The significance of diamond beneficiation to Zimbabwe Part 2: Potential benefits and prospects

The significance of diamond beneficiation to Zimbabwe

Part 2: Potential benefits and prospects

There are numerous benefits that can accrue from local diamond beneficiation which could help with the envisaged economic transformation of Zimbabwe. These include all of the following: Most of these entail more job creation, skills acquisition, modernization of the local economy, technological advancement, better performance of taxes, more revenue collection for the fiscus, inclusion of the informal SMEs sector, increase in the sophistication of local economy through diversification, widening of government tax base, increased tourist arrivals, increased visibility of the country leading to improved country perceptions/images, re-integration of the country into the global village through trade, industrialization and resuscitation of industry, infrastructure developments and improved standards of living for locals.

Many countries including Belgium, India, USA, Israel, China and Japan have successfully introduced beneficiation reaping benefits along the way. This is in-spite of the fact that most of these countries do not traditionally mine most of the minerals that they beneficiate locally. Rather they source them from producing countries at significantly lower prices than those at which they sell the finished fully beneficiated products. The industrialized nations in the West and East have grown their economies building on these models, cheap raw material imports from least developed nations and expensive finished exports to the same lowly developed countries. Critically, the industrialized countries have robust internal markets for their manufactured products.

Zimbabwe currently suffers from high levels of un-employment and under-employment. This is despite the country having a highly educated population and boasting the highest literacy rates in Africa (92%), competing directly with developed nations. Un-employment can be defined as a high number of people actively seeking employment or high number of employable people out of formal employment; while under-employment implies the under utilization of available skills. By investing into the infrastructure required for diamond value addition activities through more local beneficiation, the country stands to benefit from increased employment creation. More varied jobs are developed together with the introduction and growth of globally competitive modern industries. The Zimbabwe Diamond Centre plans to set up over 500 minerals beneficiation factories each directly employing 240 cutting, polishing and jewellery manufacturing experts. These jobs are usually the very specialized types which concurrently lead to skills development. However, the big employment creation benefits lie in the multiplier effects through growth of linkages with both upstream and downstream industries.

The industries and economies of the future are not only based on a knowledge worker, but also one with relevant skills and abilities in high value industries. One such industry is the jewellery manufacturing industry. Through concerted training skills development programme as part of the framework for minerals beneficiation the Zimbabwe could accrue these benefits. For example initiatives like the Diamond Education Center have significantly impacted on improved skills in minerals value addition through beneficiation in jewellery manufacturing.

Most importantly there are benefits to be made from economic modernization through technology transfer. Most of the equipment currently in use in minerals processing is patented by the inventors and thus becomes expensive to import under licence. However, adopting the minerals beneficiation strategy makes it easier for local fabrication experts to adapt the equipment for local use. This may entail reverse engineering of sophisticated equipment to reduce over reliance on expensive imported equipment. Given that initially the industry will be labour intensive with minimum automation, there will also be need for simplification of complex but relatively routine procedures.

The biggest benefits that come from diamond beneficiation lie in its ability to mobilize huge amounts of financial resources in a relatively short space of time. For a country like Zimbabwe that needs rehabilitation of old infrastructure and the development of new ones, this is a brilliant opportunity. Investments in infrastructure development, like better roads and facilities, are currently lagging and suffer from a dearth of resources. Instead of the country being loaned money by bilateral or multilateral institutions that levy punitive interest rates, we could encourage the development of a local savings fund for providing this financing at concessionary rates ensuring most of the benefits are internalized. The government envisaged Sovereign Wealth Fund could play as leading role in this while all companies involved in the diamond industry would be compelled to engage in extensive Corporate Social Responsibility (CSR) programmes that benefit local communities.

In all of this the livelihoods and standards of living improve from better jobs with more income. The diamond industry is amongst the highest paying in the world. Zimbabwe stands to benefit significantly if it can develop and adopt

Zimbabwe is a country of many “bests” from the best sight-seeing events, resorts and wildlife sanctuaries, weather and climatic conditions, hospitality and cultural heritage sites, to possessing some of the worlds bests in minerals exploitation (think platinum, gold, diamonds, asbestos, nickel, chrome, tungsten, coal, natural gas, iron over and above the some of the world’s most literate and easily trainable workforce. Useful side-stream benefits to a robust local diamond beneficiation industry would be increased international visibility of the country as it gains prominence as a safe tourist destination. This could lead to a rise in “Economic-tourism” whereby there are increased tourist arrivals by buyers. Concurrently there will be a growth of valuable local brands since most people in the world associate diamonds and diamond jewellery as the embodiment of wealth and luxurious living.

On the other hand, while the mining sector gives many tax incentives in order to encourage investments in this capital intensive industry, the government still stands to benefit from improved performance of various other fiscal measures. The government can better collect more taxes from numerous tax heads thereby widening the tax base; rather than over reliance on mineral royalties and licencing fees which constitute an important but minor contribution to State revenue. The following are the various taxes: Value Added Tax (VAT) from manufacturing value addition (MVA) processes; Pay-As-Earn (PAYE) and Social Security Contributions like NSSA and the AIDS levy which stand to benefit positively from the anticipated increased employment levels. The government also stands to benefit from various other income taxes e.g. corporate tax, capital gains tax, windfall tax, improved reported profits and dividends coming from enhanced profitability of local companies. This not only increases retention of more value locally but also leads to higher forex earnings from export of more valuable products.

Other downstream industries that will also grow in tandem with local minerals beneficiation include real estate, financial services, retail shops, motor vehicle manufacturing and sales, education, construction, research and development industries.  This entails useful parallel developments like the inclusion of the informal sector into mainstream economy due to companies increasingly sourcing for services locally, thereby improving sustainability of SMEs.

The table list below demonstrates diamond industry value sharing ratios:

Diamond industry value sharing ratios

Segment of Value Chain	Approx. value of global industry as at 2013	Zimbabwe makes	Total value added for stage (globally)
Rough diamond	US$18 billion	US$664 million	---
Jewellery making	US$54 billion	Unknown	US$25 billion
Retail sales	US$79 billion	Unknown	US$25 billion

Source: Adapted from DeBeers (2014), McKinsey & Company (2014), Bain and Company (2013) and National Budget (2014)

The table above shows that while diamond producing companies globally shared only US$18 billion that was made from the sale of rough diamonds, those countries which engaged in diamond jewellery manufacturing and retail shared a windfall of over US$50 billion. This aptly  demonstrates that the while possession of the diamond mining claims and producing the actual rough diamonds counts for a lot, it does not come close in terms of earnings potential to manufacturing value added jewellery. The critical two most valuable stages which produce the greatest value are the diamond jewellery making and retail segments, the subsequent value addition stages in the diamond value chain. The tragedy for Zimbabwe is also that the worth of its jewellery industry is unknown, leaving room open to under declaration of production.

In conclusion, it can be seen that although producing rough diamonds is an important source of competitive advantage, on its own it is inadequate to harness the full value of the diamond. It becomes necessary to add value to the raw mineral through beneficiating it into other useful finished products and goods. These finished goods are more valuable than the primary mineral, accounting for over 60 per cent of the global value added in the whole process. Therefore, beneficiation is seen to have significance for Zimbabwe. It helps the country earn the maximum obtainable value of the diamond and retain the same locally through various interventions like increased employment, higher tax collections, skills development, technology transfer, infrastructural developments, intergenerational wealth transfer and finally improved standards of living through sustainable natural resource exploitation.

The Prospects for Zimbabwe

Fortunately, private sector companies like the Zimbabwe Diamond Center have demonstrated leadership and visionary foresight by making headway to initiate diamond beneficiation in Zimbabwe. The Centre has developed a model which can both be adopted and adapted by government authorities when they consider it prudent to take up the issue seriously. The Center   proposes to set up a world class and outward focused export oriented diamond cutting and polishing industry in Zimbabwe. Initially it has planned a rollout of 500 factories countrywide, each with the potential to employ upwards of 240 staff of cutters and polishers, translating to 120,000 direct jobs created by one organisation focusing on one mineral alone. The multiplier effect scenarios mean a potential full employment situation in Zimbabwe, a feat that can be easily achieved given the relatively high levels of education of its labour force and economic sophistication.

On the ground currently the Center has both infrastructure and equipment that can be used to initiate a comprehensively robust beneficiation strategy. There is factory and office space adequate to accommodate 38 companies at any one time for the purposes of conducting viewing and auctioning of diamonds and diamond products. The Diamond Center also boasts of a secure multi-purpose self contained business center with all the required amenities associated with diamond trading: banking halls, insurance facilities, courier services, office space, jewellery retail space, convenience stores, and leisure facilities.