November 24, 2009

life in general & financial markets: india's connection to blood diamonds

Many many women, young or old, in India or elsewhere, tend to be obsessed with wearing jewellery and diamonds are the most sought after jewellery item. But behind jewellery, and most particularly behind diamonds, lie a sordid tale of terror, exploitation and horror.

Indian businesses are also participants in such a sordid tale. A news story in the latest issue of Tehelka brings out what some of us have always been aware of and conscious about. Here it is:
The blood diamond files

Following the trail from Johannesburg to Mumbai, SHANTANU GUHA RAY finds that India is an important destination for Zimba stones

Priceless stone Sefadu, from Sierra Leone, is the largest uncut diamond

IT’S A crowded street market in Johannesburg. Boisterous youth and elderly women have set up stalls to sell polished ostrich eggshells, wrought iron flamingos and colourful bead strings. But in this Jo’burg bustle, there is often another hustle: the simple street markets also play host to the kind of sellers who come in big flashy cars and sell an item that’s quite, quite small in size — though not quite small when it comes to price.

The scenes are reminiscent of the 2006 Leonardo DiCaprio Hollywood movie Blood Diamond, and these people are dealers, many of them former mineworkers who have been driven out by the military from the Marange mines.

Diamond merchants such as these operate freely on the streets of Jo’burg. Those who cannot strike a deal here can head to Mozambique’s Vila de Mancia, a town close to the Machipanda frontier often referred to as diamond country.
These areas have dealers from everywhere, Somalia, Mozambique, Congo and Sierra Leone. They usually offer diamonds in tea-bag size sachets, a little like packets of washing powder or shampoo. “It is easy operating in South Africa and Mozambique if your passport is in order,” says a dealer.
The brisk trading happens openly in the Jo’burg street markets, under umbrellas shading the open-air coffee tables, where waiters serve Huntley Palmer biscuits as free accompaniment to guests who complete their transactions within seconds. They then discuss, among other things, the 2010 football World Cup, national politics and cricket.
But this open trade is, as Surat diamond trader Vipul Jain explains, just the first step towards credibility for diamonds mined from South Africa’s wartorn and troubled neighbours — Angola, Sierra Leone and Zimbabwe. “Direct import is impossible. The traders use this route to get the Zimba stones a taint-free stature,” Shah told TEHELKA.
Once sold, the diamonds first go to Dubai and then to Asia, usually India. But now, they have an air of certification about them — call it the Johannesburg effect. This means that importers can be sure the diamonds and gems have a stamp of legitimacy, regardless of which country they come from.


Hard life A worker at a diamond mine in eastern Zimbabwe

Although many operators in Johannesburg say it is getting harder to smuggle Zimbabwe’s diamonds, the sale continues unabated. The Zimbabwean authorities have awarded contracts for the Marange mines to two companies: Mbada Mining, a little-known local firm, and Canadile Miners, a company that has South African investors. Desperate for cash, Zimbabwean Mines Minister Obert Mpofu has gone ahead with mining what he believes can bring the cash-strapped nation a whopping £360,000 a day.
Since the Zimbabwean government took over the mines in October 2008 (after the Mugabe regime reached a power-sharing formula with challenger Morgan Tsvangirai), there have been reports of rampant abuse by the military forces: forced labour, child labour, beatings and killings.
For the importers, there are several advantages. For one, this trade ensures a steady supply. For another, they are substantially cheaper. For firms in places such as Surat, home of the Indian diamond cutting and polishing industry, already reeling from a global recession in cutting and polishing in 2008, these stones from conflict zones in Africa — estimated at nearly 20 percent of India’s annual diamond imports — are often 40 percent cheaper than the rest.
Most of the time, that is. Sometimes they are not. Last week, a Mumbai firm that had imported uncut diamonds worth several crore rupees from an African nation delayed taking delivery of the packet from the customs. The packet, which had come from Congo, was filled with plastic granules and brass powder. Ekta Enterprises, which has offices in Mumbai and Vadodara, had imported diamonds worth Rs 17 crore. “We were amazed to find plastic granules and brass powder,” says Naresh Mehta, a Mumbaibased diamond merchant and a valuer.
Customs authorities say under or overvaluing diamond shipments is routine, but plastic granules in a packet was indeed surprising. “We are tracking the case,” Deputy Commissioner (Customs) Dr Somesh Chandra, told TEHELKA. Still, the completely fake consignment was probably an aberration. When diamonds are imported from conflict areas, consignments normally have a Kimberley Process (KP) certificate that 74 nations dealing in diamonds recognise.
In this case, even the certificate was faked. Gujarat Jewellery Export Promotion Council (JEPC) Chairman Vasantbhai Mehta is certain it’s a case of cheating. “Either the parcel has been swapped or it is a hawala transaction,” says Mehta. “For more than four to five years, many such diamonds have hit the Indian shores and we have realised these are Zimba stones (blood diamonds) much after they were cut, polished and exported,” he adds.


Brisk trade Employees at a Surat diamond cutting and polishing factory


Sparklers Diamond jewellery displayed at a store in London


Tainted shine A man checks raw diamonds in war-torn Sierra Leone
Photo: AFP

Trade in conflict diamonds has certainly been going on for some years, augmented by – experts claim – the efforts of some of the world’s top diamond miners to slowly increase output.
Meanwhile, demographic changes have tended to sap demand in traditional markets in the West and threatened a long-term crisis for the industry. With demand ebbing from the US and Europe, Surat traders are now seeking newer markets: 70 per cent of polished diamonds are now exported to Hong Kong, China, UAE, Israel and Australia.
FIGURES AVAILABLE from the Gems and Jewellery Exports Promotion Council show that export of polished diamonds from India to the US — the world’s biggest market (at 60 percent in better days) — fell by 30 percent in the first six months of the current fiscal year ($1,791 million, compared to $2,527 million in the corresponding period in 2008). But then, exports to Hong Kong and China grew nearly nine percent. For the record, polished diamond exports to Hong Kong in the first half of 2009 were $3,126 million, compared to $2,853 million in the same period last year. Prices for rough, uncut rocks have risen more than 40 percent since February, impacting retail sales that nosedived to $65 billion this year from $74 billion in 2008.
And it is here that the low-priced Zimba and other ‘blood’ stones make a huge impact. They come cheaper, are routinely smuggled across the South African border and then end up in countries like India and Israel. “And these stones are not just coming from South Africa, they are coming from a number of African nations that receive such gemstones,” says Pravin Nanavati, a Surat diamond trader who has tracked such supplies.
Global experts told TEHELKA that an international effort to curb such illegal shipments could catch countries like Botswana and Namibia in the crossfire. The Kimberley Process could suspend Zimbabwe from the world diamond market because of human rights violations and other irregularities at the notorious Chiadzwa diamond fields.
In fact, the KP report on the state of diamond trade calls for a temporary ban of six months or more to allow Zimbabwe time to comply with Kimberley Process standards. “If such smuggling continues, southern Africa’s main diamond producers, Botswana, Namibia and South Africa, may find their excellent reputation undermined if they continue to be a destination for diamonds from conflict zones,” adds Nanavati. The report by the KP review mission has already suggested that other KP participants in the region, particularly Botswana, South Africa and Namibia, should act against smuggling.
But will that happen? Diamond merchants in Surat and Mumbai say smuggling has been fuelled – at least in the last six to eight months – by an increased demand that has had the tiny Gujarat town gasping because of a drop in the supply of rough diamonds caused by reduced production at downturn-affected companies. “Everyone wants to pick up whatever supplies and it is here that the smugglers are slowly pushing in such diamonds,” says Auguar Sanghvi, another Surat diamond trader.

The blood diamonds first go to Dubai and then to India, where they turn ‘clean’

With steady supplies available now, and demand having picked up, very few importers bother to check the origins of their diamonds. On paper, the consignments come from a legitimate nation, right? And for a cutting and polishing industry that is showing signs of revival after almost a year of depression, would anyone genuinely care to bother too much about the antecedents of the product? The answer is a simple no. “The problem is that no one actually knows the origin. Or, very few would actually know and care about not getting these stones because the KP certificates are there. But we must be cautious,” says Rohit Mehta of the Surat Diamond Association.
BHP Billiton, among the largest mining companies in the world, has already hiked rough diamond prices by five to 10 percent. Diamond Trading Corporation, a leading distributor and part of the De Beers group, is about to follow suit. The increase in prices has been triggered by huge demand. Owners of large units are flush with orders for supplying polished diamonds before Christmas. “It’s a demand and supply principle and everyone is awaiting supplies,” adds Mehta.

Dealers sell diamonds in tea-bag size sachets, a little like packets of washing powder

Still, the fact that blood diamonds are among those being imported continues to cause concern. Tim Dabson, executive director of De Beers, recently told an international conference in Antwerp, Belgium, that ethical consumerism is of utmost importance if someone has to checkmate the outflow of conflict gemstones. “The risks include the tendency of consumers in India and China to favour less expensive gems than what sell elsewhere,” Dabson told The Wall Street Journal.

Last June, the Human Rights Watch exposed the horrors of Marange and shot a film to highlight the situation there. A task team from the KP Certification Scheme confirmed HRW’s findings and recommended that Zimbabwe be suspended from trading in diamonds. But the horrors have continued. “Gems from Marange travelling to India, China and Israel are blood diamonds, extracted through the persecution and oppression of those living in the area,” Georgette Gagnon, HRW’s Africa director told TEHELKA, adding that importers need to make sure of the stones’ origin.


Digging dirt Miners often violate rules in Congo and Zimbabwe

But it’s not easy. In fact, diamond merchants in Surat and Mumbai say it’s almost impossible. “When we are following the KP certificates, we are playing it safe. The onus to check and cross check whether such diamonds are coming from Congo, Zimbabwe and Sierra Leone lies on those who keep getting supplies from such troubled zones,” says Nanavati.

He says there’s enough of a divide within the Kimberley Process itself on whether there should be a suspension of such supplies or whether there should be some strict monitoring of such mining. Many have argued against the scheme because Zimbabwe has been defended most strongly by South Africa, Namibia, Congo and Russia.

Importers don’t check the origin of such diamonds, when sent by a legitimate exporter

Ian Smillie, one of the KP architects who resigned earlier this year in protest against its working, told Bloomberg that he found the functioning of KP farcical, irresponsible and a disgrace. “Here we have a government that has lied repeatedly to the KP and has a tenuous grip on its diamond industry — that courtesy of gross human rights violations. The regulatory body that is supposed to assure consumers that the diamonds it certifies are clean ignores its responsibility and sets up an open-ended tea party. It will turn the KP into a laughing stock and give Zimbabwe more or less carte blanche for business.
HE SHOULD know. Global Witness, a London-based campaign gro - up, said the recent KP decision to allow Zimbabwe to sort out its troubled mining business would ruin the credibility of the watchdog body.

There are other problems as well. Diamond mining in eastern Zimbabwe is being carried out by companies in which South Africa’s Old Mutual has a share. The companies are now setting up a diamond- cutting operation at Harare airport: that will allow them to export diamonds without the KP certification.
Once, conflict stones made up about 15 percent of the world market. Though they are believed to account for less than 1 percent of stones bought and sold today, it’s also a fact that millions of carats produced annually remain untraceable. “They must track all supplies from Africa,” Smillie told Reuters.
His report highlighted the case of Congo — a big source of diamonds for India and the world’s second largest producer of diamonds by volume. Congo is a KP member but, despite recommendations to improve traceability, lack of internal controls has created the world's most perfect system for laundering dirty diamonds to Asia, the report said. In 2008, Congo produced more than 33 million carats, accounting for around 20 percent of the world diamond market. However, the study found that nearly half of the country’s exported stones were untraceable.

Congo produced over 33 million carats for exports but half of it was untraceable

But there are those trying to stop illegal diamond trafficking. Israel has agreed to lead a group working to stop rebels from using the $6 billion trade in conflict diamonds to fund fighting.
The Israel Diamond Institute said Boaz Hirsch, the country’s minister of industry, was elected as KP chairman after a UN panel of experts said Israel, whose diamond trade is worth more than $10 billion, might be involved in the illegal export and sale of blood diamonds from the Ivory Coast. At least, the process of trying to plug the loopholes in the illegal diamond trade has begun. Where it will end might just depend on how discerning buyers across Asian markets become about the origin of their


From Tehelka Magazine, Vol 6, Issue 47, Dated November 28, 2009

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