|New cooperatives target illicit diamond trade|
Restoring the Sparkle
New cooperatives target illicit diamond trade
By JACKIE RANGE
ALLUVIAL DIAMONDS from Sierra Leone are among the world's most prized rocks, but they're often intertwined with criminal activity that the diamond industry is striving to eradicate.
Setting out to attack the illicit diamond trade and devise more humanitarian working conditions, aid organizations and investors have established Sierra Leone digger co-operatives. But cleaning up the diamond trade there presents a thorny problem for the industry: If successful, these initiatives could present branding opportunities that challenge the iconic status of diamonds. The open pricing of the gems also may challenge the current industry pricing model.
Alluvial diamonds were carried from their original sources by rivers, and are now strewn across Sierra Leone, particularly its eastern Kono region. Their disparate nature makes them inefficient for large diamond miners. So they are mostly targeted by small-scale miners, working in poverty conditions.
After more than 10 years of war, there is a fragile peace in Sierra Leone, with the United Nations reducing its presence. Alluvial-diamond miners are the second-biggest work force there, and number as many as 200,000.
Diamonds, used to fund munitions, played a part in prolonging the war, and are still smuggled. Officially, Sierra Leone exported diamonds worth $126.6 million in 2004. Estimates of the value smuggled vary widely, but climb as high as $500 million, industry sources say.
DOW JONES REPRINTSThis copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. • See a sample reprint in PDF format • Order a reprint of this article now.
Since alluvial diamonds can be found relatively easily and sold for cash, many aren't tracked using Kimberly Process requirements, an international scheme aiming to ensure diamonds don't fund conflicts.
Large parts of Sierra Leone's diamond industry are "monopolized by a relatively small group of people who dictate the price of rough diamonds, reap most of the economic rewards and exploit those in the production chain below them," says Global Witness, a nongovernmental organization specializing in natural resources.
But tiny grass-roots projects are springing up. Aiming to break the poverty cycle, they also plan to follow each diamond from discovery to sale, ensuring Kimberly Process compliance. The projects are overseen by a wider USAID-administered project, aiming to strengthen the sector.
Now the miners are piling up gravel from old riverbeds. Soon they will wash and sift it for bounty. Before the diamonds leave Sierra Leone for sale, several parties will value them -- a particularly vulnerable part of the process. Some argue it's highly subjective.
Martin Rapaport, whose eponymous company has a number of diamond-related businesses, has provided seed capital for four of the projects. He'll return all but 7% to 10% of the sale proceeds to the miners, and recoup his original capital.
Global Witness will observe the projects' mine-to-sale chain. The model, if effective, could be used in other countries rich in alluvial diamonds, such as Liberia.
DJ-AIG Commodity Indexes
DJ-AIG Indexes 4/29 4/22 YTD
Commodity Futures 152.294 157.681 5%
Total Return 267.441 276.747 6%
Energy 331.515 363.675 10%
Petroleum 379.174 415.454 14%
Livestock 76.557 75.951 -2%
Grains 48.442 48.947 4%
Industrial Metals 102.871 104.409 -1%
Precious Metals 76.646 77.667 -1%
Softs 78.666 76.447 8%
Dow Jones/AIG International
But making the co-operatives work won't be simple. Diamond-industry consultant Chaim Even-Zohar argues that without governmental will and legislative support, these projects stand to fail. Plus, diamond dealers in Sierra Leone would lose from this model and have an interest in its failure, industry sources say.
These projects aim to harness branding, a growing trend in diamonds, capitalizing on their origin. Rapaport argues that value for a consumer is intertwined with symbolism. "You show that diamond to your girlfriend and she says, 'How many people have died for that diamond,' the whole value of the diamond goes down the toilet," he says.
Key Commodity Indexes
CRB Group Indexes 4/29 Prev. Wk Yr. Ago
CRB Futures 303.74 307.29 270.81
Industrials 264.97 260.78 244.25
Grain/Oils 191.19 189.87 265.41
Livestock 299.75 295.72 282.83
Energy 531.95 578.46 395.35
Precious Metals 398.53 406.23 347.73
World No.1 miner BHP Billiton's sales of CanadaMark-branded diamonds -- Canadian origin guaranteed -- are growing rapidly. Both Rapaport and Joseph J. James, managing member of Kono's Hope, another co-operative backer, have an eye for branding opportunities.
Rapaport will link the brand to development. "De Beers has a brand that says, 'A diamond is forever,"' he says, but "development diamonds are better because they have a brand which says 'this diamond makes the world a better place."'
James will target African-Americans, 75% of his investors. Their ancestors may be from Sierra Leone, brought to America in slavery. Applying for the "Kono's Hope," trademark, he says, "This is not just a business deal, this is a passion of the heart and connection back to our blood kin."
Beyond branding, making diggers aware of diamonds' value will help change the grass-roots balance of trade, Rapaport says. But this step is "way too tiny" to have a major impact on the $60 billion-a-year diamond-jewelry industry.
Transparency is coming to the diamond industry, however, and could ultimately lead to price declines, says Even-Zohar. But De Beers, selling 48% of world-diamond production by value, sees no reason to change its pricing method.
JACKIE RANGE is a reporter for Dow Jones Newswires in London.