Taking Shine off Diamonds; Professor Alyson Warhurst, of Warwick Business School, Assesses the Diamond Mining Industry
Byline: Alyson Warhurst
The recent release of the film Blood Diamond, starring Leonardo DiCaprio, throws the spotlight on the industry.
The film is a powerful indictment of "conflict diamonds" - civil wars during the 1990s in Sierra Leone, Ivory Coast and the Democratic Republic of Congo were worsened and prolonged by diamond smuggling and the abuse by a few of those countries' natural resource wealth.
However, we would be doing a disservice to Africa and the companies that invest there today if we went away from this film believing that all business in Africa is bad, illicit and exploitative.
In fact, Jennifer Connelly, one of the stars of the film and Amnesty International Ambassador on Human Rights, wore diamonds to the press conference that launched the film and explained how these were certified conflict free.
The diamond industries of Botswana, South Africa, Namibia and Tanzania are a force for good.
The industries there are either joint ventures with De Beers or part owned by historically disadvantaged South Africans including De Beers' employees and pensioners.
The De Beers family of companies together are responsible for 40 per cent of the world's diamond production. In its latest report to stakeholders, De Beers states annual revenue was a bout $8 billion (pounds 4.1 billion), of which nearly $5 billion was returned to African economies. For comparison, this is equivalent to more than half the GDP of Botswana and represents the equivalent of $13.5 billion in Africa when adjusted for purchasing power parity.
More than 70 per cent of its total stakeholder payments went to Africa, including more than 83 per cent of employee payments and 92 per cent of tax payments.
The government of Botswana consistently receives around 50 per cent of its revenues from diamonds, more than 30 per cent of GDP and 80 per cent of export earnings.
Few know that diamonds are India's highest value export and the industry employs more than one million people - with some of the best child labour prevention schemes on the continent.
In 2005, India exported $11.2 billion (pounds 5.74 billion) worth of cut and polished stones.
Workplace and community health projects associated with the formal diamond industry are cutting edge, focusing on issues such as bringing support direct to child-headed households instead of institutionalising orphans, which is becoming common practice in Africa, where there are more than 15 million Aids orphans.
De Beers can show that, as a result of its comprehensive disease management programmes, up to 16,000 children can count on one parent being alive.
Where HIV/Aids prevalence is amongst the highest in the world, the role of corporate social responsibility has been vital. Corporate social investment totals around $12.2 million per annum, equivalent to $37 million when adjusted for purchasing power in Africa, which makes De Beers one of the biggest corporate givers in the world.
So, why have diamonds been a force for good in southern Africa, while in west and central Africa they have been linked to conflict and poverty?
There are geological as well as political factors to consider.
Diamonds were created through volcanic activity millions of years ago. There are two types of diamond resource - the first is kimberlite pipes that are hidden beneath some ancient volcanoes.
They make for vertical hard rock mines, with a very small geographical imprint on the surface, and requiring large investments of capital and expertise.
The second are alluvial deposits, where erosion over millions of years has washed away some and deposited others across river beds and flood plains. Such deposits are rarely of interest to big companies because the diamonds are too spread out and difficult to extract economically.
They are impossible to ring fence and lend themselves to opportunistic diggings in river beds and can generate a type of informal "casino" economy. …