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08/17/2000
Diamonds / Update...Part I
Since my report of 7/27 in this space on the diamond industry
and De Beers, the story has heated up a bit and warrants some
additional comment.
Last time, we covered the history of the diamond trade, going
back to the founding of gem king, De Beers, and we tied it to the
civil wars currently being waged in West Africa; financed in
large part by the sale of diamonds.
The term that has now entered the lexicon is "conflict zone."
The U.N. Security Council ruled last month that the sale of
diamonds from war-ravaged Sierra Leone, in particular, was
forbidden. In turn De Beers, worried about its nearly $4 billion
in inventory, is attempting to paint itself as the politically correct
diamond cartel.
What has changed in the last few weeks, however, is that there
seems to be a renewed sense that, first, imposing an embargo on
diamonds from nations like Sierra Leone is virtually impossible
and second, at least from an appearance standpoint, the U.N. still
has to be more aggressive. So, for now, they are talking a tough
game.
And it''s U.S. Ambassador Richard Holbrooke who is firing the
salvos. Holbrooke, known for being a no-nonsense kind of guy,
if not necessarily effective, has had the following comments
about the chaotic situation and where the responsibility lies.
"The governments of Liberia and Burkina Faso, including
through the actions of their presidents, are fueling the war in
Sierra Leone and profiting from the diamond trade."
[If you were like me and had to recheck where Burkina Faso is,
picture that it is separated from Liberia by Mali and the Ivory
Coast...inland.]
More specifically, Holbrooke has compared Liberian President
Charles Taylor to Slobodan Milosevic.
"Taylor is Milosevic in Africa with diamonds. (He) is fueling
the conflict in Sierra Leone for his own benefit. He is
threatening to destabilize western Africa, and there is deep
division in the region about how to deal with him."
For his part, Taylor and the president of Burkina Faso, Old
Whatzhisname, vehemently deny the accusations. Of course,
they''re guilty.
Recently, Assistant U.N. Ambassador Thomas Pickering met
with Taylor and confronted him with the charges. Taylor asked
for proof and Pickering didn''t tip his hand. But the U.N. has
details of meetings that Taylor has held with the rebels in Sierra
Leone; the Revolutionary United Front, or RUF.
Taylor is a former warlord who terrorized the voters of Liberia
into electing him president in 1998. He has held a close
relationship with RUF leader Foday Sankoh, now currently under
U.N. arrest. What worries the U.N. and the thousands of
peacekeepers stationed in Sierra Leone is the fact that Taylor
now seems to have personally taken command of the rebel forces
in Sankoh''s absence.
Within the next few weeks, President Clinton is to travel to
Nigeria, where a few hundred Green Berets are slated to train
units of the Nigerian army, in order to allow the Nigerians to
become more of a positive peacekeeping force in this part of the
continent. And it now seems clear that we are really going to be
preparing the Nigerians for possible war with Liberia. [This last
point is totally the opinion of your editor...it just makes sense to
me.]
But back to the role of diamonds in the chaos that is West Africa.
The rebels in Sierra Leone now control about 90% of the mines.
The U.S. estimates that the RUF earns anywhere from $50-$125
million a year from diamond sales. The diamonds are often
purchased by unidentified middlemen, many of them Lebanese,
who resell them to Belgian, South African, Israeli, Indian,
Russian and other buyers.
In turn, the rebels use the proceeds to purchase arms and
ammunition. But, as author Edward Jay Epstein writes,
"Governments are (still) the principal means by which warriors
get funded and armed."
Taylor has arranged transport of arms, munitions, food, fuel and
soldiers for the RUF and produced a plan to fortify the diamond
mining districts. Said Ambassador Holbrooke:
"A year ago, the RUF were...drug-crazed, machete-wielding
thugs. They are now acquiring machine guns, shoulder-fired
surface-to-air missiles and the means to shoot down aircraft."
Of course when the RUF were just "machete-wielding thugs,"
they were lopping off the arms and legs of innocent civilians.
The U.S. and the U.N. did little to stop it. In fact, history will
show that the U.S. only helped the process along through its
support of a sham peace deal, one which solidified the bloody
reign of Foday Sankoh.
So now we go back to the U.N. Security Council ruling
forbidding the sale of diamonds originating from Sierra Leone.
Currently, the U.N. bans the purchase of gems that don''t have a
government certificate.
Enter De Beers. The problem with diamonds has always been
their abundance, not their scarcity. De Beers has control of over
two-thirds of the uncut diamonds in the world. The last thing
they want, now, are undocumented diamonds finding their way
into the market. It would help drive the price down. Thus De
Beers, for truly selfish reasons, convinced the U.N. to impose the
global ban on "undocumented" gems from "conflict zones."
As author Edward Epstein notes, however, "(Inhibiting) the sale
of uncertified diamonds, diamonds that in practice come from
fields the cartel doesn''t control, probably won''t stop civil wars.
It will, (though), make it far less costly for De Beers to control
the diamond market. Another brilliant coup for the cartel."
Having said all of this, the diamond industry still can''t be
expected to police itself too effectively. The American consumer
continues to scarf up the gems at a record pace, thanks to the
booming economy, of course.
Ambassador Holbrooke would like to see Washington do more to
persuade consumers, particularly in this country, to demand
certificates of origin that could prove they haven''t purchased
"blood diamonds" from Africa. "I hope that people buying a
beautiful stone will start asking questions and be sure not to buy
unless they see a certificate of origin." Good luck.
Right now, probably only 10% of diamond buyers know what the
term "conflict diamond" means. One diamond wholesaler in New
York said he was skeptical of De Beer''s ability to police
diamond traders. "In our industry, any way they can make a
buck they will."
*In a different part of West Africa, the nation of Angola, noted
investor and author, Jim Rogers, recently wrote of his travels
through this country as part of his 3-year journey to check out the
world in the new millennium. A few years ago, Angola received
its own U.N. sanctions on the sale of diamonds mined in their
country.
Angola has also been in the midst of a 25-year civil war,
financed by one side through oil revenues, the other by the sale
of diamonds; in the latter case to the tune of $250-$700 million
annually. Rogers reports that the diamonds are laundered
through intermediaries in Togo, Liberia and Sierra Leone.
Of course in conflicts like those of Angola and Sierra Leone, it is
the people who suffer. Rogers notes that the Angolan capital of
Luanda has grown to 4 million from just 500,000 in 1970, due in
large part to the flight of refugees fleeing the diamond mining
regions controlled by the infamous rebel leader Jonas Savimbi.
Next week, we will examine once more the role of De Beers in
all of this and, in a special report available only to readers of this
site, you are going to learn about some alternatives to diamonds.
Brian Trumbore
Sources:
Edward Jay Epstein / Wall Street Journal
Blaine Harden / New York Times
Julie Flaherty / New York Times
Jim Rogers / Worth
Associated Press reports
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