The city of Mutare in eastern Zimbabwe has been dubbed the “diamond city” because it is located near one of the world’s richest diamond deposits. Not that you’d know it from visiting the city. The traffic lights don’t work. The roads are covered in potholes. Health clinics and hospitals have no medicine. Zimbabwe’s diamond city looks more like a disaster zone than the country’s crown jewel.
It has been estimated that the nearby diamond deposit, the Marange diamond fields, hold as much as $800 billion in diamonds. And yet, in 2012, Zimbabwe had to cut its national budget from $4 billion to $3.4 billion after $600 million in diamond tax revenue never materialized. In January 2013, Zimbabwe’s national bank account literally had only $217 to its name—less money than many American teenagers earned this week in their summer jobs. What happened? How could Zimbabwe be so broke? Or, as one Mutare resident says, “We are sliding deeper into stinking poverty and we wonder who is benefiting from the diamond money?”
Nobody knows all the details. But Partnership Africa Canada, a leading NGO, has provided some good explanations. In 2012, it published a report estimating that that at least $2 billion in diamonds had been stolen from the Marange diamond fields, with most of it ending up in the hands of corrupt army and government officials. It called the theft the “biggest single plunder of diamonds since Cecil Rhodes,” the 19th century British imperialist who built Debeers by looting South Africa’s diamonds.
Now Partnership Africa Canada has shed additional light on where the money is going. In a new report, it examines how the loose regulatory regime in the United Arab Emirates (UAE) contributes to lawlessness in the diamond and gold trades.
One not incidental problem with the UAE’s no-questions-asked approach is that gold from the eastern Democratic Republic of Congo—gold that is funding a tragic civil war there—easily makes its way to Dubai, after which it has no trouble filtering into the global gold supply. Diamonds with unethical origins also arrive in Dubai, get mixed with other stones, and then get exported again, their origins forgotten.
But another problem is that Dubai makes it easy for diamond traders to cheat African treasuries. When diamond companies bring diamonds into Dubai, the diamonds often have an artificially low value. Then the companies export the same diamonds from Dubai at a higher price, often 40 or 50 percent greater. This practice—known as transfer pricing—basically means that countries like Zimbabwe aren’t able to tax diamonds at their true value. Partnership Africa Canada estimates that this method of tax evasion lost the Zimbabwean Treasury about $770 million in taxable revenues between 2008 and 2012. On average, it believes, Zimbabwean diamonds routed through Dubai were undervalued by 50 percent.
There are other explanations for why Zimbabwe’s diamond wealth has failed to materialize. It could be that the Marange diamond deposit was never as big as predicted. It could be that the diamonds being found are of unexpectedly poor quality, or that mining companies have found it too costly to mine for deeper lying stones. One company, Mbada Diamonds, this month slashed in half its employees’ salaries, citing poor mine productivity.
Regardless, the diamond industry owes a deep debt to the Zimbabwean people. In 2008, the Zimbabwean army massacred more than 200 people in the Marange diamond fields to make way for diamond mining, then local enslaved adults and children. The international community hoped that by transferring diamond mining to private companies, diamonds would start to become a net positive for Zimbabwe. It’s unclear now if that will ever happen.