producers within five years. From a business point of view, it makes sense to seek to block the sale of Zimbabwe diamonds if you do not have a fair chance of accessing them. However, if this strategy fails, it becomes critical to be able to have a clear view of the moves the competition makes in the market place.

The writer can be contacted at publications@equityzw.com

Equity Communications has thoroughly analyzed the issues surrounding Zimbabwe and the Kimberley Process in its Diamond Industry Report of 2011. On the whole, this report provides detailed analysis on the world diamond industry, providing an overview of the diamond value-chain, represented both textually and in graph and tabular formats. The changing dynamics of the diamond value-chain are analyzed, including the potential impact of Zimbabwe production which is increasingly becoming significant.