Smuggled-Diamond Revenue Flows to Mugabe's Zimbabwe Before Vote

Enos Chikwere spills nine uncut diamonds from a bag at Restaurante Piscina in Mozambique near the Zimbabwe border and says they’re worth $75,000.

“I can supply all the diamonds you need,” said Chikwere, explaining that he sneaked them into Mozambique after buying them from Zimbabwean soldiers.

Chikwere and hundreds of other border smugglers are part of a chain whose money flows back into Zimbabwe, whose president for three decades, Robert Mugabe, has ruled over four violent and disputed elections since 2000. Mugabe’s policies of land seizure helped cause the economy, once the second-biggest in southern Africa, to shrink by 50 percent in eight years.

The gems from Zimbabwe’s biggest diamond field in the Marange region are helping enrich the 86-year-old president’s party ahead of next year’s vote, according to Human Rights Watch, Partnership Africa Canada and the Zimbabwean opposition party, Movement for Democratic Change, which governs in a forced coalition with Mugabe’s party.

Annual income from the gems may reach $2 billion, assuming the country is able to export them freely, the state-owned Herald newspaper cited Mines Minister Obert Mpofu as saying in October. Mugabe is trying to amass funds for the election campaign, said Tom Porteous, the U.K. director of New York-based Human Rights Watch, which has lobbied against abuses for the past 30 years.

“Revenue from the mines is serving to prop up Mugabe and his cronies,” Porteous said in a Dec. 8 response to e-mailed questions. “There are real concerns that diamond revenue will be used to fund political violence and intimidation of Mugabe’s opponents.”

Soldiers and Diggers

Human Rights Watch cited interviews with unidentified soldiers, diggers, community leaders and members of government and the parliamentary portfolio committee on mines and energy to support its allegations.

Partnership Africa Canada, an Ottawa-based nonprofit organization, said in a June report that Marange is controlled by the military and proceeds from the gems aren’t benefiting the country. The group cited testimony in Zimbabwe’s parliament, company statements, and interviews with unidentified diplomats and illegal miners for its conclusions.

Illegal smuggling benefits Mugabe because it is mostly carried out via the military, according to the two nonprofits and interviews with six smugglers and two dealers in and around Vila de Manica, where Chikwere, clad in Diesel jeans and wearing two gold chains, was displaying his wares.

Finance Ministry

The army reports to the president. The Finance Ministry, by contrast, is controlled by Morgan Tsvangirai’s Movement for Democratic Change, or MDC, and receives revenue from legal diamond mining in the form of taxes.

Mugabe’s party, the Zimbabwe African National Union- Patriotic Front, or Zanu-PF, denies the smuggling allegations.

“These are just inventions of the western imperialists who are trying to discredit Zanu-PF,” party spokesman Rugare Gumbo said in a Dec. 6 interview from Harare, the country’s capital. “There is no corruption at Marange and Zanu-PF is not using the proceeds.”

Diamonds from Marange can’t be exported legally from Zimbabwe because the field hasn’t yet met an international certification standard showing that proceeds from sales aren’t used to finance conflict.

Mining at Marange has been subject to allegations of military abuses of unauthorized miners and disputes over ownership of the deposit. Human Rights Watch said in June that 200 miners were killed in 2008 at the site by the military, and also reported that the army controls most of the deposits and is forcing local community members to mine the gems on its behalf.

Kimberley Process

Soldiers are smuggling gems across the border, according to Human Rights Watch, which cited information it has obtained and interviews with unidentified people.

Mozambique isn’t a member of the so-called Kimberley Process, an organization that includes governments and diamond industry companies and is designed to reduce the number of so- called conflict diamonds in the world. The Jerusalem-based group said it couldn’t decide on whether to allow unfettered exports from Marange at a meeting that ended on Nov. 4.

The Kimberley Process says it has reduced the proportion of conflict diamonds in the world trade to 1 percent from 15 percent. Signatories, which include all major diamond-producing and buying countries, have pledged that they won’t deal in uncertified gems.

While the Kimberley Process has allowed two “limited” auctions of gems from Marange this year, the state-owned Chronicle newspaper said an August sale earned the government $30 million. By contrast, Central Bank Governor Gideon Gono said in 2007 that smuggling from the Marange site was costing the country as much as $40 million a week.

Paying Civil Servants

“We need the money to pay civil servants,” said Finance Minister Tendai Biti, a member of the MDC, in a Dec. 3 interview from Harare. “We must rein in the political elite who are prospering from the stones.”

In the past decade, Mugabe has seized land from white farmers and given it to blacks, including government officials, and made proposals that would force foreign companies to sell 51 percent of their assets to black Zimbabweans.

The result has been a 50 percent decline in the production of tobacco, the country’s biggest export in 2000, while corn production has fallen by more than half, causing national famines. Gross domestic product shrank by 50 percent between 2000 and 2008, and the country scrapped its currency, the Zimbabwe dollar, in 2009 as inflation rose.

Attempts to attract aid to help the economy haven’t been successful: The country received $3 million from foreign donors in the first quarter of 2010, 0.4 percent of its annual target, according to Biti.

Contested Election

The MDC said in a Dec. 17 statement that it holds the leadership of the Zanu-PF party responsible “for years of plunder and human rights abuses at the mine fields.”

Mugabe’s party narrowly won an election in 2000 against the MDC amid complaints of attacks and murders of opposition supporters. Tsvangirai came back in 2008 and beat Mugabe in a first-round presidential vote, though he failed to get the 51 percent needed to avoid a runoff. He then boycotted the runoff, citing violence. Mugabe’s party was forced by neighboring states into a coalition with the MDC in February 2009.

Tsvangirai has twice been unsuccessfully charged with treason and underwent a brain scan in 2007 for a suspected skull fracture after he was beaten by police.

Mugabe said Dec. 17 at an annual conference of his party in Mutare that the coalition government needs to come to an end. The MDC is “dragging their feet on elections,” he said, adding that general and presidential polls should be held next year.

Constitutional Wrangle

Mugabe’s party has frustrated attempts to implement a new constitution, according to the MDC, which is demanding such steps as a condition for elections.

Diamond fields in eastern Zimbabwe were seized in December 2006 from Maidstone, England-based African Consolidated Resources Plc by the Zimbabwean government.

Since then, thousands of illegal miners have periodically been evicted from the deposits, according to Human Rights Watch. Mbada Investments (Pvt) Ltd., in which Johannesburg-based scrap metal company New Reclamation Group Ltd. has a stake, runs a mining concession at part of the site with the state-owned Zimbabwe Mineral Development Corp.

Members of Zimbabwe’s political elite ranging from Mugabe’s wife, Grace, to military leaders allegedly profited from illegal trading of diamonds, according to a November 2008 U.S. diplomatic cable published by WikiLeaks. In the cable, former American ambassador to Zimbabwe James D. McGee cited an industry official and a senior member of Mugabe’s party as his sources.

‘Where is the Evidence?’

“The allegations made against the First Lady and others regarding illegal diamonds from Marange are scandalous and untrue,” George Charamba, Mugabe’s spokesman, said in a Dec. 22 interview from Harare. “Where is the evidence? There is no wrongdoing in Marange.”

The soldiers are very open, said a Nigerian gem dealer in Chimoio, capital of Mozambique’s Manica province, who repeatedly said his name was Colonel Rambo. They give their cut to their superior officers, who in turn surrender a percentage to politicians in Zimbabwe, he said.

He displayed a suitcase full of $100 bills that he said amounted to more than $1 million. Ministers are involved in this business on the other side of the border, he said.

David Kassel, New Reclamation’s chairman, declined to comment when called on Dec. 15. London-based Old Mutual Plc, which owns “less than 6 percent” of New Reclamation, said in an e-mailed response to questions that its actions are guided by the Kimberley Process and Zimbabwean laws. No allegations of illegal action have been made against Old Mutual or New Reclamation. New Reclamation didn’t respond to a Dec. 17 e-mail.

No Arrests

“We have not arrested anyone for dealing in diamonds because no one has reported to us violations of any law,” Belmar Mutadiwa, a police spokesman for Mozambique’s Manica province, said in a Dec. 6 interview. “Most of the dealers operating in the province have been licensed by the government to buy precious and semi-precious stones.”

A police station in Vila de Manica is situated on a street where dealers from Guinea, Lebanon, Sierra Leone and Nigeria -- who all disclosed their nationalities in interviews -- trade on the porches of their houses. Security guards sit outside.

Mercedes, Humvee and Range Rover vehicles drive down the town’s streets, lined by freshly painted houses sprouting satellite television dishes. By contrast, the 750-mile drive to the region from Mozambique’s capital, Maputo, runs through small towns where ramshackle buildings are side-by-side with grass shacks known as baraccas.

Purchase Point

Vila de Manica has “become one of the premier purchase and departure points for Marange’s illegal diamonds,” Partnership Africa Canada said in a June report on its website.

“Diamonds are being sold in this district, after they’ve been smuggled from Zimbabwe”, said Jose Tefula, district administrator for Manica District, in a Dec. 20 phone interview. “Locally we don’t have any diamonds, so the stones can only come from Zimbabwe.”

Three messages left at the Manica branch of the Department of Mineral Resources weren’t returned.

A group of about 40 diamond dealers surrounded the vehicle in which two Bloomberg reporters were travelling in Vila de Manica on Nov. 26. They banged the side of the car with their fists, blocked the escape route with motor vehicles, seized and damaged a camera and shouted “you’re dying today.”

Two policemen arrived and detained the reporters for almost an hour, saying they should have sought permission to enter the area. No action was taken against the dealers.

No Details

New Reclamation rebuffed a petition made by Johannesburg’s Southern African Litigation Centre in October through the Access to Information Act for details of its involvement in Zimbabwe’s diamond industry, Nicole Fritz, the group’s director, said on Dec. 15 from her mobile phone. New Reclamation’s Kassel declined to comment and put the phone down when asked about Marange.

Marange’s deposits may contain 1,000 carats of gems per hundred tons of ore, the official said in the cable posted on WikiLeaks, citing a geologist’s report prepared for De Beers, the world’s biggest diamond company. That compares with a grade of 120 carats at Rio Tinto Plc’s Murowa mine in Zimbabwe, the official said.

Tom Tweedy, a spokesman for Johannesburg-based De Beers, declined to comment on Dec. 9.

More Than Botswana

Zimbabwe may mine 40 million carats of diamonds annually within three years, the state-controlled Herald reported Oct. 18, citing Mpofu. Botswana, the world’s biggest diamond producer by value, expects gem production of 24 million carats this year.

Murowa produced 97,000 carats of diamonds in 2009 while production at the country’s other diamond mine, River Ranch, isn’t disclosed. Total national official production in 2007 was 695,000 carats, worth $31 million, according to the Herald.

“We believe the new intransigence of Zanu-PF is down to its finding of an infinite source of wealth,” Fritz said. “There is this race to elections.”

In Vila de Manica, smuggler Chikwere boasted that there was no limit to the amount of stones he could bring into Mozambique.

“Don’t worry about me and the border,” he said. “I have my systems.”

To contact the reporters on this story: Brian Latham in Durban, South Africa at blatham@bloomberg.net; Fred Katerere in Maputo, Mozambique via Johannesburg at asguazzin@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net

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