AN INVESTIGATION INTO THE EFFICACY OF DIAMOND...

AN INVESTIGATION INTO THE EFFICACY OF DIAMOND

BENEFICIATION AS A FISCAL RESOURCE MOBILISATION

STRATEGY: THE CASE OF ZIMBABWE

BY

NGONIDZASHE CLEMENT NZENZEMA

DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF TH E REQUIREMENTS FOR THE MASTER OF PUBLIC ADMINISTRATIO N DEGREE

DEPARTMENT OF POLITICAL AND ADMINISTRATIVE STUDIES

FACULTY OF SOCIAL STUDIES

UNIVERSITY OF ZIMBABWE

FEBRUARY 2015

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Abstract Diamond mining is a highly contested area in the world, more so in Zimbabwe, while diamond beneficiation remains even more enigmatic. While some developed countries have managed to convert their natural resource riches into profitable financial gains, African countries including Zimbabwe have continued facing numerous challenges in attaining the same benefits. In Zimbabwe these challenges are especially evident in terms of shrinking fiscal space, liquidity problems, low industrial development, unemployment & underemployment, and a serious lack of appropriate skills, technology and infrastructure. This is despite being richly endowed with all manner of valuable mineral resources and precious stones, principally diamonds. The very high value and worth of the diamond therefore makes it a suitable candidate for enhancing fiscal resource mobilization. This study therefore seeks to analyse the efficacy of diamond beneficiation on resource mobilization for Zimbabwe. It relies on a mixed methods approach to get a fully nuanced perspective of the role minerals beneficiation can play in enhancing economic development through providing financing. Using various instruments, among them the survey questionnaire, the personal interview, documentary search and observations from personal encounters, the study explores the concept of beneficiation, analyzing its heuristic value to expanding the country’s fiscal space. Additionally, theoretical, conceptual and analytical frameworks were used to interrogate issues within the study. Anthony Downs’ “Issue Attention Cycle” has great significance in explaining developments within the Zimbabwean mining sector. Rational Choice Theories of Economic Action/Behaviour of public officials helped to identify and characterize decision making styles in the mining industry. Resource Nationalism, the newly emergent policy paradigm which has gained currency in developing countries has led to citizens and governments alike increasingly calling for more local ownership, processing and value added benefits to accrue to them. The major findings from the study indicate that there is scope for diamond beneficiation to enhance the country’s fiscal space, as seen in countries like Botswana, Belgium, China, India and South Africa. Although benefits from minerals beneficiation and value addition may not be perceptibly visible in the short term, the multiplier effects are easier to observe in the medium to long term and fiscal benefits may be subsequently accrued from the same. Thus there are further benefits that accrue in the long term including, employment creation, forex earnings, technology, skills and industrial development and modernization of the local manufacturing industry, leading to multiple upstream, midstream and downstream benefits. Beyond these issues, it also emerged from the study that governance issues, principally transparency and accountability frameworks, are crucial to ensure adequate remittance of mineral revenues to the fiscus.

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Acknowledgements I am especially grateful for the opportunity that I was given to be a Teaching Assistant in the Department of Political and Administrative Studies. This opportunity not only opened my eyes to the joys of academic life but also gave me the financial freedom to complete my master’s degree studies. I learnt new things, impacted people’s lives and made friends. Now I am certain that I want to pursue an academic career.

Profound thanks go to my Supervisor Mr. Tawanda Zinyama who guided me throughout the course of my studies and the research process. May you continue to inspire others to always break new ground? Special mention goes to academic staff in the University of Zimbabwe’s Department of Political and Administrative Studies, particularly Professor Charity Manyeruke, Professor Gideon Zhou, Dr. Donald P. Chimanikire, Dr. Alfred G. Nhema, Dr. Musafare Takaendesa Mupanduki, Dr. Heather Chingono, Mr. Eldred V. Masunungure, Mr. Tawanda Zinyama and Mr. Alouis Madhekeni; and the administration staff Mr. Charles Tapiwa Rubaya, Ms. Shamiso Gomo and Ms. Tafadzwa Chigodora.

I am grateful to the Ministry of Mines and Mining Development who afforded me the opportunity to conduct this study within the ministry, in spite of the evident challenges. I am also thankful for the assistance from the Parliament of Zimbabwe’s Clerk of the Portfolio Committee on Mines and Energy, Mrs. Chioneso Mudavanhu-Mataruka.

I also want to thank staff at the Zimbabwe Diamond Center and students at the Zimbabwean Diamond Education Centre; principally the Executive Chairman, Mr. Lovemore Kurotwi, and the Public Relations Executive, Ms. Gwendoline Mugauri, who provided invaluable insights into the diamond industry. I was particularly overwhelmed by your deep knowledge of the field and even more so the generosity of your assistance. Your contributions were invaluable and made this study a success. May the passion you have in your hearts lead to the success of your eminent and worthwhile vision.

Sincere thanks also go to the following friends and relatives who assisted in various ways for the duration of my studies: Mr. Neville Pundo, Mr. Emmerson Siziba and Ms. Masceline Dakazhe. A very special thank you goes to all those who, although not mentioned by name, also made this journey a success. Last but not least, to the MPA Class of 2013-2015, thank you for an insightful and enjoyable 2 years, may we continue to pursue knowledge till the very end!

This study was inspired by the visionary “Zibwe-King” the late Prof. Nkhoma, principles behind the ZIMASSET strategy and the following statement from the inauguration speech, by H.E. President R.G. Mugabe, on 22 August 2013:

The mining sector will be the centrepiece of our economic recovery and growth. It should generate growth spurts across sectors; reignite that economic miracle which must now happen! The sector has shown enormous potential, but we are far from seeing its optimum …we need to explore new [mineral] deposits, developing new Greenfield projects in the mining sector. Above all, we need to move purposefully towards beneficiation of our raw minerals.

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Dedications For my wife Marshia and our children, Rutendo-Unice & Clement-Junior

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Contents Abstract ....................................................................................................................................... ii

Acknowledgements ................................................................................................................... iii

Dedications ................................................................................................................................. iv

List of Figures ......................................................................................................................... viii

List of Tables .............................................................................................................................. ix

Acronyms ..................................................................................................................................... x

List of Appendices ..................................................................................................................... xi

CHAPTER ONE: INTRODUCTION ....................................................................................... 1

1.1 Background to the problem......................................................................................................... 1

1.2 Statement of the problem ............................................................................................................ 4

1.3 Objectives of the study ............................................................................................................... 5

1.4 Hypothesis ................................................................................................................................. 5

1.5 Research Questions .................................................................................................................... 5

1.6 Justification of the study ............................................................................................................. 6

1.7 Limitations of the study .............................................................................................................. 6

1.8 Delimitations of the study ........................................................................................................... 7

1.9 Organization of the study ........................................................................................................... 7

CHAPTER TWO: THE LITERATURE REVIEW ................ ................................................ 9

2.0 Introduction .......................................................................................................................... 9

2.1 Theoretical, Conceptual and Analytical Frameworks ...................................................... 9

2.1.1 Conceptual or Definitional Framework .......................................................................... 9

2.1.2 Theoretical frameworks .................................................................................................. 13

2.1.2.1 Introduction .....................................................................................................................13

2.1.2.2 Dependency Theory .........................................................................................................13

2.1.2.3 Resource Curse Theory ....................................................................................................14

2.1.2.4 Modernization Theory .....................................................................................................15

2.1.2.5 Anthony Downs “Issue Attention Cycle” and Rational/Public Choice Theory ..................16

2.1.2.6 Principal-Agency Theory .................................................................................................17

2.1.2.7 Transaction Cost Economics ............................................................................................17

2.1.2.8 Resource Nationalism Philosophy ....................................................................................17

2.1.3 Analytical framework ..................................................................................................... 18

2.2.0 Possible Strategies for ensuring Beneficiation .........................................................................27

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2.2.2 Lessons from the Botswana Case ............................................................................................27

2.2.4.3 Lessons from the Case of Indonesia .....................................................................................30

2.2.4.4 Lessons from the Case of Belgium .......................................................................................33

2.2.4.5 Lessons from the Case of India ............................................................................................33

CHAPTER THREE: METHODOLOGY .............................................................................. 36

3.0 Introduction...............................................................................................................................36

3.1 Research Design ........................................................................................................................36

3.2 Research Methodology ..............................................................................................................37

3.3 Mixed Methods Research ..........................................................................................................37

3.4 Justification for Mixed Methods ................................................................................................38

3.5 Study Area and Target Population .............................................................................................39

3.5.1 The target population ..............................................................................................................40

3.6 Sampling Methods and Sampling Procedure ..............................................................................41

3.7 Data Collection Instruments ......................................................................................................43

3.8 Data Analysis ............................................................................................................................43

3.9 Reliability and Validity .............................................................................................................43

3.10 Ethical Issues ..........................................................................................................................44

CHAPTER FOUR: DATA PRESENTATION AND DISCUSSION .... ............................... 45

4.0 Introduction...............................................................................................................................45

4.2 Legislative and Institutional Framework for Diamond Revenue Management ............................47

4.3 International Best Practices in Diamond Revenue Collection: A Summary of Country Experiences ....................................................................................................................................52

4.20 Additional Issues .....................................................................................................................68

4.21 Ground breaking initiatives in Zimbabwe’s Diamond Sector ....................................................69

4.22 Conclusion ..............................................................................................................................70

CHAPTER FIVE: Conclusions and Recommendations ....................................................... 71

5.0 Introduction...............................................................................................................................71

5.1 Summary by Objectives ............................................................................................................71

5.2 Conclusions...............................................................................................................................73

5.3 Recommendations .....................................................................................................................74

5.4 Policy side Interventions ...........................................................................................................75

5.5 ADDITIONAL ISSUES: Governance and Capacity Building ....................................................77

5.6 Optimal Conditions required for Diamond Beneficiation ...........................................................81

5.7 Hypothesis Testing/Conclusion .................................................................................................83

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5.8 Direction for Future Research ....................................................................................................83

BIBLIOGRAPHY ..................................................................................................................... 84

Appendix A: Frameworks for Diamond Revenue management in Zimbabwe .................. 91

Annexure B: Letters of Approval ........................................................................................... 95

Appendix C: Organogram /Organizational Charts .............................................................. 96

Appendix D: Survey Questionnaire ........................................................................................ 97

Appendix E: Interview Guide ................................................................................................ 110

Appendix F: Zimbabwean Diamond Mining Industry and International Trade Market .................................................................................................................................................. 111

Appendix G: Glossary of Terms ........................................................................................... 112

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List of Figures

Figure 2.1 The Diamond Beneficiation Process: Progress along the diamond value

chain……………………………………………………………………………………………11

Figure 2.2 The Fiscal Space Diamond Conception………………………………………..12

Figure 2.3 The relationship between minerals beneficiation, mining sector taxes and fiscal

space…………………………………………………………………………………………..19

Figure 2.4 The Diamond Supply and Value Chain/the Diamond pipeline………………..20

Figure 2.5 The Four Stage Beneficiation process…………………………………………21

Figure 2.6 The diamond value chain -“The Journey from mine to finger”……………….24

Figure 2.7 The largest added value is created in retail sales……………………………...24

Figure 2.8 Indonesian mining policy environment/Legislative Framework for mining….32

Figure 3.1 The Research Design Matrix …………………………………………………36

Figure 4.1 Institutional and Legislative Frameworks for Diamond Revenue Management

………………………………………………………………………………………………...47

Figure 4.2 Diamond Revenue Management Legislative Frameworks……………………49

Figure 4.3 Proportion and Quality of Zimbabwean Diamonds …………………………..56

Figure 4.4 Average prices of diamonds per carat…………………………………………59

Figure 4.5 Diamond Production and Export Revenues…………………………………...60

Figure 4.6 Five components had an Eigen Value of more than 1 and were thus extracted

…………………………………………………………………………………………………67

Figure 5.1 Summary of Recommendations for Diamond Mining and Revenue Management

…………………………………………………………………………………………………81

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List of Tables

Table 3.1 Quantitative, Mixed and Qualitative Methods………………………….38

Table 4.1 Questionnaire Response Rate………………………………………......45

Table 4.2 Reliability of the Questionnaire…………………………………….…..45

Table 4.3 Major Frameworks in Diamond Management in Zimbabwe…………...50

Table 4.4 Benefits from Diamond Beneficiation according to importance……......54

Table 4.5 Challenges encountered by other countries in diamond beneficiation.....54

Table 4.6 Polished Diamond Sales for 2013……………………………………....59

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Acronyms

AU - African Union

AfDB - African Development Bank

BRICS - Brazil, Russia, India, China and South Africa

DRC - Democratic Republic of Congo

EITI/PWYP - Extractive Industries Transparency Initiative/Publish What You Pay

EU/EC - European Union/European Commission

IMF - International Monetary Fund

IMR - Institute of Mining Research

KP/KPCS - Kimberley Process/Kimberley Process Certification Scheme

MMMD - Ministry of Mines and Mining Development

MMCZ - Minerals Marketing Corporation of Zimbabwe

MoFED - Ministry of Finance and Economic Development

OPC - Office of President and Cabinet

PARLZIM - Parliament of Zimbabwe

RBZ - Reserve Bank of Zimbabwe

SADC - Southern African Development Community

UNECA/ECA - United Nations Economic Commission for Africa

UNCTAD - United Nations Conference on Trade and Development

UNDP - United Nations Development Program

UZ - University of Zimbabwe

WB - World Bank

WDC - World Diamond Council

ZDC/ZDEC - Zimbabwe Diamond Centre/ Zimbabwe Diamond Education Center

ZELA - Zimbabwe Environmental Lawyers Association

ZGS - Zimbabwe Geological Survey

ZIMASSET - Zimbabwe Agenda for Sustainable Socio-Economic Transformation

ZIMRA - Zimbabwe Revenue Authority

ZMDC - Zimbabwe Mining Development Corporation

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List of Appendices

Appendix A Frameworks for Diamond Revenue Management in Zimbabwe

Appendix B Letters of Approval for Research

Appendix C Organogram/Organizational Charts

Appendix D Survey Questionnaire

Appendix E Interview Guide for Zimbabwe

Appendix F The Zimbabwean Diamond Mining Industry and International Market

Appendix G Glossary of Terms

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CHAPTER ONE: INTRODUCTION

1.0 Introduction

This chapter focuses on the background to the problem, statement of the problem, objectives

of the study, research questions, hypothesis, justification of the study, limitations of the

study, delimitations of the study and a section on the organization of the study.

1.1 Background to the problem

The value of the global diamond trade and beneficiation industry in 2013 stood at an

estimated US$79 billion in 2013 (DeBeers 2014). Diamond processing countries like the

United Kingdom, Belgium, Russia, and the United States of America have reaped big fiscal

benefits as the entire upstream, midstream and downstream processing activities have

complemented government revenue collection efforts despite their not being traditional

diamond miners. Diamond beneficiation and value addition has thus led to improved

performance of the fiscal revenue tax heads in these countries leading.

Diamond producing countries in the global South have been leading in making calls for

more local diamond beneficiation as an economic policy, principally the Sub Saharan and

Southern African countries of Zimbabwe, Namibia, Botswana, Angola, South Africa, and

the Democratic Republic of Congo (DeBeers 2014). According to the Economic

Commission for Africa (ECA) the realization is that there is great potential in a mineral

based industrialization strategy for Africa (ECA, 2011: 47, 61). Accounting for over

seventy-eight percent (78%) of the worlds diamond production and eighty-eight percent

(88%) of the total global reserves this potential gives significant comparative advantage

(African Mining Vision, ECA 2009). Hunt (no date) argues that African diamonds are

considered among the best natural diamonds in the world. According to Bain and Company

Inc and Antwerp World Diamond Centre Reports (2011, 2013) these diamonds are a highly

sought after commodity by traders, jewelers, retailers and affluent consumers from countries

all over the world. The market is prepared to pay a premium price for this precious stone.

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According to the inaugural DeBeers Diamond Insight Report (2014) diamonds were a major

contributor to the economic performance of Botswana at 30% of Gross Domestic Product

(GDP) and over 75 per cent of exports in 2013. In Namibia the diamond industry

contributed eight per cent of GDP and almost 20 per cent of exports in the same year

(DeBeers 2014: 35). Approximately US$6 billion worth of rough diamonds were sold from

Botswana in 2013. This statistic alone is testament of the potential which diamonds have for

an economy and also indicates the high value of the diamond industry.

It is estimated that while Zimbabwe can produce up to twenty-five per cent of the world’s

supply in diamonds (Chininga Report 2013) it has not made much by way of foreign

currency earnings. According to Mark von Boschel (2010) a Belgian diamond industry

expert of the Antwerp World Diamond Trade Centre Zimbabwe has the largest known

diamond reserves in the world at present, estimated at US$800billion judging from the

current diamond foot-print (von Bonschel Sunday Times 08/08/2010). A diamond footprint

is a pattern deduced from the quality and quantity of diamond production allowing

estimations of future production to be made. If Zimbabwe adopts diamond beneficiation, the

country stands to earn over US$8 billion annually and create 200,000 jobs (CNRG 2013;

Mbanje 2013). The statistics point to a 20% potential contribution to nominal GDP as of

2010, which is significant for one mineral alone

(http://www.chamberofmineszimbabwe.com).

Although there are currently numerous revenue streams from the Zimbabwean diamond

mining sector, not much value has been derived to the benefit of government and the local

economy. This is principally because the sector’s taxation system is inadequate leading to

discrepancies in the value of reported remittances to treasury (Chininga Report 2013: 10).

These revenue streams include royalties, resource depletion fees, levies, licencing fees, pay-

as-you-earn, corporate taxes, income taxes, profit taxes, diamond export tariffs, Value

Added Tax (VAT), profits and dividends. Furthermore, despite the boom in mineral prices

and corporate profits from 2002-2007, very little has been earned by countries with minerals

(ECA 2011: 92). Diamonds are exported in their cheap raw form and in some instances re-

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imported as expensive finished products (Grynberg, 2013). This has contributed

significantly to the Zimbabwe’s own trade deficit growing from US$2.5 billion in 2012, to

US$4.2 billion in November 2013 and to the current projections of US$3.5 billion for 2014

(2013 National Budget Statement, 2012: 241, The Herald 10 January 2014). This is an

untenable situation given that the Zimbabwean Government currently faces an intense

liquidity crisis compounded by a big public debt overhang and a poor social services rollout.

Further, manufacturing has also continued lagging behind at 13% of exports in 2014

(Zimbabwe National Budget 2014). The IMF in its Natural Resources Per Capita Index,

concedes that Zimbabwe has the world’s best minerals per capita indices. Going forward,

Zimbabwe is projected to produce an estimated stable supply in excess of a firm assured 12

million carats of rough diamonds per year until 2023 (Bain and Company 2013: 57).

Conservatively this was 8 per cent of total global rough volumes and just 4 per cent of value

in 2013 this being production from the Chiadzwa area alone (DeBeers 2014: 42). However,

very little direct fiscal flows to government coffers have been realized thus far (KPCS 2012,

Chininga Report 2013).

Successive governments in Zimbabwe continue to face apparently insurmountable

challenges in resolving persistent fiscal problems. Chief among these being run-away public

expenditures, collapse of public services, unbridled hyperinflation in the period 1998-2008

eroding the value of the local currency, the demise of the Zimbabwean local currency in

2009, low revenue collection and inflows into the fiscus, poor savings in and dilapidation of

infrastructure, poor remuneration of the Civil Service leading to labour strikes, both

underemployment and high unemployment levels, “informalisation” of the economy,

inadequate social safety support systems, a large import bill peaking at US$7 billion in 2013

and US3 billion by June 2014, debt distress, unresolved external public debt burden

estimated at US$6.6 billion in 2010 and at US$6.9 billion in June 2014 but projected to

increase to US$7.2 billion by December 2014 {mid-term fiscal policy review 2014},

accumulation of loan repayment arrears since 2000, deindustrialization and low industry

capacity utilization (ZAADDS 2009, Kramarenko et al 2010: 3, 51-61, 2014 National

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Budget Statement, Mid Term Fiscal Policy Review 2014, World Factbook, n.d.). Intricately

tied to this is the government’s traditional overreliance on foreign sources of grant and loan

revenue for budgetary support, principally from the duo of the Bretton-Woods Institutions,

the World Bank (International Bank for Reconstruction and Development, and the

International Development Association) and the International Monetary Fund (IMF).

Stakeholders and institutions involved in the diamond beneficiation in Zimbabwe include

the following: Zimbabwe Diamond Technology Center, Zimbabwe Diamond Education

Center, Zimbabwe Mining Development Corporation (ZMDC), Minerals Marketing

Corporation of Zimbabwe (MMCZ), Ministry of Mines and Mining Development

(MMMD), Zimbabwe Chamber of Mines, Zimbabwe Geological Survey (established in

1910 as the custodian of mineralogical data on Zimbabwe), Institute of Mining Research,

the diamond mining companies, diamond cutting and polishing companies, Zimbabwe

Investment Authority (the one stop shop for investment in Zimbabwe), Ministry of Finance

and Economic Development, Reserve Bank of Zimbabwe (RBZ - strategic minerals

management), Zimbabwe Revenue Authority (ZIMRA – tax collection, tax policy

administration) and the Office of President and Cabinet (OPC) which is the lead agency

responsible for policy implementation under Zimbabwe Agenda for Sustainable

Socioeconomic Transformation (ZIMASSET).

1.2 Statement of the problem Despite minerals contributing 16% of Zimbabwe’s +/- US$10 billion Gross Domestic

Product and 52% of the country’s US$2,4 billion export earnings, the minerals sector has

continued to perform dismally in its contribution to the fiscus. Whereas Zimbabwe is

estimated to produce about 25% of the global supply of rough diamonds by volume,

diamonds alone contribute just about 1% to the GDP and between 20 - 30% of the total

export earnings; therefore it has not managed to derive much benefit from this resource

endowment. Meanwhile, the government continues to face apparently insurmountable

liquidity challenges and is struggling to meet most of its obligations. Zimbabwe has been

exporting its diamond in the rough. This has meant government has not realized the full

value from the export of its diamond production.

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However, no study has yet been done to assess the potential contribution that diamond

beneficiation has to improving the performance of government fiscal revenues. Unless this

study is done, the country may continue to lose out on the full value of its minerals until

they are depleted.

This study presents an attempt to bridge this gap by analyzing the potential of local diamond

beneficiation to Zimbabwe’s revenue contributions, drawing lessons from countries that

have gone before Zimbabwe.

1.3 Objectives of the study This study seeks to:

i. Examine the legal and institutional frameworks for diamond beneficiation in

Zimbabwe.

ii. Describe the state of the practice in other countries.

iii. Demonstrate the effects of diamond beneficiation to the mining fiscal regime.

iv. Recommend an appropriate diamond beneficiation model to enhance the

performance of the mining tax head/mining fiscal regime.

1.4 Hypothesis i. NULL - Diamond value addition and beneficiation has no effect on the performance

of taxation as a fiscal resource mobilization strategy.

ii. LITERARY ALTERNATIVE - The more that diamond mining companies process

diamonds, the higher the value they fetch on the international market and

concurrently the higher the revenues accruing to government from taxation of these

mineral receipts.

1.5 Research Questions

i. What are the legal and institutional frameworks governing diamond beneficiation in

Zimbabwe?

ii. What is the state of the diamond beneficiation practice in other countries?

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iii. Does Zimbabwe conduct diamond value addition and beneficiation?

iv. What effect does diamond beneficiation have on fiscal revenues performance?

v. What are the challenges and opportunities for diamond beneficiation in Zimbabwe?

1.6 Justification of the study This study aims to demonstrate the potential that diamond beneficiation has on improving

fiscal revenue mobilization through an improved tax regime. The purpose is to demonstrate

the state of the practice in Zimbabwe, the lessons that can be learnt from other jurisdictions

where beneficiation has been adopted, and the ground covered so far in advocating minerals

beneficiation in Zimbabwe. Given that there has not been much research conducted on

diamond beneficiation in Zimbabwe, the study also seeks to add to the literature on the role

natural resources and minerals beneficiation plays in improving government revenues. A

study of this nature is imperative for Zimbabwe whereby the outcome will be used to

influence Diamond Tax policy formulation.

1.7 Limitations of the study The researcher faced challenges in accessing certain types of information due to the

sensitive nature of the area under study and the impact of the Official Secrecy Act (OSA)

and the Access to Information and Protection of Privacy Act (AIPPA 2000) which both

prohibit public officials from revealing classified information and the free access of

classified information by the general public. However, the researcher requested advance

clearance from the relevant government ministry and also gave assurance through a written

“Informed Consent Letter” indicating the material will be used for purely academic

purposes. To further mitigate this challenge the researcher relied on documentary evidence.

Furthermore, the very nature of diamond mining sector as a very secretive industry

prevented the researcher from fully accessing all the required information on beneficiation

first hand. This is because respondents who are diamond sector investors have vested

interests and thus fear industrial espionage. In this case the researcher resorted to material

which is already in the public domain through library searches, internet browsing, reviewing

conference reports or publications, and browsing newspapers.

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Additionally, diamond mining executives were difficult to locate due to their busy

schedules, prior commitments and international travel. Some of the key informants were

also located at the Chiadzwa Diamond Fields which is a restricted cantonment area.

Therefore, respondents delayed, postponed or sometimes cancelled meetings leading to

delays in data gathering. However, to overcome these hurdles the researcher booked

appointments for meetings ahead of making site visits for data gathering and in the case of

respondents who were hard to reach sent emailed questionnaires. For the very busy key

informants the researcher conducted telephonic interviews.

1.8 Delimitations of the study This study was confined to the diamond sector within the Zimbabwean mining industry. It

limited its focus on issues to do with the potential fiscal benefits that accrue to the

Zimbabwean Government through adoption of the value addition and beneficiation strategy.

Specific focus was on tracing the diamond value chain from extraction to cutting and

polishing so as to establish the value trends as processing increases. The research also

briefly reviewed the Botswana case as a country which has adopted diamond beneficiation

drawing lessons for Zimbabwe to adopt and implement.

1.9 Organization of the study This thesis has five chapters presented in the following manner:

I. Chapter One – Introduction

This chapter introduces the thesis, outline the background of the problem, statement of the

problem, justification of the study, and state the research hypotheses. It also highlights the

pertinent research questions, objectives of the study, along with limitations and their

mitigation and delimitations demarcating the boundaries set for the study.

II. Chapter Two - Literature Review and Analytical Framework

This section outlines and critically analyses various authoritative perspectives as enunciated

by scholars on diamond beneficiation and fiscal resource mobilization. It reviews current

published work in the sector locally, regionally and globally, at the same time attempting to

identify the lacuna in knowledge. It also discusses the analytical framework within which

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the study is being undertaken, focusing on concepts and theories that have been proffered to

explain relevant phenomena.

III. Chapter Three - Methodology

This section describes the research methodology adopted, focusing on research design,

sampling procedure and the data analysis techniques employed in the study.

IV. Chapter Four – Major findings

In this chapter major findings are presented and analyzed.

V. Chapter Five – Conclusions and recommendations

This Chapter contains concluding remarks and focuses on recommendations to improve

fiscal performance of the diamond mineral tax head.

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CHAPTER TWO: THE LITERATURE REVIEW

2.0 Introduction

This chapter presents a review of the literature on diamond value addition and beneficiation

and minerals taxation. It discusses the theoretical, conceptual and analytical frameworks

informing diamond beneficiation and revenue management encompassing Resource

Nationalism, the Fiscal Space Diamond, Modernization Theory, and Resource Curse

Theory. Further, Anthony Downs’ “Issue Attention Cycle”, the New Institutional

Economics Theories (Public Choice, Principal-Agency and Transaction Cost Economics)

and Rational Choice Theory was reviewed in view of policy making in Zimbabwe. The

section closes with an overview of selected country cases, drawing lessons for Zimbabwe.

2.1 Theoretical, Conceptual and Analytical Frameworks

2.1.1 Conceptual or Definitional Framework

2.1.1.1 Introduction

The research builds on the concepts of manufacturing value added, value addition,

beneficiation, the Resource Curse Hypothesis,

2.1.1.2 Defining Efficacy

Efficacy in this study refers to utility, ability, usefulness or possibility. It is the “power to

produce the desired effect or result” (http://www.merriam-webster.com). Related words are

efficiency, effectiveness, effectualness and productiveness. Simply put this is the “capacity

for beneficial change” (http://www.en.wikipedia.org).

2.1.1.3 Diamond Beneficiation/Value Addition (BVA)

The South African Department of Mineral Resources (DMR)

(http://www.dmr.gov.za/beneficiation-ecnomics.html), considers the term beneficiation to

be interchangeable with value added processing. The DMR (ibid) defines beneficiation as

entailing “the transformation of a mineral or a combination of minerals (produced by mining

and extraction processes) to a higher value product, which can either be consumed locally or

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exported.” For DeBeers (2014: 81) beneficiation is the “creation of activities beyond mining

the natural resources in producing countries.” This means diamond sorting, valuing, selling

and manufacturing. For the Zimbabwe Congress of Trade Unions (ZCTU 2011: 84)

beneficiation simply refers to the process of adding value so as to increase the quality and

value of a saleable product. According to Bwititi (The Sunday Mail Extra Analysis, 8 June

2014) “beneficiation entails the value addition of minerals by processing them to attain

higher returns.”

2.1.1.4 Synthesis Definition for Diamond Beneficiation

Therefore, simply put, beneficiation refers to any subsequent processing undertaken on a

mineral or primary product post extraction. It is the process of further manipulating the

minerals innate properties, in new and innovative ways, into useful finished products that

can be commercially sold for a pecuniary consideration. Diamond beneficiation thus refers

to the successive cleaning, cutting and polishing of the mineral until it is valuably fashioned

in various ways including the manufacture of diamond industrial tools, diamond ornaments

and diamond jewellery.

2.1.1.5 Diamond Beneficiation Principles

There are various values, principles and theories underpinning beneficiation. These include

that beneficiation entails a transformation in the value of the diamond at each stage, hence

value addition. The above definitions also recognize various things: firstly that minerals are

seldom purely and distinctly separated when they are mined and secondly, while some

minerals occur individually, others may be extracted as a combined mineral and must

necessarily be purified through processing and thirdly, this post extraction purification

enhances the value of the resultant product. The ZCTU asserts that the beneficiation process

creates industries that stimulate demand for other goods and services (ibid). For example,

this can be observed in Botswana which has diversified its raw diamonds to exports of

polished diamonds, finished diamond products and other diamond value added and services.

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2.1.1.6 History/Origins of Beneficiation in Zimbabwe

While there is no consensus on when minerals beneficiation began in Zimbabwe, the

concept of beneficiation is not new. Early records indicate that mining began in Africa about

20000 to 40,000 years ago (Kuhn 1987, Jourdan 1995, AMV/ECA 2009). As early as the 6th

Century the indigenous Bantu speaking people occupying the area which is in Southern

African region, (present day Southern African Development Community, SADC), worked

iron ore, gold and copper through smelting (Kuhn 1987, Jourdan 1995, ibid). In the central

parts of Africa, it is evident from archeological data that mining and beneficiation of iron

and gold ores was already taking place even before the arrival of Arab and Indian merchants

(Kuhn 1987). Hence the notion of minerals beneficiation is as old as the earliest human

civilizations in Africa.

The diagrams below depict the stages of diamond beneficiation from mine extraction all the

way to retail, and the value transformations at each stage:

Figure 2.1: The Diamond Beneficiation Process: Progress along the diamond value

chain

Source: Adapted from Bain and Company 2011, DeBeers 2014

Mining,

ExtractingOre

Assaying,Cleaning, Sorting,

Valuation, Auction

Cutting,

Valuation,

Auction

Polishing, Valuation, Jewellery-making,

Valuation, Auction

Retail

Jewellery

Sales

No processing Some processing Fully beneficiated

Incr

ease

in v

alue

of d

iam

onds

2.1.1.7 The concept of Fiscal Space

Peter Heller (2005) developed

increase its fiscal space, it has basically four options

Figure 2.2: The Fiscal Space Diamond Conc

Source: Adapted from Aguzzoni (2011), Heller (2005)

There is contestation on the definition of the concept of fiscal space, however Aguzzoni

(2011: xi) asserts that fiscal space is that ability of government to provide financial

resources for its policies with the aim of attaining socio

There are basically four options for a government seeking to increase its fiscal space, i.e.

ability to provide resources for its developmental initiatives/ programmes: 1. Increasing

Official Development Assistance (ODA), 2. Enhancing the mobilization of domestic

revenue, 3. Increase borrowing and 4. Reprioritizing current expenditure to make

efficient (Aguzzoni 2011: xi). All these four strands represent an attempt by central

government to improve its resource mobilization strategies so as to provide better and more

reliable social services sustainably today and in the future.

12

The concept of Fiscal Space

Peter Heller (2005) developed the idea on the creation of fiscal space

increase its fiscal space, it has basically four options as depicted in the diagram below:

Figure 2.2: The Fiscal Space Diamond Conception

Aguzzoni (2011), Heller (2005)

on the definition of the concept of fiscal space, however Aguzzoni

that fiscal space is that ability of government to provide financial

resources for its policies with the aim of attaining socio-economic development in a country.

There are basically four options for a government seeking to increase its fiscal space, i.e.



revenue, 3. Increase borrowing and 4. Reprioritizing current expenditure to make



reliable social services sustainably today and in the future.

idea on the creation of fiscal space. For a nation to

depicted in the diagram below:

on the definition of the concept of fiscal space, however Aguzzoni

that fiscal space is that ability of government to provide financial

economic development in a country.

There are basically four options for a government seeking to increase its fiscal space, i.e. its



revenue, 3. Increase borrowing and 4. Reprioritizing current expenditure to make it more



13

2.1.1.8 Mineral Economics

Minerals have always been at the heart of the African economy even before the arrival of the

colonists. However, very little was written about this industry until the late 1800s and early

1900s on arrival of the British colonists (Summers 1969: 3). Numerous scholars have

identified mining practices in ancient Central and Southern Africa. Mining was the basis of

a thriving trade in gold, copper, iron and other minerals for fabrics from Middle Eastern

merchants of the time (Summers 1969, Kuhn 1987, Soussan 1988, and Jourdan 1995,

AMV/ECA 2009).

According to Hrebar and Gentry (2003: 517-560) there exists a unique supply – demand

relationship in the minerals trade industry which they term distinctive features, which

influence investments in the sector. This relationship may be explained by the theories and

concepts informing this study. On the supply side, the distinctive features are: capital

intensity, unique cost structures, long pre-production periods, unique deposits, obsolete

technology, depletable non-renewable assets/minerals, international competition and

recycling; while on the demand side there are: derived demand, undifferentiated nature of

metals (minerals) and slow growth (ibid). These dynamics are also observed in the

Zimbabwean minerals industry and hence influence minerals economics of the country.

2.1.2 Theoretical frameworks

2.1.2.1 Introduction This section reviews the following theories which inform the study: Dependency Theory,

Resource Curse Theory, Resource Nationalism, Modernization Theory, Fiscal Space

Diamond, New Institutional Economics (Public Choice Theory, Principal Agency Theory),

and Anthony Downs’ Issue Attention Cycle and Rational Choice Theory.

2.1.2.2 Dependency Theory Explains Center-Periphery economic relationships between nations which were molded over

Centuries of colonialism configured so that the periphery continues to supply cheap raw

materials to the Center (developed countries) which in turn conduct

14

processing/manufacturing and resell more expensive finished goods to the periphery. This

has tended to bring huge economic development to the Center but under-development to the

Periphery.

2.1.2.3 Resource Curse Theory This research is informed by the Greed vs. Grievance or Resource Curse Hypothesis which

states that mineral rich countries tend to grow less rapidly, be poorer in terms of both

economic development and accountability to the general public and are more prone to

conflict (Soussan 1988: 2, Auty 1993, Ross 1999, 2003). According to Auty (1993) and

Ross (2003) having a wide variety of minerals resources is usually not very beneficial to the

host country and in fact might even be pushing development indices in the negative

direction. The observation is that most of the countries which are rich in natural resources

tend to be overly dependent on revenue from the sale of raw materials. These raw materials

are locally in abundance and are readily exported at the expense of developing robust local

processing and manufacturing industries. In turn this leaves these countries vulnerable to the

rapid fluctuations of the prices for raw materials on the international market.

Further, this theory asserts that the government tends to be unresponsive to the demands of

the general public’s because of an entrenched patron-client system that sees public officials

controlling the allocation of mineral rights selectively to preferred individuals. This leaves

the electorate without a voice and crowds them out from the political system usually leading

to conflict and contestation.

However, there have been noteworthy critiques of the Greed vs. Grievance Theory

(sometimes variously termed the Resource Curse Theory). While some scholars like Auty

(1993) and Ross (2003) hold the view that natural mineral resources are a source of a sort of

“resource curse” or “Dutch Disease”, this writer advocates the more optimistic view of the

United Nations Economic Commission for Africa (UNECA, 2011) and scholars who argue

that minerals present an extraordinary opportunity for developing countries and have great

potential to engender significant developmental deliverables. These include deliverables

such as sustainable socio-economic development through improved livelihoods from higher

15

incomes, increased local participation in economic development, employment creation,

improved fiscal revenue contributions, infrastructural development, rapid industrialization,

technological advancements and faster modernization of the economy amongst others (ibid).

2.1.2.4 Modernization Theory

This study also builds upon Rostow’s Modernization Theory which states that in the quest

for attaining full socio-economic development, countries have to go through five stages: 1.

Primitive/Traditional Society; 2. Pre conditions for Take-Off; 3. Take-Off; 4. Drive-to-

Maturity and 5. Mass consumption. This theory was developed by a development economist

Rostow who observed that countries exhibit similar characteristics as they progress through

various stages of socio-economic transformation. The major assumption of the theory is that

economic development/progress proceeds in a linear fashion and each country must pass

through these five stages in succession on their journey to being an industrialized developed

society with a full range of economic options for its citizens.

Modernization theories indicate that development proceeds in a linear fashion passing

through various stages, i.e. development as a linear staged process. Countries cannot leap

frog from stage to stage but rather have to endure this gradual and sequential progression.

For example, even the developed nations/States began as primitive societies then gradually

moved through centuries from primitive agricultural societies, proceeding to primary

processors/manufacturing, until eventually they achieved mass production and mass/full

consumption levels. Value addition and beneficiation therefore is seen as a last stage of the

development process, e.g. processing maize to maize flour, soya beans into cooking oil,

metals into various finished products, and rough diamonds into diamond jewellery and

machinery/tools. Therefore, although Zimbabwe is progressing at a slow pace, it has

necessarily begun the journey to modernization since it has adopted the value addition and

beneficiation strategy in ZIMASSET. The country is thus making progress and is well on its

way to its own mass/full consumption. The mass consumption stage is also characterized by

an extensive service industry (the diamond retail sales and marketing services associated

with jewelry and machinery).

16

2.1.2.5 Anthony Downs “Issue Attention Cycle” and Rational/Public Choice Theory Anthony Downs writes persuasively on the nature of the policy making process and also on

the various reasons why elected officials behave in the way they do. There is a realization of

the very important role played by the “Issue Attention Cycle” in (explaining the evolution

of) the mining and minerals policy development process. According to Downs (1972: 38-50)

the cycle consists of four stages: pre-problem stage; alarmed discovery and euphoric

enthusiasm, push for change; realization of the significant costs of change; decline of

interest; and the post problem stage.

Policy development has also proceeded in this fashion in Zimbabwe’s mining sector. The

country only adopts aggressive policy stands when a major discovery is made, for example

the Mines and Minerals Act of 1962 has been up for amendment since 2007 just after the

discovery of significant deposits of diamonds in the Chiadzwa area in the Eastern

Highlands. However, not much has been done since then, a lull of 7 years only for the same

issue to come back on the agenda with the introduction of ZIMASSET in 2013. ZIMASSET

emerged after people started calling for more transparency in the way the country’s mineral

resources where being managed. This was after discovery/realization that multinational

companies (MNCs) were making huge profits but there was very little that was trickling

down to locals or to central government. At the same time the political elites saw an

opportunity to garner electoral support through promising more stringent action/intervention

in the way mining was being done (also election promise from ZANU PF manifesto. It was

part of a re-election bid.). This is particularly visible in both the indigenization and

economic empowerment (IEE) legislation and the ZIMASSET Policy Blueprint (the

converted ZANU PF election manifesto). Therefore issues gain prominence cyclically in

response to demands of the public (electorate) or the periodic preferences of the elites

(politicians). Public choice theory (a wing of the New Institutional Economics) explains that

elites aim to maximize their votes in an election and hence behave as if they are acting in the

public interest whereas they seek to achieve selfish ends.

17

2.1.2.6 Principal-Agency Theory A part of the New Institutional Economics (NIE) which seeks to explain the relationships

between Principals and their Agents. The central government ( the Principal) delegates

mining policy issues to the Ministry of Mines and Mining Development (MMMD), which in

turn forms State Enterprises (the Agents) to get into mining ventures on behalf of the

Government (the shareholder) and collect revenue on its behalf i.e. through ZIMRA, ZMDC

and MMCZ. These government companies and Joint Venture (JV) partners act on behalf of

their principals, the shareholders. The ZMDC mines either alone or in conjunction with the

JV companies, subcontracts the selling and marketing of diamonds to the MMCZ. The

Agents typically have access to more information than their Principals and tend to use this

privilege to their advantage as they interact with the principal.

2.1.2.7 Transaction Cost Economics TCE is a wing of the NIE which explains the cost reasons why certain policies are adopted

and others rejected. The various costs may be financial (sanctions), societal (displacement of

people in mining areas), environmental (degradation and pollution have become key issues

in diamond mining), or costs of acquiring skills and technology or the rights to use patented

technology. Diamond cutting is now very sophisticated relying on the use of expensive laser

technology (DeBeers 2014, McKinsey 2014).

2.1.2.8 Resource Nationalism Philosophy Internationally it has come to be accepted that a people must have rights over the minerals

under their soil and governments have the responsibility to manage these resources for the

benefit of their people (Natural Resources Charter 2011: 3). A prominent feature of the

resource nationalism discourse in Zimbabwe is the Indigenization & Economic

Empowerment (IEE) discourse. For Zimbabwe, resource nationalism has entailed

localization of ownership of mineral rights and sharing of minerals revenue between mining

companies, the government and the local communities living in the areas containing these

mineral resources.

The United Nations has previously acknowledged this in its 1962 United Nations General

Assembly Resolution where it declared that “violation of the rights of peoples and nations to

18

sovereignty over their natural wealth and resources is contrary to the spirit and principles of

the Charter of the United Nations,” (Catholic Institute for International Relations 1983: 68).

Governments must not only set the direction and purpose of mining in its country (i.e.

regulation), it must also play an active role (ibid). This is more so true for developing

countries which are vulnerable and at the mercy of large multinational mining corporations.

According to the International Council on Mining and Metals (ICMM) and the

Commonwealth Secretariat (2009: 5), “for governments the concept of taxation is directly

linked to the issue of permanent sovereignty over natural resources and to perceptions of

exploitation, revenue generation and partnering in development.” Therefore, it becomes

essential and of quintessence for governments to increasingly assert their right to exclusively

control minerals on behalf of their citizens. The main intention in adopting this philosophy

being that the State has to extract as much value for the benefit of the local community.

Taxation therefore speaks to the very heart of the question: do the costs of conducting

mining outweigh the benefits accruing from there forth (ICMM and the Commonwealth

Secretariat 2009: 5).

2.1.3 Analytical framework This section presents the adopted analytical framework explaining the relationship between

the three identified variables.

19

Figure 2.3: The relationship between minerals beneficiation, mining sector taxes and

fiscal space

Source: Adapted

The diagram above depicts the analytical framework adopted by the research to explain the

relationship between minerals beneficiation and fiscal space.

2.1.3.1 The policy process

According to Anderson (2005), public policy making proceeds in a cyclical and iterative

process consisting of several stages: problem identification/agenda setting, formulation,

legitimation/adoption, implementation and evaluation. This study focuses on the first two

stages of the process. In real life some of the stages are collapsed together or left out

altogether.

2.1.3.2 The Diamond Beneficiation Process: Analyzing the Diamond Value Chain

The key to beneficiation is the utility of the final product. Clearly beneficiation has two

complementary domains, the first being the mining sector and the second being the

manufacturing sector. The involvement of each sector increases and decreases

correspondingly as the mineral processing proceeds from mine to factory. According to

DeBeers (2014) there are four aspects to diamond beneficiation and value addition, that is

upstream (rough diamond production and diamond exploration), downstream (global

consumer demand and diamond jewellery retail), midstream (cutting, polishing and

jewellery manufacturing, rough diamond sales and distribution) and side stream value

addition (DeBeers 2014: 4-5). Side stream value addition refers to inputs namely capital

Dependent

Variable

(Expansion of fiscal space)

Intervening variable

(Mining fiscal regime)

Independent

Variable

(Minerals Value addition and

Beneficiation)

goods, consumables and services into the value chain (ibid). However, Manhize Projects

(2011) contend that the total net

just the downstream and sidestream linkages.

Figure 2.4: The Diamond Supply and Value Chain/the Diamond pipeline

Source: Bain and Company (2011, 2013)

In Africa the most influential voice on minerals beneficiation has been the African

Union/United Nations/Economic Commission for Africa initiative of the African Mining

Vision. This vision articulates the need for mineral producing countries to conduct pos

extraction processing so as to localize the full benefits and value derived from raw materials

that are in abundance in Africa (ECA/AMV 2009).

Exploration

• Excavation

20


(2011) contend that the total net beneficiation of minerals is maximized by a combination of

just the downstream and sidestream linkages.

: The Diamond Supply and Value Chain/the Diamond pipeline

Source: Bain and Company (2011, 2013)



Vision. This vision articulates the need for mineral producing countries to conduct pos


that are in abundance in Africa (ECA/AMV 2009).

Sorting

• Cutting and polishing


beneficiation of minerals is maximized by a combination of

: The Diamond Supply and Value Chain/the Diamond pipeline



Vision. This vision articulates the need for mineral producing countries to conduct post


Exchanges/Bourses

• Retail/Store

21

Figure 2.5: The Four Stage Beneficiation process

Source: Baxter (2005: 26)

Most developed countries have managed to acquire significant benefits through local

beneficiation of minerals, even when they do not possess natural resources. Countries like

Belgium, Israel, Japan and the USA have developed sophisticated industries that conduct

manufacturing value addition for minerals they import from foreign countries. Form crude

oil, to precious metals, to food products, which are locally sourced or imported from

producing countries in the developing world.

The biggest challenge for developing countries is the Anglo-Saxon Profit Maximization

Model of investment. This entails intense corporate specialization, leading to a dearth in

local capacity, skills, competencies and technologies (Baxter 2005: 26). Gaining a

competitive edge in this environment becomes “mission impossible” for countries just

setting off to conduct local beneficiation. However, Baxter (2005) prematurely and

erroneously asserts that “the availability of precious metals and diamonds does not

constitute an advantage” when it comes to minerals beneficiation economics. Although he

22

rightly observes and contends that the vast majority of beneficiation currently takes place in

“countries which do not mine the product at all or do not mine much of the product, but

which have focused their skills set on the manufacturing sector,” he fails to recognize the

significance of the impact of the extensive supply and availability of these minerals locally,

which in itself constitutes a source of comparative advantage, a point belabored by

McKinsey and Company (2014). McKinsey and Company aver that should producing

countries all decide to conduct their own beneficiation, this could shift the tide and improve

their competitive advantage. Therefore, Baxter’s assumptions primarily rest on an outdated

model in which the international market controls supply and demand economics, where

producer countries are compelled to sell their minerals even at give away prices.

However, with the emergence/resurgence of the resource nationalism doctrine, this scenario

could drastically change/shift in favour of producer countries if they can commit to limiting

the supply and outward export of raw unprocessed product. A similar observation was made

by McKinsey & Company (2014: 3) who acknowledge and recognize that there is a

potential negative impact or disruptive shock that could emerge should producing countries

decide to nationalize part or all of their production. This trend is emerging with increasing

demands for more local beneficiation in producing countries. McKinsey & Company

identify “three low-probability but potentially high impact shocks that could transform the

industry if they were to occur: 1. an extreme shock to demand; 2. an economic derailment in

India and China (the growth markets); and 3. resource nationalization in major producing

countries (McKinsey & Company 2014: 3).

Therefore, while the producing countries do not have free niceties like free/cheap colonial

slave labour, they could still build on the comparative advantage of owning and producing

the minerals to build an acceptable level of competitive advantage. Further, the world has

changed significantly in the 21st Century. There has been the radical sudden shift in global

economic power bases from the traditional “West” to the emergent and rising “East” which

has prominently featured more “South-South” trade, which is now increasingly perceived to

be more beneficial.

23

The Brazil, Russia, India, China and South Africa (BRICS, bank capitalization proposed at

US$100 billion) countries are expected to change the international economic landscape, thus

they present an opportunity worth pursuing. Africa has already begun to benefit from an

inward flow of US$200 billion Chinese money in the form of capital and infrastructure

investments.

Grynberg (2013) is of the opinion that diamond beneficiation being conducted in Botswana

significantly impacted the local economy. To this end Botswana localized diamond sales

and prohibited export sale of unprocessed diamonds in 2013. This greatly disadvantaged the

British where Botswana’s diamonds were previously being sent for processing, cutting and

polishing. However, their loss became the Batswana’s gain as localizing the Diamond

Technology Center has proven since 2013.

However, Baxter (2005:27) concedes that while comparative advantage from simply

possessing the minerals is difficult to attain, the shift has now moved to competitive

advantage that can be gained through/ other factors come into consideration when deciding

where to conduct minerals beneficiation. These factors include competitive production,

skills, craftsmanship, access to markets, good market intelligence, knowing which products

to sell into which markets, cost leadership in production, access to concessional funding,

technology, political stability (KPCS 2012). This makes more sense in light of the changing

global dynamics and shifting demographic with the entrance of former third world countries

into the “big leagues” economically.

24

Figure 2.6: The diamond value chain -“The Journey from mine to finger”

Source: Bain and Company (2011: 19)

The diagram below shows that manufacturing and retail sales stages create the highest value.

Figure 2.7: The largest added value is created in retail sales

Source: Bain and Company (2011: 22)

25

2.1.3.3 Minerals Sector Taxation and Fiscal Regime

There are usually two major orientations of a mining fiscal regime for any country: a) a

royalty/taxation based system, and b) a contractually agreed model where the Product/Profit

Sharing Contracts (PSCs) are agreed upon by the major stakeholders (ICMM and

Commonwealth Secretariat 2009).

The ICMM and Commonwealth Secretariat aver that because of the peculiar nature of the

mining sector, there needs to be developed a special fiscal regime exclusively for the mining

sector. They suggest the following two types of instruments, i.e. profit based taxes and

production based taxes (ibid). Profit based taxes are taxes on incomes, profits or cash flow.

This entails taxing revenue of mining companies after removing qualifying costs. The usual

types of taxes in this class are corporate income taxes, profit taxes on dividends and

royalties, and withholding taxes on remitted dividends. Production based taxes consist of a

tax on inputs and outputs. These are charges on deposits of production, inputs and services

and include Value Added Tax/Goods and Services Tax (VAT/GST) or sales and excise tax,

and ad valorem tax royalties. An ad valorem tax is a type of tax which is charged according

to worth or value of a piece of property normally imposed at the time when a transaction is

completed, for example imports duties, registration fees and licenses.

2.1.3.4 What factors influence taxation in the diamond sector?

The issue of government revenue remains contentious, especially in the Zimbabwean

diamond mining sector. According to the ICMM and the Commonwealth Secretariat

(2009:5) the taxation of minerals has at least three dimensions: 1. the level of taxation

dealing with the amount of taxes levied on the mining sector; 2. the structure of taxation

dealing with the choice of types of taxes e.g. levying royalties instead of income taxes; and

3. the transparency of the resulting revenue streams dealing with the need to track where the

revenues go once collected (ibid). The above framework ensures that the correct type of

taxes are levied, collected and properly accounted for. Taxation is a very emotive subject

world over, speaking to the heart of the need for government to raise fiscal resources so as to

be able to carry out its mandate as the provider of public goods and services (ibid).

26

However, the ICMM and Commonwealth Secretariat further acknowledge that usually the

competing interests between government (the taker) and the private sector (the taxed) lead to

failure to agree on an unacceptable level of taxation (ibid). What the government considers

as reasonable level of taxation may have a direct impact on the “bottom line” of a company

and stifle entrepreneurial spirit or investment and is effectively resisted. There is thus a need

to strike a balance between the three dimensions to taxation, especially in the minerals

mining sector which is capital intensive and requires significant FDI.

There are currently problems being experienced with repayment of investors. This has

precipitated challenges in monitoring profit repatriation, transfer pricing, tax evasion, under

valuation of diamonds and export of value. Experiences elsewhere indicate that how much

government gets by way of fiscal revenues from the mining sector largely depends on its

ownership of shares in those mining companies (CIIR 1983: 91, DeBeers 2014, McKinsey

and Company 2014). For example the Government of Botswana owns 50% of all diamond

mining companies in Botswana and 5% of the issued shares of DeBeers. The government

gets between 75-85% of the total revenue from all local diamond mining companies sales

and profits (Grynberg 2013, DeBeers 2014). As a fiscal measure the Government of

Botswana could also still tax a high proportion of the profits even if the mining companies

are fully privately owned (ibid, CIIR 1983).

Therefore the job of the Government is to ensure that the country gets something even if the

mining company is running at a loss and also make sure that when profits improve the

government can levy an “Additional Profits Tax” on these companies (ibid, CIIR 1983).

There is a need to constantly monitor financial dealings of all mines, i.e. both privately

owned and those jointly owned by the government and private sector, to ensure fair dealing

(CIIR 1983: 93). Principally this is because there is a risk of overcharging goods and

services for example the cost of toll refining of platinum in South Africa may be overpriced

for Zimbabwean ore. However, there is no sure way of telling without sufficient monitoring

of these transactions. Similarly for the diamond sector, the cutting and polishing done in

foreign countries may be quoted as being more expensive for various dubious reasons,

27

which include under pricing, and under invoicing exports. The centralized Export Marketing

Frameworks need strengthening to curtail transfer pricing, detailed scrutiny needed (ibid).

State marketing through MMCZ/RBZ is expected to minimize transfer pricing leakages,

other countries that have done it include Tanzania, Botswana, Zambia (through MEMACO),

Saudi Arabia (CIIR 1983: 92-96).

The experience of China demonstrates that the challenges with minerals securitization

model as a resource mobilization strategy (UNECA 2011). The end result is usually many

“holes in the ground” with little to show for the rapid extraction of minerals after reserves

are depleted. This negatively impacts on future generation’s ability to enjoy benefits from

these non-renewable resources.

2.2.0 Possible Strategies for ensuring Beneficiation 2.2.1 Cases in Minerals Beneficiation: Selected Country Experiences: Botswana, Indonesia, India, Belgium, Canada

This section reviews selected country cases, highlighting lessons that can be drawn for

Zimbabwe to enhance local beneficiation and value addition. The framework for comparison

consists of the following elements: Institutional (encompassing the main key players),

Regulatory/Legislative (encompassing the mining fiscal regime), what is

Botswana/India/Belgium/South Africa doing right? What challenges are faced by

Botswana/India/Belgium? and How did they overcome it?

2.2.2 Lessons from the Botswana Case

Botswana has only recently moved its diamond trade facilities from Europe to its home land

and has endeavored to undertake beneficiation on its soil (Grynberg 2013). Botswana is the

source of some of the world’s most high quality and highly valuable diamond gemstones but

until recently these have been beneficiated and processed in foreign countries, especially

Belgium, UK, USA, Russia, Israel, Dubai and India.

28

2.2.2.1 The Botswana journey towards local beneficiation

Prior to moving the Diamond Technology Center (DTC) to Botswana, DeBeers processing

was based in London. Trade was biased in favour of European countries without the mineral

(Belgium, UK). Moving the Diamond Technology Centre from Europe to Botswana has

setup a Diamond Technology Park “which is a hub for the cutting and polishing of

diamonds locally.” This DTC makes about US$1 billion a year from beneficiation of

diamonds alone.

2.2.4.2.2 Challenges for diamond beneficiation in Botswana

Botswana was among the poorest countries of the world on attaining its independence in

1966. Among the greatest challenges for the country were its landlocked position and

periodically suffering from severe droughts. Most of Botswana is barren wasteland with

extensive desert areas receiving minimal rainfall annually. This meant that the country could

not conduct any significant rain fed agriculture and had to scout for economic opportunities

from elsewhere. However, in 1967 there was a discovery of diamonds which became a

turning point and led to a rapid change in the socio-economic landscape of the country. This

immediately saw the economy growing by an average seven percent (7%) per annum

between 1970 and 1974 and significantly until the 1990s commodity slump.

This export-led mineral based high growth was sustained until the early 1990s when a

worldwide commodities price crash led to a significant slowdown in the pace of growth.

Meanwhile, despite these strides there still persisted some key challenges for policy makers:

overvaluation of the local currency due to high forex earnings leading to deteriorating

standards of living among locals due to the high cost of living, high unemployment levels

since diamond mining was largely capital intensive rather than labour intensive, and

education and skills shortages amongst the indigenous population. These indices worsened

because the revenue was concentrated in the hands of a few industry players leading to calls

for the government to re-strategize and rethink its diamond sector policies.

29

2.2.4.2.3 The call for beneficiation: How they overcame these challenges

In the late 1990s and early 2000s, Botswana started pursuing new avenues for getting

maximum returns from its minerals. Initially the country adopted a Maximum Extraction

Strategy which aimed to take advantage of the prevailing high commodity prices. However,

the key weakness of this strategy was that the economy was not diversified and heavily

reliant on diamonds revenue which revenue was vulnerable to commodity price fluctuations.

The following were found to be the obstacles to the adoption of a robust diamond

beneficiation strategy in Botswana: vested interests of middlemen in the value chain, neo-

colonialism, poor legal and institutional frameworks, skills and technological shortages,

poor internal market structures, the enclave nature of the diamond industry, lack of political

will and financing challenges. As part of their economic diversification programme,

Botswana bought 15% of DeBeers so that the country can still earn from the global growth

of DeBeers in other markets beyond diamond mining. DeBeers is a global MNC trading in

many commodities including diamonds.

The minerals price boom of 2006-2008 saw Botswana call for more beneficiation of its

minerals since diamonds are a non-renewable resource and principally because of the highly

volatile commodities prices on the world market. This has evolved to the present scenario

where Botswana emphasizes local diamond beneficiation and value addition of the mineral

before export. From 2013, the county proceeded to prohibit the export of unpolished rough

diamonds before they are processed locally. It subsequently its Diamond Technology Centre

from its London office to Gaborone. This strategy has brought about significant benefits for

the country since being introduced. Industry leaders assert that today, in 2013-4, twenty-five

percent (25%) of Botswana’s Gross Domestic Product (GDP) comes from its diamond

mining ventures which translates into and accounts for seventy-five percent (75%) of all its

exports (Bain and Company 2013, DeBeers 2014, and McKinsey and Company 2014). The

country currently produces the world’s most valuable polished gem quality stones (earning

the most in dollar terms globally); and this has led to the growth of the economy, skills

development, employment creation, trade surpluses and forex reserves being in the positive

(ibid).

30

2.2.4.2.4 Diamond Industry Regulation in Botswana

Botswana now has a robust diamond industry regulatory framework that is very

sophisticated and allows the State to earn up to 85% of the total value of their mined

diamonds. The country has over the years developed both international and local networks

of technology, manufacturing/beneficiation infrastructure, expertise, personnel, investors

and skills by investing heavily in business incubation, Research and Development, and

training.

2.2.4.3 Lessons from the Case of Indonesia 2.2.4.3.1 Challenges for nickel beneficiation in Indonesia

In 2009 and 2014 the Indonesian government adopted and implemented a compulsory

beneficiation strategy for its minerals to take effect from January 2014 2017 (Soraya and

Bellamy 2014). However, the World Bank has noted that the country could lose or forgo up

to US$6 billion each in exports and in government revenue on introducing this policy. This

revenue was lost from unrealized export sales of the mineral (Wesley 2014). Pessimistic

estimates indicate significant job losses, estimates range from 100,000 to 800,000 which

will be seen immediately on adopting this policy. Other countries have mooted taking the

Indonesian government to the World Trade Organization (WTO) for unfair trade practices

and setting up tariff barriers to international and regional trade (Wesley 2014: Online,

Business Day Live 2014). Players in the local market have also resisted these laws and

regulations by seeking judicial review (Soraya and Bellamy 2014).

Mining is designated the prime mover for regional development in Indonesia targeting

economic growth, equitable distribution of income, job creation, through sustainable and

environmentally sound mining (Lubis 2013: 9). It is envisioned to exploit energy and

mineral resources for the welfare of the local people. Lubis (ibid) cites this strategy as being

pro jobs (employment, local content), pro growth (state revenue, investment, added value,

balance of trade –production, export, domestic), pro poor (community development,

corporate social responsibility), and pro environment (good mining practice, reclamation

and mine closure).

31

2.2.4.3.2 The call for beneficiation: How they overcame these challenges

The Indonesian case demonstrates the need for a tempered approach to adopting

beneficiation. A radical sudden approach to wholesale compulsory legislation may prove to

be counterintuitive. The country is the worlds’ largest producer of nickel and in 2013

enacted legislation that directed all nickel producers to fully beneficiate locally beginning

January 2014. However, the results have been a sudden drop/fall in its status as the worlds’

biggest supplier of raw nickel as through put has suffered with huge raw nickel piling up

locally. This has been compounded by resistance from its traditional export markets of Japan

and China who have developed technology not only to recycle but also for combining nickel

with iron to make nickel-pig-iron, an alternative improved and convenient stock-feed for

stainless steel production (Business Daily Live 2014: Online). The lesson to be learned here

is that Advanced Technology and political-will in destination countries will always

combine, like in the Chinese case, to counter hostile economic strategies emerging from

minerals producing countries. However, on the positive side the progressive export duty

(bea keluar) is worth emulating. This legislation advocates for a more gradual move towards

higher tax rates for trade in specified un-beneficiated minerals (Soraya and Bellamy 2014:

http://www.whitecase .com/).

2.2.4.3.3 Minerals Industry Regulation in Indonesia

The diagram below outlines the Indonesian mining legal and regulatory frameworks in

place:

32

Figure 2.8: Indonesian mining policy environment/Legislative framework for mining

Source: Lubis (2013: 10)

2.2.4.3.4 Lessons from Indonesia and South Africa

The Indonesian case demonstrates the folly of legislating radical compulsory local

beneficiation policies. The total prohibition of the export of un-beneficiated nickel led to a

fall in most economic indices. On the contrary, although the South African Diamond Act

also prohibits export of unpolished diamonds, in their case the country has the advantage of

having an established and resilient diamond industry developed over hundreds of years.

However, on the positive side the progressive export duty subsequently adopted by

Indonesia (bea keluar) is worth emulating. This legislation advocates for a more gradual

move towards higher tax rates for trade in specified un-beneficiated minerals (Soraya and

Bellamy 2014: http://www.whitecase.com/). This is identical to the Zimbabwean 15%

mineral tax levy (initially set for platinum producers) adopted for the purpose of compelling

local miners to set up Base Metal Refiners. Companies have responded by complying and

investing in beneficiation technologies allowing them to gain tax breaks/holidays (e.g.

33

government has suspended the payment of this compulsory levy until 2016 so that the

companies get some financial wherewithal to invest locally in beneficiation infrastructure.

2.2.4.4 Lessons from the Case of Belgium Belgium houses the world’s largest diamond trade facility, the Antwerp World Diamond

Trade Center. However, it is instructive to note that the country does not have a diamond

mine but simply imports minerals from resource rich nations, and beneficiates them only to

resell them at higher values. The Belgian economy is propped up by exports of fully

beneficiated diamonds.

2.2.4.4.1 History of diamond mining in Belgium

None of the diamonds processed in Belgium are mined there, they come from Africa, mainly Democratic Republic of Congo (DRC). Of critical significance is the colonial past of the Belgium Empire, which extended to African countries. Building on this the Belgians beneficiate many minerals and commodities and have developed an advanced beneficiation industry.

2.2.4.4.2 The Belgium journey towards local beneficiation

Beneficiation is the mainstay of the Belgian economy and earns over 85 % of budget revenue principally because the world’s leading diamantaires are in Belgium.

2.2.4.4.3 Regulatory, Institutional and Legislative Framework

Antwerp World Diamond Trade Center, Diamond bourses, World Diamond Council. Belgium has set up banks and related diamond trade financial institutions (there are four banks dedicated to diamond trade alone).

2.2.4.5 Lessons from the Case of India India has been among the most successful in diamond beneficiation, having been in the

industry for the past 300 years. Diamond cutting and polishing has created over 1 million

jobs in Surat and Mumbai alone, and still growing. It has been reported that over 90% of the

diamonds produced in the Marange diamond fields are cut and polished in Surat province of

India, creating well over 90 000 direct jobs.

India boasts that 14 out of every 15 diamonds set as jewellery in the world are cut in India.

The country has developed a comparative advantage and a robust diamond and cutting and

34

polishing industry that did not exist in the 1970s, within thirty years. In 2012, India

processed 80-90 % of the world’s diamonds. Diamonds are responsible for 14% of India’s

exports (approximately US$43 billion) for financial year 2011-2012. This is a very big

contribution.

2.2.4.6 The Case of the United States of America and Canada

The Americans are the world’s largest diamond consumers; they are very influential because

they control a big portion of the market. Although Canada mines its own diamonds, it has

developed a robust beneficiation strategy for diamonds. In Canada diamonds worth US$5

billion can easily fetch US$56 billion after they have been polished and cut.

In the case of Canada’s North-West Territories (NWT), influential factors in the

development of a successful local diamond beneficiation and value addition industry were:

trade policy; access to rough diamonds; skills training; financial intermediary institutions

and security (Minister of Public Works and Government Services, 1998). Canadian trade

policy was beneficial for export oriented companies (a critical variable for the diamond

trade), the specific province had comparably competitive tax policies (with several

exemptions/incentives), it also had the natural comparative advantage of mining rough

diamonds locally (a key requirement for a sustainable cutting & polishing industry), critical

expertise could be accessed from other competent countries, while training locals in the

medium to long term (critical skills development for the immediate term were in diamond

sorting and valuation, with diamond cutters and polishers being needed latter; growing in

number over time as part of a government-led skills development programme), specialised

financial institutions with access to large amounts of capital, and development of diamond

specific legislation to reinforce security, prevent, prosecute and minimize minerals leakages.

2.2.4.7 The Case of the DRC

The DRC, a former Belgian colony, has failed to get meaningful benefits from the

exploitation of its natural diamond mineral resources. Despite being among the world’s

largest producers of diamonds (they produced approx 21 million carats in 2012), the country

has not been able to beneficiate and hence get maximum value for their minerals. Countries

35

that have continued to benefit from DRC’s mineral wealth are the neighbors Rwanda, the

foreign Europeans Belgium. These countries have also continued to benefit from the current

destabilization and rebels. The DRC has continued to be a net exporter of rough diamonds in

the process being prejudiced of billions in potential revenue.

2.3 Conclusion

This section has reviewed literature on diamond beneficiation. It has highlighted theories

like resource curse, modernization, rational choice theory and the following concepts:

resource nationalism, fiscal space, and the issue attention cycle. The various debates over

the meaning of beneficiation were outlined and the logic behind resource nationalism

outlined. Country case examples were also highlighted, drawing lessons for Zimbabwe.

CHAPTER THREE: METHODOLOGY

3.0 Introduction This section outlines the methodology used to gather data about the research problem. It

describes in detail the research design, population characteristics, sampling procedure and

data analysis techniques and analytical procedure used in the study.

3.1 Research Design The diagram below illustrates the four elements of the research design adopted for

in a matrix form:

Figure 3.1: The Research Design Matrix

Source: Adapted from Babbie 2007; Neuman 2007; Terre

2006: 37 and Creswell 2009.

This study was a data collection

industry. According to Creswell (2009: 3

research that span the decisions from broad assumptions to detailed methods of data

collection and analysis.” The background to this is that a research can

Frame (Techni

ques)

36

CHAPTER THREE: METHODOLOGY

This section outlines the methodology used to gather data about the research problem. It

es in detail the research design, population characteristics, sampling procedure and

data analysis techniques and analytical procedure used in the study.

The diagram below illustrates the four elements of the research design adopted for

: The Research Design Matrix

Source: Adapted from Babbie 2007; Neuman 2007; Terre-Blanche, Durrheim and Painter

2006: 37 and Creswell 2009.

was a data collection and examination of the Zimbabwean diamo

According to Creswell (2009: 3-5) “research designs are plans and procedures for


collection and analysis.” The background to this is that a research can take any one of three

Research Design

(mixed methods)

Paradigm (Nomina-

lism)

Context

(diamond mining sector)

Purpose

(Objecti-ves)

Frame (Techni-

ques)

This section outlines the methodology used to gather data about the research problem. It

es in detail the research design, population characteristics, sampling procedure and

The diagram below illustrates the four elements of the research design adopted for this study

Blanche, Durrheim and Painter

of the Zimbabwean diamond mining

5) “research designs are plans and procedures for


take any one of three

37

design orientations: quantitative, qualitative or mixed methods. These approaches to

research lie on a continuum ranging from a use of words in research (qualitative methods),

to a use of more numbers (quantitative methods), with mixed methods lying in the middle of

the two as it incorporates elements of both design typologies (ibid).

For this study, the research design entails the philosophical assumptions informing the

research (Creswell 2009: 4). Therefore, this research was structured as an exploratory case

study, relying on a positivistic philosophy. Positivism presumes that there is an objective

reality “out there” that must be discovered and the way to learn or discover new knowledge

is either through experiencing them or by objective observation of the nature of things.

However, the study also relied on pragmatism which Creswell (2009:10) citing Patton

(1990) describes as being primarily “concerned with applications (i.e. what works) and

solutions to problems.” In pragmatism, knowledge about the world around us is gained

through using an appropriate research design according to what works (ibid). Therefore, the

researcher used all available approaches by mixing methods to fully define, emphasize and

understand the research problem. According to Cherryholmes (1992) cited in Creswell

(2009: 11) pragmatists “acknowledge but are not interested in the questions about reality

and the laws of nature.” The focus is on the “what and the how” to research, based on the

intended consequences i.e. “where you want to go with the research” (ibid). The researcher

in this study therefore was interested in not only fully understanding the problem, but also in

providing recommendations on how these could be resolved or overcome.

3.2 Research Methodology These are also called strategies of or approaches to inquiry. Creswell (2009:11) identifies

three broad strategies: qualitative, quantitative and mixed methods (ibid). This study relied

on the mixed methods methodology.

3.3 Mixed Methods Research This study is formative and nascent research, being the first of its kind in Zimbabwe,

specifically focusing on diamond beneficiation and its link with fiscal resource mobilization.

Hence, it required an innovative combination of research instruments so as to come up with

38

useful findings without being bogged down by baseline survey technicalities. The study thus

triangulated both quantitative and qualitative data collection and analysis methods, hence

mixed methods. The researcher combined qualitative and quantitative research instruments

in a way that allowed and enabled the researcher to capture the pertinent issues around the

topic within the timeframe available. However, the study is in no way comprehensive but it

seeks to explore and explain the unique dynamics of the diamond and minerals mining

sector as a necessary first step.

Table 3.1: Quantitative, Mixed and Qualitative Methods

Quantitative Methods Mixed Methods Qualitative Methods

Pre-determined methods Both pre-determined and

emerging methods

Emerging methods

Instrument based Both open and closed ended

questions

Open-ended questions

Performance data, attitude

data, observational data, and

census data

Multiple forms of data

drawing on all possibilities

Interview data, observation

data, document data, and

audio-visual data

Statistical analysis Statistical and text analysis Text and image analysis

Statistical interpretation Across database

interpretation

Themes, patterns

interpretation

Source: Creswell (2009: 15)

3.4 Justification for Mixed Methods According to Creswell (2009: 4) the mixed methods approach “combines or associates both

qualitative and quantitative forms of research approach.” Mixed methods research uses both

in a complementary way so as to obtain stronger results from the study than can be acquired

39

by one method alone (ibid). Data found using one approach is used to either buttress or

complement the findings from the other approach. Creswell says this involves sequential

inquiry, using both methods in an iterative fashion.

Greene, Caracelli and Graham (1989) observe that “mixed methods have the advantage of

giving understanding to complex processes, through corroboration, convergence, expansion

and elaboration of findings; the weaknesses of one approach are complemented by the other

approach.” The greatest advantage of mixing methods is that “words can add meaning to

numbers while numbers add precision to words” (Johnson and Onwuegbuzie, 2004, in

Creswell 2009: 4).

Mixed methods acknowledges that either of qualitative and quantitative research approaches

have their limitations, which can best be minimized by triangulation so as to achieve

convergence across methods (Creswell 2009: 14). It therefore acknowledges the

multifaceted nature of research problems and attempts to compensate for this by ensuring

that one method complements the other. Creswell (ibid) highlights that mixing of methods

has the transformative effect or purpose of advocating for the case of marginalized peoples,

especially the poor. This study resonates well with and seeks to add to the concurrent

discourse on indigenization and economic empowerment as outlined within the ZIMASSET

strategy document.

Building on the conceptualization by Creswell (2009: 15) this study made use of three

general mixed methods approaches to research. Firstly, the sequential approach where

different methods were used one after the other to corroborate or follow up on a question or

response. Secondly, the concurrent method in which different research approaches were

used at the same time to provide a systematic analysis. Finally, the study entailed the

transformative approach in which the researcher also relied on theoretical conceptions for

insights into the phenomena under study.

3.5 Study Area and Target Population The study was conducted in Zimbabwe’s mining sector and specifically the diamond

mineral management policy community. However, the researcher did not attempt to conduct

40

a complete enumeration of the study population because of the inherent logistical challenges

that this would involve. However, effort was made to select as representative a sample as

possible considering that the research area is a highly technical area requiring expert

knowledge.

Within this study the identified units of analysis were public and private institutions and

officials in these institutions as described below: Minister, Permanent Secretary, Directors,

individual officers/executives, metallurgical technicians and students. The extensive

documentary search also provided useful insights, especially with respect to international

best practices and country cases as well as gathering the views of some reclusive Key

Informants. This was also useful for gathering statistical information on Zimbabwean

diamonds, especially from institutions like the United Nations mandated Kimberley Process

Certification Scheme, the Economic Commission for Africa and the African Union African

Mining Vision. To this end various publications such as books, journals, the internet,

newspapers, magazines and corporate reports and publications were used.

3.5.1 The target population The population was deemed to be heterogeneous and included key players in the diamond

mining sector within the following institutions: the Ministry of Mines and Mining

Development, Zimbabwe Mining Development Corporation (ZMDC), Minerals Marketing

Corporation (MMCZ), Institute of Mining Research (IMR), Zimbabwe School of Mines and

the Department of Geological Survey); the Ministry of Finance and Economic Development,

Zimbabwe Revenue Authority (ZIMRA) and the Reserve Bank of Zimbabwe (RBZ);

Parliament of Zimbabwe, Zimbabwe Diamond Center (ZDC), Zimbabwe Chamber of

Mines, Diamond Beneficiation Association of Zimbabwe (DBAZ), Scientific and Industrial

Research Development Corporation (SIRDC), diamond mining companies, and international

bi-lateral or multilateral agencies (UN, AU, SADC, KPCS). Appendix D lists a brief

description of each of the organizations through an organogram i.e. organizational structure

chart.

41

3.6 Sampling Methods and Sampling Procedure The study utilized non-probability sampling methods to identify respondents, hence

purposive and snowball sampling.

3.6.1 Purposive Sampling

The sample was selected deliberately using the method described by Babbie (2007: 184) and

Neuman (2007: 142-145). Thus basing on the researchers existing “knowledge of the

population, its elements and the purpose of the study”, purposive sampling allowed the

researcher to deliberately identify and select specific individuals for their technical

knowhow, expertise, experience and access to the required information (ibid). Furthermore,

this method was more useful despite the fragmented and heterogeneous nature of the

population. It would have been difficult to enumerate the entire population since the

majority of the population in the diamond mining sector is secretive and reclusive, hence

constituting a hidden population (Neuman 2007: 142).

However, Babbie (2007: 184) avers that there are risks associated with using

judgmental/purposive sampling. This is because problems usually abound with respect to the

reliability/validity of the findings. It is therefore not possible to generalize from the findings

about other similar situations elsewhere. However, the greatest utility of this method is its

ability to explore novel research areas and reveal or expose hidden facts at the least possible

cost whilst retaining an acceptable level of internal validity (i.e. elimination of bias, etc).

Neuman (2007: 218) highlights what could constitute a problem for a research of this type

when he identifies that external validity is reduced because participants are aware of being

under scrutiny. He likens this to the “Hawthorne Effect” by emphasizing that in most

research settings, participants are bound to respond in a manner consistent with the

expectations of the researcher. In this study, it emerged that diamond revenue are still

considered a secretive area, thus respondents tended to desist from providing information

they considered “sensitive”. This was even so despite the fact that permission for research

was granted in the Ministry and one of the respondents, a Key Informant, insisted on getting

42

personal clearance from the Permanent Secretary on whether to provide the information or

not.

3.6.2 Snow Ball sampling (aka, chain referral, reputational sampling or network sampling)

The study relied on snowball sampling where the first few respondents provided referrals

linking to other potential respondents in the field (Neuman 2007: 144). Snowballing was

particularly useful because the diamond mining industry is relatively secretive and sensitive,

hence usually inaccessible (from Interview with Key Informant). Therefore, snow ball

sampling helped to overcome these challenges through directing the researcher to the right

respondents and also providing a useful “first time introduction”. This helped significantly

in getting cooperation from respondents. However, the main observed disadvantage of this

method is that some of the indicated leads were inaccessible, leading to the researcher

resorting to telephone interviews.

Leedy (1985: 163) cautions that the threat of bias encroaching into research is always very

real. This study is not an exception to this truism and the researcher acknowledges the

limitations of the chosen sampling approaches. However, despite the challenges of inherent

bias in these sampling methods, most importantly these methods were chosen primarily

because the study area is highly technical hence not everyone is able to eloquently articulate

the issues under investigation.

3.6.3 Sample characteristics, size and research procedure

Few people have the specialized knowledge required to participate in the study. Therefore,

the sample size was intentionally limited to fifty (50) respondents. Of these thirty (30)

respondents had a standardized questionnaire administered on them. While fifteen (15) were

designated to be interviewed as Key Informants only eight (8) were actually interviewed in

Face-to-Face interviews while five (5) provided responses over the phone. Also included

within the sample were observations by the researcher utilizing both past and recent

personal encounters with prominent industry players, particularly current and past

executives of diamond mining companies. A further two (2) interviews were conducted with

43

academics at the University of Zimbabwe. Although ZIMRA declined to grant permission

for the research, two (2) interviews were informally conducted with two (2) executives who

however declined to be named for professional reasons.

3.7 Data Collection Instruments The researcher relied on the following instruments to collect data in line with the research

objectives. A standardized structured survey questionnaire was used to collect responses to

preset questions from officials in the Ministry of Mines and Mining Development, while the

Interview Guide was used in face to face interviews with Key Informants in several

organizations. Documentary Search entailing an extensive library and internet search was

done, focusing on a review of journals, texts, statutes, newspapers, magazines and

conference papers. Various electronic media including video and audio recordings of

meetings and conference proceedings were used. The researcher also relied on personal

observations building on past employment engagements and personal encounters.

3.8 Data Analysis The Statistical Package for Social Sciences (IBM SPSS 20.0) was used to analyse the

quantitative data collected using the survey questionnaire. This software is suited to

analyzing quantitative data in a social science research setting using the Descriptive

Statistics and Factor Analysis Modules of the software. The IBM-SPSS 20.0 was used to

produce and derive tables, charts, graphs by counting, analyzing frequencies, principal

component extraction, and factor analysis. For the qualitative data, thematic analysis was

used to analyse the data obtained from observations and key informant interviews. This was

complimented by a content analysis of data from the documentary search. In this final

report, analyses of the trends are depicted through text and various pictorial illustrations, i.e.

making use of tables, graphs, and or charts.

3.9 Reliability and Validity Reliability and validity are important concepts in social science research/theory which help

to indicate the measure of “truthfulness, credibility or believability of findings” from

research (Neuman, 2007: 116). Reliability refers to the degree to which an instrument

consistently measures a particular construct, while validity refers to the appropriateness of

44

the method of measuring the particular research constructs (ibid: 116-7). To improve

reliability of the questionnaire, this study used “clearly conceptualized constructs” by asking

specific questions about particular variables (elements under measurement) within the

questionnaire. This was done to avoid confusion between responses about the numerous

variables under review. The study also used “multiple indicators” by comparing data from

interviews, desk research and findings from the questionnaires, i.e. by a triangulation of

methods. Therefore, any inconsistency in the questionnaire responses would have been

reported from other comparable sources.

For example, interviews conducted with officials from the Ministry of Mines and Mining

Development were cross checked with data gathered through desk study of quoted

Ministerial statements, official publications or news reports. Similarly, responses from

interviews held with Zimbabwe Diamond Center officials were compared with sources

containing public statements/pronouncements. Other responses were simply compared with

the researchers own experiences from personal encounters.

3.10 Ethical Issues The researcher undertakes to abide by the following ethical standards/principles in the

conduct of the study: to seek voluntary informed consent from all targeted respondents; to

report the findings honestly and accurately; to be open and transparent so as to respect the

rights of the individuals interviewed and not to deceive them in any way; to respect the

individual’s right to privacy (anonymity, confidentiality and security of data); to maintain

the highest level of confidence and finally to use the information gathered only in the

manner agreed at the outset (i.e. for academic purposes only).

3.11 Conclusion

This section highlighted the research design, methodology, population, sampling procedure,

data collection instruments, data analysis methods and ethical issues in the study.

45

CHAPTER FOUR: DATA PRESENTATION AND DISCUSSION

4.0 Introduction

This chapter focuses on the thematic presentation, analysis and discussion of major findings

gathered through the various instruments. This was done in line with the following research

objectives: examine the legal and institutional frameworks for diamond beneficiation in

Zimbabwe, describe the state of the practice in other countries, demonstrate the effects of

diamond beneficiation to the mining fiscal regime, and recommend an appropriate diamond

beneficiation model to enhance the performance of the mining tax head/mining fiscal

regime.

4.1 Response Rate and Reliability of Questionnaire

Table 4.1: Questionnaire Response Rate

Questionnaires Issued Number Returned Response Rate

35 29 83%

Given the secretive and sensitive nature of the diamond sector, the response rate of 83% was

overwhelming and thus considered to be more than satisfactory. The diagram below shows

the reliability of the questionnaire as tested by IBM-SPSS 20.0:

Table 4.2: Reliability of the Questionnaire

Variable No. of items Cronbach’s Alpha

Value

Diamond Management Frameworks 28 0.948

Anticipated benefits from beneficiation 16 0.914

Quantity of Diamonds in Zimbabwe 2 0.725

Diamond Footprint (types of diamonds) 14 0.821

Fiscal Revenues Mobilization, Beneficiation & 17 0.911

46

the Mining Fiscal Regime

State of the Practice/Industry Best Practice 25 0.899

Challenges in Diamond Revenue Management 6 0.701

Recommendations for improving revenue 39 0.913

Source: IBM-SPSS 20.0, Field Data

Table 4.2 above shows the test for internal reliability of the questionnaire using SPSS.

According to Cronbach (1989), an instrument is considered reliable if it returns a

Cronbach’s Alpha value of greater than 0.70. The questionnaire was measuring eight (8)

constructs, which all returned a Cronbach’s Alpha value above 0.70, hence was considered

to be reliable.

47

4.2 Legislative and Institutional Framework for Diamond Revenue Management 4.2.1 The Zimbabwean Diamond Sector

This section focuses on the Zimbabwe diamond revenue management legislative and

institutional frameworks. The diagram below shows the various frameworks:

Figure 4.1: Institutional and Legislative Frameworks for Diamond Revenue Management

Source: Field Data

0

10

20

30

40

50

60

1 2 3 4 5 9

Fre

quen

cy %

Response: Reported Level of Agreeability

Zimbabwe Mineral Revenue Management Frameworks

Permanent Institutions Temporary Institutions

Constitution Act(s) of Parliament

Policy Documents Statutory Instruments

Government Directives Rules, Ordinances, Mamoranda

Other

48

4.2.3 Zimbabwe Diamond Revenue Management Institutions

From the survey questionnaire 65.4% of the respondents contend that these frameworks are

in the form of Permanent Institutions, while 48% reported the presence of Temporary

Institutions. Specifically, findings indicate that key institutions in the Zimbabwean diamond

revenue management are the Ministry of Mines and Mining Development, Zimbabwe

Revenue Authority, Zimbabwe Mining Development Corporation and Marketing

Corporation of Zimbabwe. Other institutions are listed in Appendix A.

4.2.4 Zimbabwe Diamond Revenue Management Legislation

The survey indicated that Parliamentary Acts (84%) closely followed by the Constitution

(80%) and Policy documents (73.1%) were the dominant legislative frameworks. Figure 2

below shows this distribution in a simpler way:

Figure 4.2: Diamond Revenue Management Legislative Frameworks

Source: Field Data

NB: Appendix A lists the comprehensive frameworks

The questionnaire elicited responses by asking respondents to tick

options. The top frameworks are Acts of Parliament, principally the Constitution, Mines and

Minerals Act and the Precious Stones Trade Act. This is closely followed by Policy

Documents, encompassing the Diamond Policy and Statutor

directives came in fourth, while International Treaties are the least prevalent frameworks.

0

10

20

30

40

50

60

70

80

90 84 80

70.6

Per

cent

age

%

Diamond Minerals Management Legislation

49


NB: Appendix A lists the comprehensive frameworks

The questionnaire elicited responses by asking respondents to tick among a series of several



Documents, encompassing the Diamond Policy and Statutory Instruments. Ministerial


9.5

05.5

12

0 4

70.6

11.8

0

17.6

62.5

18.8

12.5

6.3

76.5

17.6

5.9

0

53.4

20

6.7

20

28.6

21.4 21.428.6

Response

Diamond Minerals Management Legislation

Acts of Parliament

Constitution

Statutory Instruments

Ministerial Directives

Policy Documents

Rules and Ordinances

International Treaties

Other


among a series of several



y Instruments. Ministerial


Acts of Parliament

Constitution



Policy Documents

Rules and Ordinances


Other

50

4.2.5 Frameworks in diamond sector

The documentary search and field data both show a multiplicity of frameworks operational

in the Zimbabwean minerals management sector (see Appendix A). Evidently, there are

various institutions involved in the diamond sector policy community both at local and

global level.

Table 4.3: Major Frameworks in Diamond Management in Zimbabwe

Frameworks Components

Constitution Constitution of Zimbabwe of 2013

Policy Documents Environmental Management Policy, Diamond Policy,

Indigenization & Economic Empowerment Policy, Industrial

Development Policy, Privatization Policy

Act(s) of Parliament Mines and Minerals Act, Zimbabwe Mining Development

Corporation Act, Minerals Marketing Corporation of

Zimbabwe Act, Precious Stones Trade Act, Indigenization

and Economic Empowerment Act, Finance Act,

Environmental Management Act

Permanent

Institutions

Ministry of Mines and Mining Development (ZMDC,

MMCZ, Institute of Mining Research, Zimbabwe School of

Mines, Geological Survey and Provincial Mining

Commissioners), Ministry of Finance and Economic

Development (ZIMRA, RBZ), Environmental Management

Agency (EMA)

Temporary

Institutions

National Indigenization and Economic Empowerment Board,

Community Share Ownership Trusts

Statutory

Instruments

Statutory Instruments: 72 of 1989, 109 of 1990, 157 of 2014

Government Presidential pronouncements (e.g. the directive to pay civil

51

Frameworks Components

Directives servants salaries from diamond proceeds of 2009-13)

Rules, Memoranda,

Ordinances

Special Mining Leases

Other United Nations, Kimberley Process Certification Scheme,

African Mining Vision, Southern African Development

Commission, World Diamond Council

Source: Field Data

NB: Refer to Appendix A for a detailed listing of incidental policies, statutes and institutions

Although there are numerous pieces of legislation and institutions to do with minerals

management in Zimbabwe (see Appendix A), there is currently no legislation dealing with

the diamond specifically. An interviewee from the Zimbabwe Diamond Centre believes the

mineral is still generally considered as a “new mineral” in Zimbabwe, hence the lack of

attention by government. A Key Informant in the Zimbabwe Geological Survey disclosed

that one weakness is that there have been no geological surveys conducted by government to

ascertain the occurrence and quantum of Zimbabwean diamonds. Therefore, the

Zimbabwean Government has been slow to respond to the calls to set up special legislation

and institutions dealing with diamond mining, processing and marketing. Therefore the laws

to manage diamond revenues are grossly inadequate in various ways. A Key Informant in

the Parliamentary Portfolio Committee on Mines and Energy believes government has been

slow to respond to the calls for special legislation institution dealing with diamond mining

specifically. The interviewee disclosed that the proposed Minerals Development Policy and

the Mines and Minerals Bill (2007) have been stalled at the Cabinet Committee for

Legislation stage since 2007. Thus the legislation in place right now is obsolete, having been

put in place since before independence (1961 for Mines and Minerals Act and the Precious

Stones Trade Act). However, there is a need to enact the Diamond Act, finalize the Minerals

Development Policy and amendments to the Mines and Minerals Act (pass the new Mines

and Minerals Bill of 2007).

52

4.3 International Best Practices in Diamond Revenue Collection: A Summary of Country Experiences To achieve the objective of: Describe the state of the practice in other countries. This part

also answers the question: Does Zimbabwe currently conduct value addition and

beneficiation?

An in-depth review of documentary evidence, indicated that in the country cases reviewed

there was a general association in the amount of beneficiation a country conducted and the

taxes collected. Although this might not come directly through benefits from beneficiation,

there were numerous spinoffs that were encountered by countries that conducted minerals

beneficiation. These findings from the documentary search were consistent with results from

the field survey and interviews with Key Informants who indicated that there are various

benefits to be accrued from adopting minerals beneficiation.

The Government of Zimbabwe had imposed a blanket ban on the export of all raw minerals

(15% starting with platinum). While about half of the survey respondents (48%) indicated

that government must ban mineral exports, the experiences elsewhere show this is ill

advised. However, as indicated in Chapter 2 the, Indonesian case demonstrates the folly of a

wholesale ban on the export of diamonds/minerals. The Minister of Finance has however

made announcements of a deferment of this tax (until 2017) to encourage a buildup of

capacity for local beneficiation, this is laudable intervention.

The Belgian case shows how the country of Zimbabwe can better benefit from the

comparative advantage it has in possessing mineral resources. While Belgium does not

produce diamonds, it has built a large beneficiation industry and economy from processing

commodity imports. Belgium has four specially designated diamond trade banks to facilitate

payments. A key informant with the Zimbabwe Diamond Centre has proposed the setting up

of a model diamond beneficiation centre in Zimbabwe which will serve as “One-Stop-Shop”

for diamond buyers, processors and related industries. It will encompass banking and

financial services facilities amongst others, with many positive spinoffs anticipated.

53

The Botswana case provides a lesson that Zimbabwe must build its own local beneficiation

industry. This would entail engaging in skills development, partnering foreigners in win-win

relationships (for example Russian, Chinese ICBC, BRICS etc. investments). South-South

cooperation presents big challenges and opportunities for the future in the commodities trade

domain. Zimbabwe can learn from India which has a centuries old low cost diamond

processing industry.

Interview respondents indicated that while other countries have experienced similar or

worse challenges to those Zimbabwe currently faces, they had to adopt innovative strategies

so as to overcome them. Zimbabwe has recently constituted a Sovereign Wealth Fund Act

and the body awaits constitution and resourcing. However, there are challenges in

operationalising the Fund given that international best practice dictates that it be resourced

from surpluses (Nadia Piffaretti, former World Bank Country Director for Zimbabwe).

Zimbabwe has consistently run a budget deficit since independence (with the exception of

the GNU era) and is under a heavy debt burden. Despite these challenges, there are abundant

prospects in Zimbabwe’s diamond sector, discussed in the recommendations section.

The tables below show these findings:

54

Table 4.4: Benefits from Diamond Beneficiation according to importance/rank

Rank Benefits Strongly

Agree

Agree Somewhat

Agree

Disagree Strongly

Disagree

Don’t

know

1 Technology

Modernization

14

(53.8%)

9

(34.6%)

3 (11.5) 0 0 0

2 Improved

Incomes

14

(53.8%)

9(34.6

%)

3 (11.5%) 0 0 0

3 Infrastructure

Development

14

(58.3%)

7(29.2

%)

1(4.2%) 1(4.2%) 0 1(4.2

%)

4 Improved

Livelihoods

14

(56.0%)

6(24.0

%)

5(20.0%) 0 0 0

5 Skills

Development

13

(56.5%)

5(21.7

%)

4(17.4%) 1(4.3%) 0 0

6 Better

Revenues

12

(46.2%)

8(30.8

%)

4(15.4%) 2(7.7%) 0 0

Source: Field Data

The table above is a summary/illustrates the benefits accrued from the diamond

beneficiation in accordance of most reported benefit by survey respondents, ranked in

ascending order from 1 (most important rank) to 6 (least important rank). However, survey

respondents also reported challenges faced by these countries. The table below shows

challenges encountered by other countries in diamond beneficiation:

Table 4.5: Challenges encountered by other countries in diamond beneficiation

Rank Challenges Strongly Agree

Agree Somewhat Agree

Disagree Strongly Disagree

Don’t know

1 Skills Shortages

8(32.0%) 10(40.0%

)

5(20.0%) 1(4.0%) 0 1(4.0%)

2 Financial Problems

9(36.0%) 9

(36.0%)

2(8.0%) 2 (8.0%) 0 3(12.0%)

55

Rank Challenges Strongly Agree

Agree Somewhat Agree

Disagree Strongly Disagree

Don’t know

3 Revenue Management Challenges

9(34.6%) 9

(34.6%)

3(11.5%) 4(15.4%) 1

(3.8%

)

0

4 Technology Shortages

8(33.3%) 8(33.3%

)

3(12.5%) 5(20.8%) 0 0

5 Supply of Rough Diamonds

3(12.5%) 7(29.2%

)

6(25.0%) 5(20.8%) 1(4.2%) 2(8.3%)

6 Marketing Problems

4(16.7%) 5(20.8%

)

5(20.8%) 9(37.5%) 0 1(4.2%)

Source: Field Data

The table above highlights the most critical challenges faced by countries which have

adopted minerals beneficiation.

4.4 Beneficiation as Industrialization: Conceptualizing BVA in Zimbabwe

The Zimbabwe Chamber of Mines (2014) asserts that Zimbabwe currently conducts a

significant amount of beneficiation, particularly in the metals sector (gold, zinc, nickel,

platinum, chrome, etc). However, there has been a lack of significant progress towards

adoption of diamond beneficiation. One Key Informant attributed this to discord between

the various policy community members. In fact, there are allegations of possible sabotage by

government officials, especially through frustration of the existing investors. A former

executive of a State mining company also indicated that there is loss of progress or direction

in adopting diamond beneficiation due to policy inconsistency and numerous problems at

policy implementation due to this discord and vested interests. The episodic fashion of

formulating and implementing strategies in diamond mining sector is characteristic of

Anthony Downs’ Issue Attention Cycle.

Although the Chamber of Mines President Alex Member stated at the Zimbabwe Mining

Indaba in 2014 that Zimbabwe currently conducts a lot of beneficiation in the minerals

sector, according to interviews with Key Informants, this is still at a very small scale in the

diamond sector. A Key Informant Interview with a former ZMDC executive disclosed that

this might be because diamond cutting and polishing technology is

Zimbabwe.

4.5 Impact of Diamond Beneficiation on Fiscal Resource

The section seeks to demonstrate the effect of diamond beneficiation to the mining fiscal

regime, and answer the question: What effect does diamond bene

revenues performance? However, while information from this section was not available and

could not be accessed from the MMMD due the provisions of the Official Secrecy Act,

various documentary sources, including internet sources, w

for this section.

4.6 Characteristics of the Zimbabwean Diamond Footprint

The diamond footprint refers to the quality of diamonds mined from a certain location. A

Key Informant with the Geological Survey indicated that Zimbabwe currently mines alluvial

and conglomerate diamond deposits. The diagram below shows the profile of the

diamonds (the diamond footprint) mined in Zimbabwe.

Figure 4.3: Proportion and Quality of Zimbabwean Diamonds

Source: Field data

56


this might be because diamond cutting and polishing technology is not readily available in

Impact of Diamond Beneficiation on Fiscal Resource Mobilization


regime, and answer the question: What effect does diamond beneficiation have on fiscal



various documentary sources, including internet sources, were used to collect information

Characteristics of the Zimbabwean Diamond Footprint



and conglomerate diamond deposits. The diagram below shows the profile of the

diamonds (the diamond footprint) mined in Zimbabwe.

3: Proportion and Quality of Zimbabwean Diamonds

Industrial/Boart64%

Near Gem25%

Gem11%

Zimbabwe Diamond Fotprint


not readily available in

Mobilization


ficiation have on fiscal



ere used to collect information



and conglomerate diamond deposits. The diagram below shows the profile of the quality of

Industrial/Boart

57

4.7 Diamond valuation: Colour, Cut, Clarity and Carat (4Cs)

The value of a diamond varies and is difficult because diamonds come in many shapes,

colours and sizes. However, the valuation process depends primarily on the “4Cs”

classification (Colour, Cut, Clarity and Carat). Colour refers to the appearance of the

diamonds; Clarity refers to the deflection of light; Cut refers to the dimensions of the

diamond allowing it to be fashioned into different shapes for setting in jewellery; and Carat

refers to the size/weight of the diamond. These four factors (4Cs), in combination, act to

determine the value and selling price of a diamond.

4.8 Diamond cutting and polishing companies in Zimbabwe

A Key Informant indicated that while some of the diamond mining companies conduct

elementary processing of diamonds through cleaning in their sorting and valuation centres,

there are not many companies involved in diamond cutting and polishing in Zimbabwe. This

was corroborated by a senior official at the Ministry of Mines and Mining Development who

indicated that at one point there were about twenty-six (26) diamond cutting and polishing

companies in Zimbabwe, this number has since reduced to just sixteen (16), as most were

driven out of business for various reasons. The Minerals Marketing Corporation of

Zimbabwe (MMCZ) in its 2013 Annual Report recognizes Akin Investments, Gemgrade,

Supertrend Enterprise and Vivid Facets as the companies which conducted polished

diamond sales in 2013.

Table 4.6 below shows that diamond polishing improves the value of the mineral

significantly.

58

Table 4.6: Polished Diamond Sales for 2013

Producer Volume (carats) Value (USD)

Akin Investments 639.95 $ 870,882.36

Supertrend 355.69 $ 773,534.00

Vivid Facets 150.48 $ 357,895.80

Gemgrade 3.23 $ 6,542.56

GRAND TOTAL 1,149.35 $ 2,008,854.72

Source: MMCZ Annual Report (2013: 22)

This means polished diamonds averaged one thousand seven hundred and forty seven

dollars and eighty two cents per carat (US$1,747.82/carat). This was made from part of the

eight thousand seven and ninety seven carats (8,797 carats) valued at two million nine

hundred thousand dollars sold to local manufacturers by the MMCZ.

A senior executive at the Zimbabwe Diamond Centre and the Zimbabwe Diamond

Education Centre also highlighted that basic cleaning of the diamond may treble the value

gained from rough diamonds. Statistics in the MMCZ Annual Report for 2013 detail that for

the year 2012 and 2013, the per-carat price of Zimbabwe’s rough diamonds doubled

because of cleaning that was conducted before the Belgium auction. This cleaning is a first

stage of the beneficiation process. A Key Informant with the MMMD and an academic at

the University of Zimbabwe reported that much more value can be gained from cutting and

polishing the diamonds, citing the Botswana and Canadian experience both whose

diamonds gain value by over 10 times after cutting and polishing (subsequent stages of

diamond beneficiation).

The figure below shows the average prices of diamonds per carat from 2009-2014:

Figure 4.4: Average prices of diamonds per carat

Source: Adapted from MMCZ 2013Annual Report,

Mines 2014, Diamond Gazette 2014, KPCS, MMMD, MMCZ, DeBeers

The trend line shows that the value of Zimbabwean diamonds was generally increasing between the years 2009 – 2014.

NB: * in 2014 the prices for rough diamonds fl

closing at US$78 at the last diamond auction for 2014.

based on the highest value attained in 2014 and on the average price of similar diamonds

sold in neighbouring countries of Botsw

diamond earnings per carat was partly as a result of the country conducting preliminary

cleaning before selling the diamonds, principally at the Belgian Antwerp diamond tender

auctions. A Key Informant interview

above is consistent with an increase in value

2009

USD/carat 21.42

0

20

40

60

80

100

120

140

160

Av

era

ge

Pri

ce /

Ca

rat

in U

S$

59

: Average prices of diamonds per carat

Source: Adapted from MMCZ 2013Annual Report, ZMDC Website, Zimbabwe Chamber of

Mines 2014, Diamond Gazette 2014, KPCS, MMMD, MMCZ, DeBeers

The trend line shows that the value of Zimbabwean diamonds was generally increasing 2014.

in 2014 the prices for rough diamonds fluctuated between US$70 and US$143,

closing at US$78 at the last diamond auction for 2014. ** the figure for 2015 is an estimate


sold in neighbouring countries of Botswana and South Africa. The change in value of



auctions. A Key Informant interviewee revealed that the trend indicated in the diagram

above is consistent with an increase in value after further processing of diamonds.

2010 2011 2012 2013 2014*

38.01 54.31 49.54 33 78

Years

USD/carat

ZMDC Website, Zimbabwe Chamber of

The trend line shows that the value of Zimbabwean diamonds was generally increasing

uctuated between US$70 and US$143,

the figure for 2015 is an estimate


ana and South Africa. The change in value of



ee revealed that the trend indicated in the diagram

further processing of diamonds.

2014*2015**

est.

78 150

60

Figure 4.5: Diamond Production and Export Revenues

Source: MMMD, MoFED, KPCS, MMCZ, ZMDC, Diamond Gazette 2014, National

Budgets, Field data with Microsoft Office Excel 2007

The figure above demonstrates that diamond exports are significant sources of foreign

exchange (forex) earnings in Zimbabwe. These earnings can concurrently translate into tax

revenues for the government in various ways.

4.9 Marange Diamonds: Geology and Beneficiation

According to a Key Informant with the Zimbabwe Geological Survey, the primary sources

of diamonds are kimberlitic pipes extruded from the centre of the earth through geological

processes over billions of years. Zimbabwean diamonds have differing occurrences amongst

them being alluvial, conglomerate and kimberlitic. The most common Zimbabwean

diamonds from Marange occur in alluvial deposits. The alluvial deposits at Marange were

2009 2010 2011 2012 2013 20142015

est.

Carats (ct.)millions 1,349,17 8,424,38 7,787,92 15,104,0 9,420,31 12,000,0 8,000,00

USD$millions 28,900,7 320,237, 422,926, 768,244, 455,891, 600,000, 624,000,

28,900,799.00

320,237,120.00422,926,507

768,244,000

455,891,000

600,000,000.00

624,000,000

1,349,172.44

8,424,384.40

7,787,923

15,104,028.00

9,420,317

12,000,000.008,000,000.00

0.00

100,000,000.00

200,000,000.00

300,000,000.00

400,000,000.00

500,000,000.00

600,000,000.00

700,000,000.00

800,000,000.00

900,000,000.00

Valu

e in

US

$

Years

Zimbabwean Diamonds Exports Revenue

61

eroded and transported in rivers from elsewhere and where exposed to harsh geological

processes leading to some of them getting a brown encrustation, or a deposition of some

other minerals on their surface as they were affected by intense heat and irradiation over

time. This is why the majority of the rough diamonds at the Chiyadzwa/Marange fields look

black, dark brown and or dirty (industrial diamond quality). They have therefore hitherto

been sold cheaply for this reason. However, some of this dirt can be removed, significantly

changing the size and shape; and improving the colour and clarity of the diamonds. This

“cleaning” can be done by deep boiling these dirty diamonds in acid under high pressures.

According to a Key Informant who is a Lecturer at the Zimbabwean Diamond Education

Centre (a diamond cutting, polishing and training institution) “cleaning is the first stage of

the diamond beneficiation process.”

4.10 Mineral Marketing Dynamics in Zimbabwe

A former senior executive with the ZMDC disclosed that African countries still face

immense challenges in the diamond trade. They are currently selling their minerals at very

cheap prices for various reasons: African producer countries are all intensely competing for

the same market and due to fragmented marketing strategies amongst leading producers, the

buyers of rough diamonds have an advantage, typically using “divide and rule” tactics. This

was supported by an interviewee from the Zimbabwe Diamond Centre who also indicated

that buyers tend to prefer buying in countries with fewer restrictions. Dependency Theory

presents an in depth expose of the dynamics at play in this instance.

The African Capacity Building Foundation (ACBF, 2013: iv) identifies factors that have

caused African countries to continue receive limited revenues from their minerals as

contractual arrangements, (skewed against producers but in favour of buyer countries),

transfer pricing and tax avoidance, leading to African countries collecting just 40% of

potential revenues from their mineral wealth. This has led most African governments

nationalizing all mineral resources and actually getting into business alone or in partnership

with private sector companies. However, DeBeers (2014) caution that the government could

62

possibly get nothing from a company in which it owns all the shares due to the inefficiencies

associated with “bureaucrats in business.”

4.11 Problems with “Bureaucrats in Business”

An interview with a Key Informant from the academia stated that “problems with

bureaucrats in business” have been experienced in Zimbabwe where some publicly/State

owned companies have consistently failed to declare either profit or dividend. However, the

reasons for this failure to declare dividends are complex, many and varied. In depth

interviews with a senior Ministry executive implicated the effect of political contingencies,

for example government requested funds from ZMDC & MMCZ during GNU to adjust civil

servants cost of living allowances (COLA). The ZMDC also indicated that the multiplicity

of compulsory statutory payments, charges and levies on operators by the regulatory

institutions depletes their finances (ZMDC Annual Reports for 2011, 2012). These

sentiments, although inconclusive, may indicate that this could partially explain the

“missing” diamond revenues – the complex web of regulatory requirements dilutes the funds

before they get to the central government. These funds are usually used for the specific

agency’s operational expenses, like salaries, vehicles, rentals & rates, conferences and also

paradoxically their own statutory payments.

One interviewee disclosed that negligent management of public resources or bureaucratic

bungling is also a key causal factor. Economists have termed this the “moral hazard

problem” where public officials tend to take more uncalculated risks with large sums of

public funds where there are few or minimal controls or negative incentives (Meyerson,

2014).

This demonstrates inefficiency in revenue collection as some of these agencies perform no

meaningful functions, or where they duplicate the functions of other agencies. The New

Institutional Economics (NIE) explains this behaviour of public officials through the Public

Choice Theory which states that some agencies may exist for their own sake or as “pet

projects” of powerful elites who have to pursue and maximize self interests, by giving “jobs

63

for the boys” or expanding the agency budget to show they have power in the government

resource allocation matrix. This also brings truth to Harrold Laswell’s assertion that politics

(and by extension public policy) is about “who gets what, when, how and with what effect?”

4.12 The Problem of Diamond Revenue Leakages

A former ZMDC executive interviewed indicated that most diamond mining companies in

Zimbabwe are managed by expatriates earning management fees. DeBeers (2014) assert that

the greatest threat to government revenue generation is in exorbitant management fees

charged by these expatriates. This leaves the government sharing with the joint venture (JV)

partner company a highly depleted profit pool (ibid). Further, overpricing imports,

equipment and services may eat away at revenues effectively externalizing profits.

Organized international syndicates specializing in tax evasion/avoidance, under invoicing,

transfer pricing or blatant smuggling prejudice the State of significant revenues. Concerted

attention to the mining fiscal regime will help to alleviate these challenges and minimize

losses in the process. These Illicit Financial Flows pose a very serious threat to government

revenue. However, while these present significant hurdles, the greatest threat lies in the

export of un-beneficiated minerals to foreign countries which in turn get the full benefit

from the mineral by simply conducting beneficiation and value addition.

4.13 Challenges to be Expected when introducing Beneficiation in Zimbabwe

Survey respondents, although cautious, anticipated challenges in beneficiation to include:

skills shortages (62.5%), corruption (48%), technology (45.8%), multi-national company

(MNC) domination (40%), poor management of revenues (37.5%), poor workmanship

(31.8%) and anti-competitive behaviour (30.4%). These low indices for challenges indicate

that respondents were optimistic that beneficiation will lead to more benefits than costs

accruing to the country.

Consistent with the above, Key Informant Interviews and experience from personal

encounters indicates that the big challenges faced by the diamond sector in Zimbabwe are:

lack of appropriate technology, poor investment levels, uncertainty in policy on

64

indigenization, low Foreign Direct Inflows (FDI), lack of skills for diamond cutting,

polishing, marketing and jewellery and poor accountability and transparency indicators.

The Executive Chairman of one diamond mining company, in a personal encounter, also

emphasized the negative effect of the targeted sanctions on the country. The sanctions on

State owned companies (ZMDC and ZB Bank) and specification of certain key individuals

were a significant hindrance to the sale of Zimbabwean diamonds before the country

acquired Kimberley Process Certification (KPC) in late 2009.

A Zimbabwe Diamond Education Centre senior executive, highlighted other challenges

including the punitive and high cost of diamond cutting & polishing licenses

(US$100,000.00 per year as set by Statutory Instrument 157 of 2014, US$500.00 export fee

regardless of quantity exported), lack of the appropriate “mindset” (diamonds are quickly

and easily convertible to liquid cash and are in high demand world over”), lack of proper

skills and knowledge about the true value of the diamond its processing and subsequent

marketing, and the “unjustifiable favouritism of foreigners who are not subjected to the

same requirements as for locals”. Although the US$100,000.00 permit for diamond cutting

and polishing has since been replaced with a US$20,000/10 year permit (still much higher

than South Africa and Botswana), there are still significant constraints for local processors.

Findings from the demographic survey questionnaire and an Interview with an Academic

Researcher at the UZ disclosed that there are youthful staffs/officers in key positions at the

Ministry of Mines and Mining Development (as across the rest of the civil service), well

educated but with little institutional memory. This demographic profile could partially

explain the pessimistic short term forecast of minimal immediate benefits from beneficiation

reported by the survey questionnaire. However, it is prudent to note that this could have

been an unintentional effect from the sampling methods chosen for the research.

4.14 Creating Fiscal Space for the Zimbabwean Government

An academic at the University of Zimbabwe highlighted that the “obesity of Parliament” (at

over 300 members) poses a huge drain on the fiscus. This obesity extends to the civil service

65

which is currently estimated to constitute a complement of just above half a million

members. There is a need to urgently rationalize the civil service so as to create fiscal space

for government. This rationalization exercise should also extend to inefficient or non-

performing State enterprises. This is consistent with Heller’s fiscal space diamond

conception where reprioritization of expenditures should be married with increased

mobilization of domestic resources, minimizing consumptive borrowing and reduction in the

over reliance on development assistance to fund government programmes.

4.15 Global Diamond Industry Value Sharing Ratios

Documentary evidence shows that while diamond producing companies globally shared

only US$18 billion from the sale of rough diamonds in 2013, those countries which engaged

in both diamond jewellery manufacturing and retail sales shared a windfall of over US$50

billion. This same trend was observed for 2014 and is expected to persist in the industry. A

Key Informant with a local diamond cutting and polishing training institution (ZDEC)

disclosed that while possession of the diamond mineral and producing the actual rough

diamonds counts for a lot, it does not come close in terms of earnings potential compared to

manufacturing value added jewellery. According to reports by Baines and Company (2011

& 2013), DeBeers (2014) and McKinsey & Company (2014), the two most valuable stages

which produce the greatest value along the diamond value chain are the jewellery

manufacturing and retail sales segments. However, these are also very capital intensive

(Bain & Company 2013: 6; DeBeers 2014). The challenge for Zimbabwe is that the value of

its jewellery industry is currently unknown, leaving room for under declaration of

production, worsening uncertainty for policy level planning.

4.16 Diamond classification

A Key Informant in the Zimbabwe Geological Survey (ZGS) disclosed that there are many

factors to consider when evaluating the value of a diamond. While some diamonds are

extracted from the mine clearly gem quality, others require basic cleaning (by boiling in acid

under pressure) to remove the tough outer coating of brown dirt. Most of Zimbabwe’s

Diamonds are dirty and considered industrial and thus sold at very low prices (even at

66

$30/carat vs. $1000/carat for polished gems). The Country may have been prejudiced greatly

in the past by selling its diamonds without cleaning, which would then be done cheaply by

middle men who get most of the true value of the diamonds. Interviews with Key Informants

and officials from the Ministry, ZMDC and ZDC identified/indicated the problem of a

strong lobby with vested interests in the diamond industry.

4.17 Anticipated benefits from beneficiation in Zimbabwe

Respondents reported anticipated benefits from diamond beneficiation including:

employment creation (88%); higher retained local value (84%); improved livelihoods

(84%); infrastructural development (82.6%); increased government revenue (78.5%); and

industrialization (72%). Respondents were not very optimistic about improvements in

transparency (65.2%), accountability (52.1%) or economic diversification (66.7%).

4.18 Proposed ways of Increasing the Contribution of Diamonds to the Fiscus through Beneficiation

This section seeks to recommend an appropriate model for Zimbabwe to obtain optimal

revenues from its diamonds. It highlights the challenges anticipated and the opportunities

available for exploitation to improve diamond mining fiscal regime.

The recommended model is a modification of the Belgian, Botswana and South African

experiences. The majority of respondents indicated that government must neither reduce nor

remove the current tax levels (64% and 62% respectively), and 52% actually advocated for

an increase in taxes. Alternatively the government can introduce new tax measures (60%).

However, almost half believe the country should ban export of rough diamonds (48%).

Interviews and documentary search however indicate this might be counterintuitive.

To achieve the objective of recommendations to enhance the fiscal contributions of

diamond, the SPSS Factor Analysis was used and it extracted the most important variables

and issues to focus on in the beneficiation discourse. To recommend appropriate strategies

for beneficiation, factor analysis determined that the principal determinants for beneficiation

include only four components out of the total 16 accounting for a total variance of 84%.

67

Only components with an Eigen Value of one (1) or greater were extracted. The Scree Plot

below illustrates these results, showing the distribution of the extracted components

indicating the cut-off level for all components with an Eigen Value of greater than one (1).

Figure 4.6: Five components had an Eigen Value of more than 1 and were thus

extracted

Source: Principal Component Factor Analysis of Field data with IBM-SPSS 20.0

The key is such that component one is the most important, while component four is the least

important.

4.19 Explaining the Principal Factors for Beneficiation

The Extracted Principal Component Matrix illustrates the variables which constitute each

component basing on a loading factor of 0.80. The matrix indicates the composition of each

68

component extracted based on how each variable is correlated with other variables. Basing

on a Loading Factor (cut-off point) of 0.80, the principal factors extracted in component one

(1) were Technology (0.959), impact on livelihoods (0.908), skills (0.956), workmanship

(0.925), anti-competitive behaviour of companies (0.895) and improved transparency

(0.824). Component two (2) was composed of only two variables: government revenue

(0.924) and industrialization (0.945). The greater the loading factor, the greater the impact

of the variable in terms of the impact on value addition and beneficiation. Those variables in

component one (1) are considered to have the greatest impact. Elements in component two

(2) are of lesser impact than those in one (1), while subsequent components (3, 4 & 5) are of

even lesser importance and were ignored. Technology was found to have the greatest impact

followed by skills. These findings were consistent with evidence emerging from interviews

with key informants and other respondents.

4.20 ADDITIONAL ISSUES These include issues which were beyond the scope of this study but which emerged

nonetheless.

4.20.1 Governance in Zimbabwe’s Diamond Sector

Although governance was beyond the purview of this research, there is a need to analyse the

governance frameworks in Zimbabwe’s minerals management sector generally and the

diamond sector specifically. Most survey and interview respondents reported that issues to

do with corruption, transparency and accountability need to be addressed for the country to

get full benefit from its mineral resources. This would also help demystify the enigma

surrounding the minerals sector while improving transparency and concurrently enhancing

democratic governance.

4.20.2 Industrial espionage

A Key Informant indicated industrial espionage is hindering growth of Zimbabwean

economy, undermining the contribution of minerals to the fiscus and it has also significantly

constrained full adoption of local beneficiation. This works to perpetuate a state of

69

dependency by modernizing economies on the developed economies as the relationship

remains an unbalanced one, favouring the latter.

4.21 Ground breaking initiatives in Zimbabwe’s Diamond Sector

4.21.1 Resource Nationalization

Public Choice Theory can be used to explain the behaviour of policy makers. The policy

process inevitably has winners and losers, benefits and costs. An interview with a Key

Informant revealed that although there is nationalization of natural resources in Zimbabwe

(with key strategic mineral rights vested in the State), minerals policy somehow still

emerges as elite preferences.

4.21.2 Indigenisation and Economic Empowerment

As part of the broad based growth and development strategy blueprint, the Zimbabwe

Agenda for Sustainable Socio Economic Transformation (ZIMASSET), which relies heavily

on the Resource Nationalism discourse, the Minister of Mines Walter Chidhakwa

emphasizes that Zimbabwe embarked on an intensive programme of localizing ownership of

natural resources. Through the Constitution of Zimbabwe of 2013, the Indigenisation and

Economic Empowerment Act, the new Diamond Policy of 2014, the Community Share

Ownership Scheme Model and various other sector specific interventions, including the

proposed consolidation of all of mining companies and government’s shareholding in one

corporation/company, the country is well on course to improve revenue collection, achieve,

consolidate and retain more local benefits from diamond mining. This is consistent with the

Resource Nationalism philosophy. However, the episodic fashion/manner in which policy is

made or changes in the sector still presents challenges. Anthony Downs’ Issue Attention

Cycle, transaction cost economics theory and public choice theory explains some of the

policy inconsistency in the sector. The “regular paradigmatic flip-flopping” exhibited by

government officials and functionaries in the diamond mining policy community depicts the

intense contestations and powerful power dynamics within the sector.

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4.22 Conclusion This Chapter has presented and discussed the major findings of the study as analyzed using

IBM-SPSS 20.0, content and thematic analyses. The next Chapter deals with

recommendations and conclusions encompassing findings emerging from the study, through

field research, identification of industry best practices and lessons learnt from other

countries.

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CHAPTER FIVE: Conclusions and Recommendations

5.0 Introduction

This section, informed by the research objectives, literature review and field data, discusses

the findings and conclusions. It furthermore proffers recommendations on how Zimbabwe

can attain more value from its minerals through beneficiation:

5.1 Summary by Objectives

5.1.1 Frameworks

There are numerous frameworks governing the mining and minerals sector in Zimbabwe,

however, without any being specific frameworks for the management of diamond revenues.

The antecedent legislation is obsolete, antiquated and grossly inadequate to deal with this

“new” mineral.

5.1.2 Industry Best Practice

Many countries have reaped huge fiscal benefits after investing in diamond beneficiation

infrastructure, despite not being traditional miners of diamonds. These benefits are very big

because diamonds are valuable. Sector specific interventions which other countries have

adopted include: a radical shift towards resource nationalization, introduction of a robust

minerals management fiscal regime, investing in skills development, adopting modern

technology applications, localizing minerals processing by setting up beneficiation

infrastructure at home, formulating enabling legislation and setting up institutions

responsible for knowledge transfer, providing adequate finances, partnering with friendly

financiers and rationalizing the mining fiscal regime to encourage investment, from both

local and foreign sources. It was also seen to be helpful to start small, gradually growing and

managing capacity issues and creating a savings facility to conserve the surplus.

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5.1.3 Impact of beneficiation on mining fiscal regime

The fiscal potential and contribution of the diamond mineral largely depends on the

adequacy of the mining fiscal regime. A strong mining fiscal regime enhances more local

beneficiation and significantly improves the performance of the various tax heads. It was

found that while there is significant beneficiation currently being done in Zimbabwe, this is

either insignificant or non-existent in the diamond sector. This is despite the fact that the

diamond sector holds the greatest potential for fiscal resource mobilization. A single carat of

diamond is sold for between US$30.00 and US$18,000.00 depending on various factors

including (but not limited to) whether it is sold in the rough, polished, cut or set in jewellery

and importantly the 4Cs (carat, clarity, colour and cut). The price at which it is sold

determines the portion that is due to government by way of royalties and the numerous taxes

in the sector.

Therefore, after thorough consideration, the study accepted the alternate hypothesis and

rejected the null hypothesis. It is this study’s conclusion that conducting more minerals

beneficiation locally will lead to an increase in the value of the final processed product or

commodity. This in turn leads to more fiscal revenue collection opportunities for the

government. Additional to this, there are further benefits that will accrue to a country

namely: skills development, adoption of modern technologies, infrastructural development,

improved standards of living for locals through improved incomes and social services and

more importantly industrialization and the growth of multifarious upstream and downstream

business enterprises within the economy. These create multiplier effects whose impact will

be felt on the mining fiscal regime.

5.1.4 Recommendations

The study found that Zimbabwe has great potential to improve the contribution of diamond

revenues to the fiscus. It is possible to improve the performance of the mining tax regime by

instituting timely changes and adopting industry best practices that have been used

successfully by other countries. This study recommends a combination model, building on

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the experiences of other countries, which will enable the country to derive maximum

benefits from its minerals.

5.2 Conclusions 5.2.1 Realities of the Zimbabwean diamond/mining industry

The Zimbabwean minerals management sector is excessively fragmented with numerous

institutions and pieces of legislation all having an effect/impact on the diamond mineral.

There is a need to enact a comprehensive Diamond Act which combines all relevant

legislation to do with the diamond mineral in one piece of legislation. This creates certainty

for policy level planning and implementation. At the same time, government must also

finalize the Minerals Development Policy and the Mines and Minerals Act.

5.2.2 Mining Sector Policy Communities and Paradigms

For Zimbabwe, mining is still an enclave industry largely capital intensive, foreign owned

mostly extractive and dependent on trading in raw mineral resources. This is

notwithstanding that Zimbabwe has made concerted efforts to rectify this anomaly through

various pieces of legislation, imposing tariffs and adopting Joint Venture models through the

concept of Public-Private-Partnership (PPPs). It is implicit that all governments seek to

maximize fiscal revenue hence they impose resource rents on minerals exploitation. They

are usually less concerned about when this revenue is earned. Conversely, political pressures

compel governments to collect this revenue sooner rather than later (ICMM and the

Commonwealth Secretariat 2009: 8). This has been observed in Zimbabwe where the

government is financially hamstrung and is always eagerly awaiting for revenue that comes

from diamond sales. All this revenue is immediately used to finance recurrent expenditures,

principally to meet immediate obligations like civil servants salaries and operational funds

for government programs. There is thus very little scope for savings and investment in key

infrastructure from the minerals earnings. The key observation here is that for developing

countries that are overly reliant on mineral revenues, the objective of maximizing revenue

over the long run is not practical due to political constraints impinging on delaying the

accrual of benefits from minerals.

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5.2.3 Beneficiation as Industrialization

For Zimbabwe, minerals beneficiation and value addition is of paramount importance as it

resonates directly with the re-industrialization discourse. To the extent that beneficiation is

defined as the setting up of new factories, side stream and downstream activities it is well in

line with the Zimbabwe’s strategy of re-industrialization in ZIMASSET. In this light it can

thus be seen that the beneficiation discourse is not exclusive to the mining and extractive

industries sector alone but extends to other sectors where commodities need further

processing beyond the raw state.

5.3 Recommendations 5.3.1 Diamond Mining Lifespan/Prospects

Given that alluvial diamonds (the easy picks) are now considerably depleted, beneficiation

is even more imperative now. Mining tends to be a short lived enterprise with its lifespan

typically lasting for just under 20 years under effective mining regimes, and the equipment

is relocated to another site. Afterwards the land is usually polluted, barren and unsuitable

for any other commercial activity without proper rehabilitation being done.

5.3.2 Impact and Fiscal Potential of Diamond Beneficiation

In general the following specific recommendations are made for diamond beneficiation to

succeed in Zimbabwe: government must develop incentives for FDI which assure win-win

investments; invest in infrastructure the greatest enabler for industrialization; conduct skills

development programmes; adopt and adapt appropriate technologies; strengthen

indigenization and empowerment frameworks to provide real tangible deliverables for the

common man on the street; and more research into minerals beneficiation that can be done

locally to both explore its feasibility and build a credible knowledge base.

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5.3.3 Private Sector Initiatives

The private sector cannot simply wait for the government to do everything; there must be

innovative initiative from entrepreneurs forging partnerships with both local and foreign

financiers and investing time and money to make diamond beneficiation a success.

Government is recognized as an enabler, creating the conditions necessary for proper

functioning of economic activity. Government cannot and indeed must not be seen as the

only aggressive player in the minerals beneficiation discourse, private sector organisations

(banks, companies, academia, civil society organisations, schools, researchers, politicians

and individuals) must all take their place.

5.3.4 Technology Transfer and Skills Development

Skills and adoption of appropriate technology are fundamental to the full adoption of

beneficiation. Harare Poly/Institute of Technology now fabricating diamond polishing

benches, while the Zimbabwe Diamond Center training diamond cutters and polishers.

5.4 Policy side Interventions 5.4.1 Legal and Institutional Frameworks for Diamond Beneficiation

5.4.1.1 Legislative Improvements

To resolve the problem of multiplicity of legislation and institutions involved in managing

diamond revenues, government must formulate an integrated legislative framework by

finalizing the Minerals Development Policy; enacting a new Mines and Minerals Act;

revamping indigenization and economic empowerment legislation so as to create certainty in

the policy and simplify and unify all the legal frameworks for diamond management under a

single Diamond Act responsible for all diamond issues.

5.4.1.2 Institutional Improvements

Institutional interventions must include the setting up the Minerals Prospecting Company to

conduct minerals surveying and mapping; set up model beneficiation centers countrywide to

bring minerals beneficiation to the local communities across the country. For

intergenerational equity the Sovereign Wealth Fund must also be made operational, to

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promptly build savings. The Special Economic Zones/Export Processing Zones (SEZ/EPZ)

must include special factories for diamond processing.

5.4.1.3 Sector Specific Interventions

The Government of Zimbabwe also needs to strengthen tax frameworks in Zimbabwe’s

diamond sector. This can be done by compelling companies to use local facilities in their

mining and processing activities. This includes doing diamond cleaning, cutting, polishing

and jewellery manufacturing locally, use of local auction floors to sell diamonds, open more

diamond processing centers locally, train more local people in diamond processing, open

banks specifically designated to do banking for the diamond trade between Zimbabwe and

other foreign countries, increase the number of diamond beneficiation training schools, set

up a diamond beneficiation/minerals beneficiation centre after the Non-Aligned Movement

(NAM) model. The ZDC already has the status as a designated NAM Centre for

Beneficiation in Zimbabwe.

5.4.2 Mainstreaming Issues: Gender, Indigenization and Economic Empowerment

Economic empowerment is not complete until there is a mainstreaming component.

Government must ensure consistency and certainty in policy pronouncements. To ensure

that there are lasting benefits from engaging in diamond beneficiation there is need to

provide incentives for local beneficiation and value addition. This can be done by issuing

concessions to and encouraging partnerships between locals and foreign funders in the

setting up of diamond processing facilities within Zimbabwe. This will increase the number

of locals involved and helps retain more of the diamond revenues in the local economy.

It is also an imperative for the Government of Zimbabwe to also structure arrangements for

the inclusion of not only a gender component (through sector specific empowerment

initiatives) but by also encouraging and allowing inclusion and transition of the informal

sector into the formal economy. This must be incorporated into the diamond mining and

beneficiation sector as part of the empowerment module. The purpose of gender

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mainstreaming is not only to achieve equality between the sexes but also to get their full

contributions.

5.5 ADDITIONAL ISSUES: Governance and Capacity Building Although governance was beyond the scope of this study, it emerged as an integral aspect in

management of diamond revenues.

5.5.1 Incidental Interventions: Oversight

There is a need to improve and strengthen supervisory and oversight functions of the various

bodies, e.g. by capacitating Parliamentary Committees. Government must also curb

corruption by prosecuting perpetrators of fraudulent practices. Public officials must be

forthcoming with information or data, especially by making it accessible to researchers and

engender trust between government and business; this is the bedrock for successful nations.

5.5.2 Governance, Transparency and Accountability in Extractive Industries

Zimbabwe is a signatory and fully fledged member of the Kimberley Process (KP) a United

Nations (UN) mandated multilateral organization. The Kimberley Process Certification

Scheme (KPCS) under Section V of its Core Document, titled “Cooperation and

Transparency” and in Annex III titled “Statistics” sets out prerequisites for cooperation

among KP member organisations and for managing statistics relating to diamond production

figures and revenues and availing it to “interested parties for analysis.” The Government of

Zimbabwe needs to do more to ensure diamond revenue statistics are readily available to the

general public, in the interest of transparency and for purposes of accountability. The World

Bank sets out responsiveness of governmental authorities as part of the good governance

frameworks; this must be adopted in Zimbabwe.

There is a strong need to eliminate corrupt practices, by fully investigating and resolving

criminal cases. Initiatives that may be adopted by the diamond sector industry players to

increase transparency in diamond revenue management include the Zimbabwe Environment

Lawyers Association’s (ZELA) Publish-What-You-Pay campaign a part of a bigger

Extractive Industries Transparency Initiative (EITI). This campaign encourages diamond

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producers to publicly disclose its production figures, earnings and related statistics; thereby

enhancing transparency and accountability in natural resources management.

5.5.3 International Relations

Zimbabwe must focus on beneficial international bilateral and multilateral partnerships

which produce win-win arrangements, circumvent sanctions by re-integrating into the

family of nations through appealing to progressive nations. Countries with vested interests

in Zimbabwe have hindered this re-integration.

5.5.4 Capacity Building, South-South Cooperation and the Look-East Policy

Zimbabwe needs to engage in more South-South cooperation with willing partners to

counter the impact of sanctions. Those countries which have imposed sanctions on the

country (targeted or not) are doing so with the purpose of pursuing the National Interest of

their own economies. The Zimbabwean government must now make bold moves to reassess

these relationships or outright disengage with these countries and form stronger partnerships

with friendly countries which are willing to partner through win-win arrangements. The

Brazil, Russia, India, China and South Africa (BRICS) frameworks will prove useful for this

purpose. The BRICS countries have proposed to set up a development finance bank

(capitalization US$100 billion) for the purpose of providing loans at concessionary rates.

This proposed bank has the potential backing of the world’s biggest bank, the Industrial and

Commercial Bank of China (ICBC), which is crucially important. Zimbabwe must therefore

increase South-South cooperation by engaging cash rich countries (like China with forex

reserves of US$4 trillion) to fund its developmental programs, for example ZIMASSET.

5.5.5 Look East Policy: Impending Rise of the Asian Economies

Middle-Eastern, Asian and some Latin American countries, principally the United Arab

Emirates, China, India and Brazil are poised for magnificent growth in the near future riding

on the back of rapidly modernizing economies, growing affluence in the population and

juxtaposed against the decline of and global financial crisis afflicting the “Global West”.

Although Zimbabwe’s economy is still intricately integrated with its former colonial

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master(s) and debtors in the Global West, it is imperative for the country to reassess the

benefits that have accrued from these relationships with the future in mind. The economies

of countries in the East are fast rising and demand for resources is high. Zimbabwe stands to

benefit by reorienting the structure of its economy in line with these Asian economies.

Further, as reciprocity for bilateral support from countries in the East (China, Russia) it is an

imperative for the country to bring this political engagement to a more commercial and

tangible form. McKinsey &Company (2014) assert that the Chinese market is growing

rapidly and has a voracious appetite for commodities and natural resources, including

diamonds.

5.5.6 The Modernizing Economy: With specific reference to FDI

Modernization Theory models the process of development, while Dependency Theory

explains the challenges faced by modernizing economies. The country needs to fully engage

in more “South-South” cooperation, particularly by building bridges and linkages with

friendly and cooperative partners in sourcing loans for FDI investments. The country must

pursue full engagement with the BRICS Development Bank (US$100 billion, cap.) and

China’s ICBC (reserves US$4 trillion, cap.). This will be additional to existing cooperating

agencies: United Nations Development Program (UNDP), the World Bank (WB), the

International Monetary Fund (IMF), European Union (EU/EC), and African Development

Bank (AfDB) among others.

5.5.7 Funding frameworks

Dollarization brought about economic stability in Zimbabwe from 2009 onwards. However

this has precipitated an intense liquidity crisis. Zimbabwe must change the currency of

choice for international trade and reintroduce a local currency based on the mineral wealth

of the country. This deals with the liquidity crisis and returns monetary policy control to the

hands of an autonomous, development orientated Central Bank of Zimbabwe.

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5.5.8 Plugging Diamond Leakages

There is a need to plug leakages of minerals from smuggling and illicit financial outflows.

This can be done by increasing the physical surveillance of mines, mining areas and

international borders using advanced technological tools like X-Ray scanners, Closed

Circuit Television (CCTV) systems and Geographic Positioning Satellites (GPS). This

would enhance revenue tracking by curbing leakages. The digital CADASTRE System

recently adopted by the Ministry of Mines for registration of mining claims is thus very

valuable. Revenue management means little if there is no control of ownership structures.

Technology can also be used to reduce inefficiencies i.e. set mineral size capture thresholds

for mine extraction of diamonds and full exploitation of mine dumps. Regularizing Artisanal

and Small Scale Miners (ASSM, illegal panners, makhorokhoza/magweja) will minimize

leakages in diamond mining. This removes the incentive to externalize their produce

through informal channels.

5.5.9 Renegotiate Mining Agreements to Regain Control over Mineral Resources

Historically, the exploitation of minerals has been skewed in favour of foreign companies.

The country must therefore renegotiate all unfair mining contracts in line with the

indigenization and economic empowerment legislation to salvage control over the country’s

mineral wealth.

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5.6 Optimal Conditions required for Diamond Beneficiation The following factors must be considered when introducing beneficiation:

Figure 5.1: Summary of Recommendations for Diamond Mining and Revenue

Management

Source: Developed from Field Data NB: Environ1, PWYP2 & 3Ps3

1 Environ refers to the five types of environment within which the model subsists i.e. political, economic, social, technological and cultural 2 PWYP stands for Publish-What-You-Pay a facet of the Extractive Industries Transparency Initiative driven by the Zimbabwe Environment Lawyers Association (ZELA). 3 3Ps refers to Public-Private-Partnerships

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5.6.1 The Model Diamond Beneficiation Centre

The model diamond beneficiation center must be a “one stop shop” for the entire diamond

industry with all the requisite facilities. It must also be in-line with the NAM Beneficiation

Centre Model. The proposed Zimbabwe Diamond Centre has gone some way in setting up

the prerequisite infrastructure for a similar facility. Government must support such private

sector initiatives.

5.6.2 Minerals Securitization

The Chinese experience with securitization of minerals or mineral rights shows that this

strategy is not desirable. The purchasers of the issued securities usually onward trade these,

through speculative financial transactions on the international financial markets, leading to a

failure to develop the minerals themselves until the financial claim on the securities far

exceed the true value of the actual mineral deposits. Problems arise when the holders of the

securities make a call (a demand to withdraw their investment) on their investment and the

subsequent worth of the securities held far exceeds the net realizable value from exploitation

of the mineral’s rights. The consequences, as with China, will be a rapid extraction of the

mineral until exhaustion/depletion in order to settle the demands by the investor, leaving the

country highly indebted and with neither the mineral nor the financial benefits that must

accrue from exploitation of its minerals.

5.6.3 Diamond Beneficiation and Fiscal Resource Mobilization

Minerals beneficiation can be touted as the savior for the Zimbabwean economy because it

presents an opportunity for the government to mobilize fiscal resources relatively easily with

little hindrance. Government can ride on the comparative advantage which the country has

by way of natural resources endowment to improve its collections from taxpaying

organisations and individuals. Diamond revenues, because of the significant wealth creating

potential of the mineral, have played an important role by earning foreign exchange for

Zimbabwe until now. It can be said that it was the Marange diamond revenues which

brought Zimbabwe out of a worsening and downward spiraling economic predicament in

2009 pitching the path towards economic stabilization and recovery. The country can build

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from this base towards higher goals. Diamond beneficiation holds great promise for quickly

modernizing the economy concurrently transforming the sociopolitical realities of the

country’s citizens. This study made significant findings to this effect, and recommends

suggestions for improvement.

5.7 Hypothesis Testing/Conclusion Key informant interviews and experiences from other minerals in Zimbabwe like gold,

nickel, chrome and platinum, indicate that there is in fact a positive correlation between the

level of mineral beneficiation and the contribution of that mineral to the various tax heads

like value added tax (VAT), corporate income tax, pay as you earn (PAYE), National Social

Security Authority (NSSA), AIDS Levy, royalties, and excise duties. This is expected to

hold true for the diamond sector. One key informant indicated that “although there may not

be many immediate financial benefits to the government from diamond beneficiation these

will come in due course from the multiplier effects of benefits including skills development,

technological advancement, infrastructural improvement, tourism, employment creation and

improved livelihoods from higher incomes.”

In the final analysis, basing on the comprehensive data from all the sources (SPSS analysis

of questionnaire responses, desk study and interviews with KIs) while beneficiation has no

immediate effect on the minerals fiscal regime, ultimately there will be multiplier effects on

the whole economy in the medium to long term as downstream and sidestream activities

develop. This study therefore rejected the null hypothesis and accepted the literary

alternative hypothesis. The more diamond beneficiation a country conducts, the more fiscal

revenues are gained from taxation of overall increased economic activity.

5.8 Direction for Future Research This chapter focused on conclusions and recommendations. However, the area of

governance in the Zimbabwean mining sector needs further interrogation through focused

research.

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Downs, A. 1972. ‘Up and Down with Ecology: The Issue-Attention Cycle.” Public Interest, nr 28 (summer): 38-50, Available from http://www.anthonydowns.com/upanddown.html.

Government of the Republic of South Africa. 2011. “A beneficiation strategy for the minerals industry of South Africa.” June 2011, Department of Mineral Resources: Pretoria, Available at http://www.dmr.gov.za/beneficiation -economics.html.

Hunt, P. (no date) “Zimbabwe’s ‘Conflict Diamonds’ Controversy and the Flawed Kimberley Process in Marange.” Accessed at http://www.iloapp.waalmdiplomacy.org/.../journal?...

Kimberley Process Certification Scheme. 19 June 2013. “Kimberly Process Statistics 2012,” Viewed 16 September from https://kimberleyprocessstatistics.org/static/pdfs/public_statistics/2012/2012GlobalSummary.pdf.

Mafoti, R. n.d. “Opportunities for value addition in Zimbabwe” Scientific and Industrial Research and Development Centre, accessed at http://zimtrade.co.zw/pdf/presentations/Mafoti%20.pdf on 14 October 2014.

89

Mbanje, P. 27 October 2013. “Value addition trough polishing diamonds will increase revenue” Accessed from http://www.zimbabwesituation.com/news/zimsit_value-addition-through-polishing-diamonds-will-increase-revenue/.

McKinsey & Company. 2014. “Perspectives on the diamond industry.” September 2014. Accessed at http://www.mckinsey.com/ on 31 October 2014.

Natural Resources Charter. 2011. Accessed at http://www.naturalresourcescharter.org.

Soraya, N. and Bellamy, V. 2014. “Domestic Minerals Processing and Beneficiation in Indonesian Mining Sector,” Client Alert released February 2014 by MD & Partners accessed on http://www.whitecase.com on 2 December 2014.

The Free Dictionary. N.d. “Hypothecation.” Accessed at http://financial-dictionary.com/_/dict.aspx?rd=1&word=Hypothecation on 04 November 4, 2014.

Wesley, T., W. 2014. “Lessons on mineral beneficiation: the stick or the carrot?” Webber Wentzel in Alliance with Linklaters, 2 June 2014. Accessed from http://www.webberwentzel.com/wwb/content/en/ww-in-the-news?oid=50623&sn=Detail-2011&pid=32635 on 1 December 2014.

Vechiatto, P. “Compulsory beneficiation knocks Indonesia nickel exports” article in the Business Day Live of 4 February 2014, accessed at http://www.bdlive.co.za/business/mining/compulsory-beneficiation-knocks-indonesia-exports on 2 December 2014.

Public Lectures

Eskelinen, T. 2014. “Sovereign debt: negotiating the legitimacy of sovereign debts.” Held at the University of Zimbabwe, 13 August 2014.

Kaimila-Kanjo, G. 2014. “Building Capacity for gender mainstreaming in Africa: Lessons for African Capacity Building Foundation.” Organized by the ACBF, held at Mount Pleasant, March 2014.

Meyerson, R. 2014. “Democratic decentralization and economic development.” Public lecture organized by the University of Zimbabwe and Old Mutual Group held at the University of Zimbabwe, June 2014.

Statutes /Acts of Parliament

Appropriation Act Chapter 23: 05.

Audit Office Act Chapter 22: 18.

90

Constitution of Zimbabwe Amendment Number 20 of 2013.

Finance Act Chapter 23: 04.

Minerals Marketing Corporation of Zimbabwe Act Chapter 21: 04.

Mines and Minerals Act Chapter 21: 05.

National Budget Statements, Zimbabwe.

Public Finance Management Act Chapter 22: 19.

Precious Stones Trade Act Chapter 21: 06.

Sovereign Wealth Fund Act Chapter 22: 20.

Zimbabwe Mining Development Corporation Act Chapter 21: 08.

Policy Documents

Zimbabwe Diamond Policy

Zimbabwe Industrial Development Policy

Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIMASSET) 2013-2018

91

Appendix A: Frameworks for Diamond Revenue management in Zimbabwe Framework Legislative Institutions Policies Funds Other

Constitutional Framework

Constitution of Zimbabwe Act 20 of 2013

Parliament of Zimbabwe (Upper and Lower Houses)

Minerals Policy, pending, mining rights, governance, transparency, accountability

Consolidated Revenue Fund

Ministry of Industry and Commerce

Economic Strategic Blueprint

Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIMASSET)

Office of the President and Cabinet (OPC)

Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIMASSET)

Department of Policy implementation; Dept responsible for Modernization. The six ZIMASSET clusters

Primary legal instruments for administration of diamond mining revenues

Mines and Minerals Act Chapter 21: 05

Ministry of Mines and Mining Development, Diamond Board, Mining Affairs Board,

Diamond Policy

Community Share Ownership Trust/Schemes

Geological Survey Institute; Institute of Mining Research; Zimbabwe School of Mines; Zimbabwe Chamber of Mines

Affiliated Instrument for precious stones management

Precious Stones Trade Act Chapter 21: 06

Precious Stones Commissioner

Diamond Policy

Kimberley Process Certification Scheme

Zimbabwe Mining Development Corporation

Zimbabwe Mining Development

PPPs Policy (Joint Venture Model)

Special Dividend from gvts 50%

United Nations Divisions on Public Administration

92

Framework Legislative Institutions Policies Funds Other

(ZMDC) Act Chapter 21:08

Corporation shareholding in JV companies

; ECA, African Mining Vision

Minerals Marketing Corporation of Zimbabwe (MMCZ) Act Chapter 21:04

Minerals Marketing Corporation of Zimbabwe

Kimberley Process Certification Scheme, Mining Promotion Corporation

Strategic Minerals Management Framework

Reserve Bank of Zimbabwe (RBZ) Act Chapter 22: 15

Exchange Control Act Chapter 22: 05

Reserve Bank of Zimbabwe (RBZ)

Strategic Minerals Management Framework, Exchange control regulations, international payments management

Management of all national strategic mineral reserves in Zimbabwe

Fiscal Frameworks

Public Finance Management Act Chapter 22:19

Ministry of Finance and Economic Development

Procurement Act Chapter

Finance Act Chapter 23: 04 and Appropriation Act Chapter 23:

Accountant General; Paymaster General (Treasury)

Audit Office Act Chapter 22: 18

Auditor General

Revenue Authority Act (ZIMRA) Chapter 23:

Zimbabwe Revenue Authority

Consolidated Revenue Fund, Diamond

Royalties, Licence Fees, Value Added Taxes,

93


11

Income Tax Act Chapter 23: 06

(ZIMRA) Revenue Fund

Customs and Excise Taxes,

Pay As You Earn

Intergenerational Equity, Wealth Transfer

Sovereign Wealth Fund Act Chapter 22: 20

Sovereign Wealth Fund

Sovereign Wealth Fund

Empowerment Indigenization and Economic Empowerment Act

Ministry of Indigenization & Economic Empowerment

Empowerment

Community Share Ownership Schemes/ Trusts (CSOT/S)

National Indigenization and Economic Empowerment Board (NIEEB)

Public Private Partnerships

Privatization Authority Act

Privatization Authority of Zimbabwe

Joint Venture Model/Bill

Joint Venture companies

Local Authorities

Environment Management Act (EMA)

Rural District Councils & Urban Councils Act

Environment Management Agency (EMA)

Rural District Councils, Urban Councils

Environment Management

Regional & Town Planning

Research and Development

Scientific and Industrial Research and Development Center,

Non-Aligned Movement Center for Beneficiation (ZDEC)

94


Education and skills Development

Zimbabwe School of Mines, Institute of Mining Research, Diamond Education Center

Harare Institute of Technology & Polytechnic, Pan African University, School of Jewellery- Diamond

Multi-lateral Agencies

UN, ECA, AU, SADC, WB, IMF, AfDB, EU

KPCS, WDC, OECD

Source: Adapted from field data

95

Annexure B: Letters of Approval University of Zimbabwe

Ministry of Mines and Mining Development

Parliament of Zimbabwe

96

Appendix C: Organogram /Organizational Charts Ministry of Mines and Mining Development

Parliament of Zimbabwe

97

Appendix D: Survey Questionnaire UNIVERSITY OF ZIMBABWE

FACULTY OF SOCIAL STUDIES

DEPARTMENT OF POLITICAL AND ADMINISTRATIVE STUDIES

QUESTIONNAIRE FOR MINISTRY OF MINES AND MINING DEVE LOPMENT

Section A

My name is Ngonidzashe Nzenzema, a post graduate student studying towards a Master of Public

Administration Degree with the University of Zimbabwe. I am currently conducting fieldwork for my

dissertation titled: “An investigation into the efficacy of diamond beneficiation as a fiscal resources

mobilization strategy: The case of Zimbabwe.” I have selected you as one of my respondents and kindly

request your participation by filling out the following Questionnaire. The information you provide will be

treated with the strictest of confidence and will only be used for academic purposes. No identifying

information (e.g. names of individuals, designations) will be used when analyzing the final data collected from

the questionnaires.

� This study seeks to achieve the following objectives:

� Examine the legal and institutional frameworks for diamond beneficiation in Zimbabwe.

� Describe the state of the practice in other countries.

� Demonstrate the effects of diamond beneficiation to the mining fiscal regime.

� Recommend an appropriate diamond beneficiation model to enhance the performance of the mining

tax head/mining fiscal regime.

Researcher’s Contact Details:

Should you have any questions please do not hesitate to contact me:

Cell phone Number Email Address Physical Address

+263 775 219 015 [email protected] University of Zimbabwe, Department of POLAD , P.O.

Box MP167, Mt. Pleasant, Harare, Zimbabwe

Section B: Respondent’s Profile

Date of interview: _______/______/_______ Title/Designation: __________________________

Gender: Male Female

Age: >20 20-30 31-40

41-50 51-60 < 60

Period with Organization: 0-1 year 2-4 years

5-10 years <10years

Questionnaire No.

98

SECTION C: RESEARCH QUESTIONS

Survey Instructions

The questions are followed by a list of choices; please tick the option that best represents your

response. Do not disclose any personally identifying information. Your participation and contribution

is greatly appreciated in this study. If you have other comments, please make them on the space

provided at the end of the questionnaire or on a separate piece of paper.

1. What is the role of the Ministry of Mines and Mining Development in diamond resource/revenue

management?

Possible Roles Intricately Involved

1

Involved 2

Somewhat Involved

3

Not Involved

4

Expressly Excluded

5

Don’t Know

9 Revenue Collection/Assessment

1 2 3 4 5 9

Policy Recommendations

1 2 3 4 5 9

Audit of Revenue 1 2 3 4 5 9 Minerals Development

1 2 3 4 5 9

Sales and Retail 1 2 3 4 5 9

Regulation 1 2 3 4 5 9

NB: This includes the receipts from diamond exports by Zimbabwe (inclusive of all diamonds rough, cut, polished or

jewellery).

2. Zimbabwe is a minerals mining country. Does the country have a mining/minerals management

framework?

YES NO

3. What are the frameworks for diamond minerals management? (i.e. are there Institutions, Legislation,

Ordinances, Memoranda, Cabinet Directives or relevant Statutes used in minerals management)

Possible Minerals Frameworks

Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Permanent Institutions 1 2 3 4 5 9 Temporary Institutions 1 2 3 4 5 9 Constitution 1 2 3 4 5 9 Act(s) of Parliament 1 2 3 4 5 9 Policy Documents 1 2 3 4 5 9 Statutory Instruments 1 2 3 4 5 9 Government 1 2 3 4 5 9

99

Possible Minerals Frameworks

Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Directives Rules, Memoranda, Ordinances

1 2 3 4 5 9

Other 1 2 3 4 5 9

(Please attach the specific documents if available or a schedule listing of the relevant frameworks)

4. From the following, what types of taxes/revenues are being collected from the diamond in Zimbabwe

(both rough and beneficiated)?

Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Corporate Income tax

1 2 3 4 5 9

Value Added Tax 1 2 3 4 5 9

Excise Tax 1 2 3 4 5 9

Export Duties 1 2 3 4 5 9

Import Duties 1 2 3 4 5 9

Royalties 1 2 3 4 5 9

Pay-As-You-Earn 1 2 3 4 5 9

N.S.S.A 1 2 3 4 5 9

AIDS Levy 1 2 3 4 5 9

Other 1 2 3 4 5 9

5. What would you say are the various uses for the different types of diamonds mined from Zimbabwe?

Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Equipment/Machinery/Tools 1 2 3 4 5 9 Jewellery Manufacture 1 2 3 4 5 9 Other 1 2 3 4 5 9

6. What is the quantum of diamonds mined in Zimbabwe annually?

a) As a percentage of global production

Less than 19% 20-29% 30-49% 50-69% over 70%

b) In actual carat terms

100

Less than 1 million ct. 1 - 5million ct. 6-

10million ct.

11 - 15 million ct. over 16 million ct.

7. How would you classify the Zimbabwean diamond footprint? What types of diamonds are mined in

Zimbabwe currently?

Types of diamonds Very Few 0 - 20%

1

Few 21 – 40%

2

Average 41 – 60%

3

Some 61 – 80%

4

Mostly 81 – 100%

5

Don’t know 9

Industrial/Boart Quality 1

2

3

4

5

9

Gem Quality 1 2 3 4 5 9 Near Gem Quality 1 2 3 4 5 9 Conglomerate 1 2 3 4 5 9 Kimberlitic 1 2 3 4 5 9 Alluvial 1 2 3 4 5 9 NB: This does NOT refer to the “TYPES” Classification system, but rather to the DIAMOND FOOTPRINT.

8. a. Does Zimbabwe currently conduct any diamond beneficiation/value addition?

YES NO

b. If YES: What is the extent of this beneficiation/value addition along the value chain in

Zimbabwe?

Stage in Value Chain Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Basic Processing 1 2 3 4 5 9 Secondary Processing 1 2 3 4 5 9 Jewellery Manufacture 1 2 3 4 5 9 Retail Sales 1 2 3 4 5 9 (NB: Basic processing means ground extraction, washing and sorting; while secondary processing entails cutting and polishing.)

9. In your opinion what are the feasible prospects for improving tax revenue collection from the

diamond mineral in Zimbabwe?

Possible Options Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know 9

Increase taxes % 1 2 3 4 5 9 Introduce new tax measures

1 2 3 4 5 9

Reduce Current Taxes %

1 2 3 4 5 9

101

Remove Current Taxes

1 2 3 4 5 9

Maintain Current Taxes

1 2 3 4 5 9

Ban Export of rough diamonds

1 2 3 4 5 9

Other 1 2 3 4 5 9

10. What has been the performance (US$) of the Zimbabwean diamond sector for the years 2009-14:

Combined Taxes, Royalties and other Revenues collected from the diamond from 2009 to 2014

Revenue Earned from Diamonds

2009

USD m

2010

USD m

2011

USD m

2012

USD m

2013

USD m

2014

USD m

2015

Est. USD m

Rough Stones

Cut Stones

Polished

Jewellery

Machinery

Sales and Retail

Other

NB: This section requires the combined totals of tax earned for each segment of the diamond value chain for each year in millions of

United States of America Dollars.

11. What has been the disaggregated contribution of diamond mining companies to the fiscus over the years?

Contributions of the various tax heads (types of taxes) from diamonds alone

Type of Revenue for Government

Rate (%) (AVG.)

Value in USD millions

2009 2010 2011 2012 2013 2014 Corporate Income Tax

Value Added Tax (V.A.T.)

102

P.A.Y.E.

Royalties

AIDS Levy

NSSA

Duties on imports

Duties on exports

NB: Here the taxes are aggregated across the entire value chain but disaggregated by tax head.

12. Given the above statistics, in your opinion, how would you rate/rank the performance of the diamond

minerals tax head?

Scale: 1 is the lowest performance and 5 the highest performance. (1 Low; 3 Medium; & 5 High)

Possible Options LOW MEDIUM HIGH

Excellent 1 2 3 4 5

Very Satisfactory 1 2 3 4 5

Satisfactory 1 2 3 4 5

Not Satisfactory 1 2 3 4 5

Inadequate 1 2 3 4 5

Poor 1 2 3 4 5

13. In your opinion, compared to other minerals would you say that the diamond has a special role to play

in government/fiscal revenue generation?


1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know 9

Yes. A big part 1 2 3 4 5 9

A small part 1 2 3 4 5 9

14. What influences(d) the financial contribution of the diamond to the fiscus/government purse?

Here add other types of reven-ues not listed

103

Possible Reasons Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Efficient Revenue Collection

1 2 3 4 5 9

Robust tax framework

1 2 3 4 5 9

Transparency 1 2 3 4 5 9

Accountability 1 2 3 4 5 9

Beneficiation 1 2 3 4 5 9

Value Addition 1 2 3 4 5 9

Illicit Financial Flows

1 2 3 4 5 9

Corruption 1 2 3 4 5 9

15. What benefits have other countries accrued from diamond Beneficiation/Value Addition?

Possible Benefits Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Technology Modernization

1 2 3 4 5 9

Skills Development

1 2 3 4 5 9

Better Revenues 1 2 3 4 5 9

Infrastructure Development

1 2 3 4 5 9

Improved Livelihoods

1 2 3 4 5 9

Improved Incomes 1 2 3 4 5 9

16. What challenges have other countries faced in conducting beneficiation/value addition?:

Possible Challenges

Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9

Skills Shortages 1 2 3 4 5 9

Marketing Problems 1 2 3 4 5 9

104

Supply of Rough Diamonds

1 2 3 4 5 9

Financial Problems 1 2 3 4 5 9

Technology Shortages

1 2 3 4 5 9

Revenue management challenges

1 2 3 4 5 9

17. In your opinion, do you think diamond Beneficiation/Value-Addition could be of any value for

Zimbabwe?

Possible Options

Strongly Agree 1

Agree 2

Somewhat Agree 3

Disagree 4

Strongly Disagree 5

Don’t know 9

Very Valuable 1 2 3 4 5 9

Not Valuable 1 2 3 4 5 9

18. What do you think influenced the decision to adopt Beneficiation/Value-Addition in Zimbabwe?


1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Government Revenue Collections

1 2 3 4 5 9

Policy Decisions 1 2 3 4 5 9 Alignment with SADC/ African Mining Vision

1 2 3 4 5 9

Private Sector Investment Decision

1 2 3 4 5 9

Logical Industry Growth 1 2 3 4 5 9 Popular demands by electorate

1 2 3 4 5 9

105

19. How would you rank the importance of local diamond Beneficiation/Value-Addition for revenue

generation in a country?

Rank Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9

Extremely important

1 2 3 4 5 9

Somewhat important

1 2 3 4 5 9

Important 1 2 3 4 5 9

Not important 1 2 3 4 5 9

Don’t know 1 2 3 4 5 9

20. In the table below please rank the anticipated benefits/costs (advantages/disadvantages,

opportunities/challenges) that could accrue to a country if Beneficiation/Value Addition is conducted

locally:

Expected Benefit/Cost

Opportunities/Challenges

Advantages/Disadvantages

Strongly

Agree

1

Somewhat

Agree

2

Agree

3

Disagree

4

Strongly

Disagree

5

No idea

9

Employment creation locals 1 2 3 4 5 9

Higher local retained value 1 2 3 4 5 9

More government revenue 1 2 3 4 5 9

Industrialization 1 2 3 4 5 9

Infrastructural Development 1 2 3 4 5 9

Improved Transparency 1 2 3 4 5 9

Improved Accountability 1 2 3 4 5 9

Improved local livelihoods 1 2 3 4 5 9

Economic diversification 1 2 3 4 5 9

Increased corruption 1 2 3 4 5 9

Poor revenue management 1 2 3 4 5 9

Anti-competitive behaviour 1 2 3 4 5 9

Poor workmanship 1 2 3 4 5 9

106

Expected Benefit/Cost

Opportunities/Challenges

Advantages/Disadvantages

Strongly

Agree

1

Somewhat

Agree

2

Agree

3

Disagree

4

Strongly

Disagree

5

No idea

9

Inadequate skills 1 2 3 4 5 9

Inappropriate technology 1 2 3 4 5 9

MNC Domination 1 2 3 4 5 9

21. Is there legislation to regulate diamond taxation specifically in Zimbabwe?

YES NO

a. If YES: In what form is this legislation?

Types of Legislation

Strongly

Agree

1

Agree

2

Somewhat

Agree

3

Disagree

4

Strongly

Disagree

5

Don’t

know

9

Acts of Parliament

1 2 3 4 5 9


1 2 3 4 5 9


1 2 3 4 5 9

Policy Documents

1 2 3 4 5 9

Rules and Ordnances

1 2 3 4 5 9


1 2 3 4 5 9

Other

1 2 3 4 5 9

b. If NO: How has diamond revenue been managed?

Frameworks For Revenue Management

Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Government Institutions

1 2 3 4 5 9

Private Sector Companies

1 2 3 4 5 9

107

Frameworks For Revenue Management

Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Multi-lateral Based Organisations

1 2 3 4 5 9

Civil Society Organisations

1 2 3 4 5 9

Family Based Ownership

1 2 3 4 5 9

Other 1 2 3 4 5 9

22. What model of ownership/revenue management is more effective

Most Appropriate Ownership/ Revenue Management Models

Very Effective

1

Effective 2

Somewhat Effective

3

Ineffective 4

Very Ineffective

5

No Idea

9 Government controlled 1 2 3 4 5 9

Private Sector controlled 1 2 3 4 5 9

Multi-lateral institutions controlled

1 2 3 4 5 9

Community controlled 1 2 3 4 5 9

Civil Society Based revenue control

1 2 3 4 5 9

Family based ownership/control

1 2 3 4 5 9

23. How would you rate the adequacy of the mining fiscal regime? In your opinion would you say the

Zimbabwean mining fiscal regime is adequate?

Adequacy Ranking

Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know 9

Excellent 1 2 3 4 5 9 Adequate 1 2 3 4 5 9 Average 1 2 3 4 5 9 Inadequate 1 2 3 4 5 9 Poor 1 2 3 4 5 9

108

24. In your view what challenges are currently being faced in the Zimbabwean mining sector, with

respect to taxation?

Challenges in Diamond Taxation

Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t Know 9

Leakages 1 2 3 4 5 9 Smuggling 1 2 3 4 5 9 Under-invoicing

1 2 3 4 5 9

Tax Evasion 1 2 3 4 5 9 Tax Avoidance 1 2 3 4 5 9 Poor frameworks

1 2 3 4 5 9

Artisanal Mining

1 2 3 4 5 9

MNC Domination

1 2 3 4 5 9

Illicit Financial Flows

1 2 3 4 5 9

Other 1 2 3 4 5 9 NB: MNC refers Multinational Companies (companies which operate in several countries).

25. What would you recommend to improve the contribution of the diamond mineral to the fiscus:

Possible Strategies Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Exploration 1 2 3 4 5 9

Seek loans for FDI 1 2 3 4 5 9

Open up diamond mining to more players

1 2 3 4 5 9

Reduce the number of mining companies

1 2 3 4 5 9

Renegotiate all existing diamond mining agreements

1 2 3 4 5 9

Expedite Indigenization Program

1 2 3 4 5 9

Increase Local Ownership

1 2 3 4 5 9

109

Possible Strategies Strongly Agree

1

Agree 2

Somewhat Agree

3

Disagree 4

Strongly Disagree

5

Don’t know

9 Strengthen Joint Venture Model

1 2 3 4 5 9

Conduct more local Beneficiation

1 2 3 4 5 9

Increase taxes % 1 2 3 4 5 9

Introduce new tax measures

1 2 3 4 5 9

Reduce Current Taxes

1 2 3 4 5 9

Remove Current Taxes

1 2 3 4 5 9

Maintain Current Taxes

1 2 3 4 5 9

Ban Export of Rough Diamonds

1 2 3 4 5 9

Other 1 2 3 4 5 9

NB: FDI stands for Foreign Direct Investment

26. Do you have any other comments: __________________________________________

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

(Please continue on separate sheet if more space is needed.)

THANK YOU FOR YOUR TIME.

110

Appendix E: Interview Guide The study seeks to achieve the following objectives:

� Examine the legal and institutional frameworks for diamond beneficiation in Zimbabwe.

� Describe the state of the practice in other countries. � Demonstrate the effects of diamond beneficiation to the mining fiscal regime. � Recommend an appropriate diamond beneficiation model to enhance the

performance of the mining tax head/mining fiscal regime.

Please respond to the following questions:

1. What role does the Ministry of Mines and Mining Development/Zimbabwe Diamond Center/Zimbabwe Diamond Education Center/Zimbabwe Diamond Beneficiation Association play in diamond beneficiation/in the sale of polished diamonds?

2. What are the legal and institutional frameworks governing diamond beneficiation in Zimbabwe? What is the Zimbabwean diamond/minerals development policy? Is there a framework? What statues, laws, rules, regulations govern the global trade in diamonds?

3. What/Which are the major markets for Zimbabwe’s diamonds? What are the dominant models for marketing of diamond? What have been the trends for diamond beneficiation?

4. What do you understand by the term beneficiation? Does Zimbabwe conduct any form of diamond Beneficiation/Value Addition? What influenced your decision to adopt the diamond beneficiation policy?

5. What, in your opinion do you think has been the effect of diamond mineral beneficiation on the fiscus? What effect does diamond Beneficiation/Value addition have on the performance of the mining fiscal regime (i.e. the performance of mining sector taxes)?

6. What are the challenges that have been faced or are anticipated to be faced in adopting or implementing diamond beneficiation? What technology is required to conduct diamond beneficiation and is this technology easily available locally?

7. What are your recommendations with respect to diamond Beneficiation and Value Addition in Zimbabwe? What would you recommend for Zimbabwe to overcome these challenges?

8. Are there any other comments you wish to make that you think may be relevant to this study?

THANK YOU FOR YOUR TIME!

111

Appendix F: Zimbabwean Diamond Mining Industry and International Trade Market

Source: Adapted from annotations/thoughts on a presentation titled “Assessing Vertical

Mergers” by Thando Vilakazi in a European Union Workshop held at the Holiday Inn 02 –

06 February 2015. Training of Trainers: Introductory Course on Competition Law and

Economics, A project funded by the European Union Commission and UNCTAD.

112

Appendix G: Glossary of Terms

Beneficiation /Value Addition - entails the value addition of minerals by processing them to attain higher returns; the creation of activities beyond mining the natural resources.

bea keluar – Indonesian policy of progressive minerals taxation instead of sudden radical compulsory wholesale prohibition of exports

“Blood diamond” – a phrase referring to diamonds mined or traded by insurgents to finance wars against legitimately elected governments. May also refer to diamonds mined using forced labour and child labour whose revenues are used to commit “crimes against humanity”

Diamondiferous – refers to an ore/pipe (kimberlitic/alluvial) containing diamonds; diamond bearing ore/pipe

Efficacy – effectiveness, efficiency, usefulness, worth, value; in this study this refers to the ability or potential of something to do something

Extractive Industries Transparency Initiative (EITI ) - an initiative championed by the Zimbabwe Environment Lawyers Association (ZELA) which calls upon mining companies to publish any revenues they pay to government so as to increase transparency in the management of minerals revenues.

Gender Mainstreaming – an inclusive approach that involves harnessing the potential capacities of both sexes; the process of assessing the implications for women and men of any planned action, including legislation, policies or programmes, in any area and at all levels. The ultimate aim is to achieve gender equality (ILO).

Kimberlite/Kimberlitic – may be non/diamondiferous, i.e. diamond bearing, containing diamonds

Kimberly Process Certification Scheme (KPCS) – a United Nations mandated multilateral scheme for diamond certification which functions to eliminate the trade in “blood diamonds”

Publish What You Pay (PWYP) - a facet of the Extractive Industries Transparency Initiative which calls upon mining companies to publish any revenues they pay to government so as to increase transparency in the management of minerals revenues.

Zimbabwe (Transition to) Democracy and Economic Recovery Act (ZTDERA/ZDERA) - American sanctions law on Zimbabwe

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AN INVESTIGATION INTO THE EFFICACY OF DIAMOND...

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