Zimbabwe’s Diamond Industry: Potential Revenue and Controversies

Q. 1. The potential revenue of the field. Find the most reliable figure for this, tell where you obtained it and explain why you think it is the most reliable figure that you could obtain. Ans. 1. Zimbabwe started selling diamonds and earned more than ?1 billion by selling diamonds (The Press Association). The soldiers forced people to work harder. They also tortured them and their children with heavily armed force. There is no official estimate for the revenue from selling stones and diamonds in that sector but an unofficial estimated range is showing ?1. billion from that field in Zimbabwe (The Press Association).

The eastern alluvial diamond fields of diamond estimated to meet one-forth demand of the total demand of diamond across the world in 2006. They earned high revenue and profit by trading diamonds into several countries, like, Israel, India, Lebanon and Russia. The government of Zimbabwe earned $20 million from the legal sale of diamonds in 2008 (The Press Association). But the important thing is that most of the earned income and revenue of mining diamonds is illegal and it has no governmental or official record.

If a Chinese mining company wants to set up a legal partnership with Zimbabwe government then it will achieve great revenue with high profit and growth through mining diamond in Marange which is a newly founded diamond field in Zimbabwe. This particular field of diamond is situated in the eastern field which earned high revenue through diamond mining in Zimbabwe. To expand their trade facilities, they arranged some private planes to bring buyers from foreign countries. Most of the diamond fields in Zimbabwe are illegal and distributing conflicting diamonds to many countries.

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These illegal mining fields are expecting high profit and thus they forced poor people to work harder under the mechanism of ‘Dig or Die’ (The Press Association). Poor people are bound to work under the heavily armed security guard in these illegal fields of diamond. According to Abbey Chikane, the Kimberley Process monitor for Zimbabwe, marked the Marange Diamond field in Zimbabwe as a certified diamond field to export conflict-free diamonds to meet the demand of diamond across the world (Mutsaka, Wonacott and Childress, 2010).

The human right organization of Zimbabwe is protesting the diamond mining though several illegal diamond fields which are doing illegal activities through killing many poor helpless men, raping women and torturing children to get hard work from them. To solve these problems, the government of Zimbabwe has become very serious to set up legal diamond mines to export conflict-free diamonds. Q. 2. Who controls the Mining Development Corporation? Do they have any existing joint venture partners? Who in the Zimbabwean government will influence decisions regarding the investment?

Ans. 2. Diamond exporting and supplying business is currently controlled by the government of Zimbabwe. Though it is controlled by the government, there is a presence of powerful illegal diamond fields in Zimbabwe and these fields are engaged in several illegal and non-ethical activities with the help of the armed police and security guard force of Zimbabwe. The presence of political battle and high rate of corruption in the Zimbabwean economic, political and social atmospheres guided the government to a wrong direction.

Being the Zimbabwe monitor of the world diamond control body, Abbey Chikane, also stated that the diamonds are ready for sale in the international market to provide minimum international standard of diamond (Mutsaka, Wonacott and Childress, 2010). According to the investors, the mining of diamond in Marange was conducted through use of virtual slaves under the control of armed soldiers in 2008 (Mutsaka, Wonacott and Childress, 2010). Therefore, this field is not working legally or the government may be not serious about fact of diamond mining in Zimbabwe.

The Kimberley Process is an international monitoring body to control conflict-free diamond supply from certified diamond fields under governmental rules and regulations. Mr. Chikane announced that Zimbabwe can start trading the Marange diamonds under proper guidance of the government of Zimbabwe. According to him, the Zimbabwe government has taken several effective steps to regulate legal diamond fields and to remove illegal sources of diamond. The Kimberley Process did not consider the fact of taking steps against governments which violated the rules of the human-rights organization in Zimbabwe in diamond mining.

The Kimberley team investigated that the heavily armed security forces killed many people, raped women who were illegally mining in the Marange fields in July, 2008 (Mutsaka, Wonacott and Childress, 2010). But the officials denied these charges against them and the government and they told that the security guards were there to give protection to the governmental part of the Marange diamond fields in Zimbabwe. The Kimberley members restricted sales of diamonds by the Marange diamond fields as they were supplying non-certified stones in the international market with proper certificates.

This helped to get certification for the diamond fields in Zimbabwe. It also allowed exporting several other legal diamond fields into the foreign market. Zimbabwe's government earned $20 million from the legal fields of diamonds in 2008 (The Press Association). There are some political conflicts in Zimbabwe in the issue of diamond exporting and mining from legal and illegal diamond fields of the country. After the election in Zimbabwe in 2008, the situation in Marange diamond field has become very much concern about their effectiveness of the Kimberley Process.

A top member of the World Diamond Council, Martin Rapaport reigned from the Kimberley Process to protest against their activity and controlling mechanism of the process. Human rights organizations in Zimbabwe are now become very much concern about the export of diamond in the international market after getting the green signal to restart the sale of diamonds from the Marange diamond fields, where heavily armed soldiers deployed by the President Robert Mugabe have been charged for conducting illegal activities (Peta, 2010).

The Zimbabwean government investigated that more than 4 million carats of diamonds were founded from the controversial fields of the Zimbabwean diamond fields. Marange was one of them. The estimated value of the total sale of diamonds will be around $1. 7bn according to the Zimbabwe's 2010 budget and that will be very much helpful to provide a boost to the economic condition of Zimbabwe (Peta, 2010). Investment from the foreign investors is always encouraged the mining development corporation of Zimbabwe.

To meet the international demand of diamond, they are gradually expanding their international business through legal export of conflict-free diamonds of certified diamond fields of Zimbabwe. To increase their revenue, the government of Zimbabwe is very much interested to incorporate many foreign investors across the world. The director of the Centre for Research and Development which is a Zimbabwean human-rights organization was tracking the operations in Marange diamond field in Zimbabwe (Peta, 2010). According to them at the end of 2008, there was no improvement in the condition of the human rights in the Marange diamond field.

Mr. Maguwu, the director of the research and development centre, also showed how diamonds from the Marange Diamond field were being smuggled out from Zimbabwe to Mozambique and it became a profitable strategy for the soldiers of Zimbabwe through illegal diamond export to other foreign countries (Peta, 2010). The Zimbabwe government forced the African Consolidated Resources to take back their claims against the government and their officials in the issue of diamond supply and export from the Marange diamond field in Zimbabwe at the end of 2006.

The high court of Zimbabwe decided that all diamond mines should hand over their power of illegal diamond export to the central bank of Zimbabwe and those mines could get back their power after resolving the dispute in 2008 (Peta, 2010). Therefore, after the political and social battle in Zimbabwean diamond fields, it has become mandatory to get certified by the government, the diamond research and development centre and also by the human rights organization of Zimbabwe. Game Theory: Q. 3.

Game theory is very useful in planning strategy. Your firm, if it decides that it is a good investment, wants to win the rights to develop the mine. Explain how you can use game theory to plot a winning strategy. Ans. 3. If the Chinese firm decides that it will be a good investment and also wants to win the rights to develop the diamond mines in Zimbabwe, then they should follow a strategic plan with game theory application. The firm can invest in the Marange diamond field through legal contract of partnership with the mining company.

They should be aware of the fact that there are no illegal activities in the mining field against the human rights organization in Zimbabwe. The government of Zimbabwe should follow ethics of the social and political aspects in the case of diamond mining from different legal fields of diamond. According to the perfect formation of the game of this case of development in the field of diamonds, the most effective and suitable pay-off will be the combination of the investment of the Chinese firm and the investment in the legal fields of certified diamonds in Zimbabwe.

The investment of the Chinese firm will be more profitable if the firm can invest into a legal field of diamonds, rather than investment into an illegal field of diamonds. There are some other factors related with social, ethical and legal perspectives of the country in the case of diamond mining. These aspects should be highly concerned by the Chinese company who is very much interested to get with some Zimbabwean mining company through legal partnership contract. The Chinese company can get high revenue and profit if it makes a contract with an illegal company but other social, legal and ethical aspects will not be there.

There may be several strategies but only one pay-off will be economically, financially, legally and ethically viable for this case. Pricing Strategies: Q. 4. Explain why the price of diamonds in international markets is so high. Note that a good answer to this question will involve research into the pricing strategies of the firms that sell diamonds as well as the application of basic economic principles. Ans. 4. The price of diamond is very high in the international market. If demand increases for a commodity, the price of that commodity will also increase keeping other factors as unchanged.

The demand curve of a commodity is downward slopping in the price of the commodity and the quantity demanded for the commodity framework. Demand Curve of commodity: Price Demand Curve • Quantity Demanded (Source: varian, 2003, pp. 4-6) The price of the commodity and the quantity demanded of the commodity are taken respectively as the vertical and the horizontal line of the diagram. The demand of diamond is gradually increasing in the international market. In the above diagram, according to the basic concept of the demand curve, the demand is dependent on the price of the commodity.

Therefore, the price of any commodity should also be dependent on the demand of the commodity. In general, if the demand increases, the price should fall according to the demand curve. But in this case, the price of diamonds is gradually increasing with the increase in the price of the diamonds. The price of the diamonds is very high in the international market to reduce the demand of diamonds in scarcity of diamonds in the global market. The scarcity of diamonds is the main reason for the increasing price of diamonds in the international market.

At present, there are few diamond mines from which high quality diamonds can be found. On the other hand, there are few diamond mining companies in the world. Therefore, the competition in these companies is negligible. If a firm with monopoly power in a market increases the price of its commodity, there will be no change in the demand of the commodity. This advantage for the diamond mining companies encourages them to increase the price to achieve high revenue and profit from this business.

In the competitive market the firms can not increase the prices of their products because if they increase the price the demand of the product will reduce in those firms and the consumer will prefer to buy from any other firm at lower price of the commodity. There is another important reason for the increment of the price of diamonds in the international market. Most of the exported diamonds are smuggled out from the African diamond fields in different countries. These smugglers have fixed very high price for these diamonds in the foreign market.

Though this reason is illegal and not providing any economic theory, it is a very important reason for the high price of diamonds. Ethics: Q. 5. What is the Kimberly Process Certification Scheme? What are the elements of the scheme? Does this investment satisfy these? Why or why not? Ans. 5. Mines Minister of Zimbabwe, Obert Mpofu, stated that more than 90% of the total demand from the international market was achieved by the trade watchdog, the Kimberley Process group in November in 2009 (BBC News, 2009).

The armed police force in the diamond mining field killed more than 200 poor people by torturing them at the Marange field of diamonds (The Press Association). The activists wanted to remove these pathetic and illegal activities which were gradually reducing the socio-economic culture of the economy. They also announced to reform the planning and controlling strategies of diamond fields in Zimbabwe and they fixed 2010 as the deadline of this reformation (BBC News, 2009).

The Kimberley process is a controlling body under the governmental power in Zimbabwe. With the help of this organization, the government earned a lot revenue and profit but it was not helpful to maintain social, legal and ethical aspects of the economy. To achieve high profit and growth, this organization forced people to work harder in the diamond fields of Marange. The security guards killed many people, raped women and forced children to work continuously in the fields. The Kimberley Process decided to work against the human rights groups of Zimbabwe.

Therefore, this process is not concern about the ethics of the organization and they are away from maintaining social responsibilities in Zimbabwe. The government denied these charges against their officials and they are still not very much worried about the fact. The 70-member Kimberley Process group approved a compromise diamond contract at a summit in Namibia in 2009 (BBC News, 2009). To maintain balance in the socio-economic aspects of the economy, an independent monitoring body with independent inspector was established. This organization mainly monitors the diamond mining from the controversial fields.

As this process is completely away from maintaining ethics and any other social responsibilities, the investment in this organization will not provide any knowledge of social, economic, legal and ethical responsibilities. This will not be suitable or helpful for the future in a long-run perspective. Q. 6. Do you think that this investment is ethical? Why or why not? Ans. 6. Investment in this organization or process will not be an ethical decision for the Chinese mining company. This process helped to work illegally to achieve high profit in an illegal diamond mining sector.

This process is not maintaining any ethics which should be helpful for long-term planning. This process also affects the environmental degradation in Zimbabwe. It is also damaging farming irrigation systems in Zimbabwe (Conflict & Blood Diamonds, 2009). If the Chinese mining company wants to observe a sustainable growth and development for a long-term perspective, they should not go for the partnership contract with the Marange Diamond mining fields and should not even go for investing in these illegal unauthorized and non-certified diamond mining fields in Zimbabwe.

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