Congo liberalizes diamond exports

By halting an Israeli firm’s contested monopoly on exports of Congolese diamonds, Congo’s government should be able to boost the earnings it needs to help rebuild after years of civil war, analysts told the Associated Press (AP) Monday. 

But traders still are waiting to see what Congo does to ensure that future shipments of its No. 1 export exclude so-called blood diamonds that are mined in conflict areas.

International Diamond Industries lost the exclusive rights it secured to Congo’s multimillion-dollar production of rough diamonds in a deal with the regime of late Congo President Laurent Kabila.  

Congo Mining Vice Minister Mbaka Kawaya said Saturday that IDI is welcome now to join other bidders when contracts for diamond exports are offered on the free market.  

Congo is a leading supplier of rough diamonds, and its exports accounted for 68% of the central African nation’s total export revenues in 1999. IDI clinched its deal last summer, when Kabila was embroiled in Africa’s biggest civil war and needed cash to finance it.

The decision to organize a more competitive way of selling its diamonds should “definitely” improve Congo’s finances, said Douglas Mason, an analyst at the Economist Intelligence Unit in London.  

“The IDI deal had not been beneficial for the government or the country. … It was pretty disastrous,” he told the AP.  

Officials at IDI, headquartered in Ramat Gan, Israel, did not immediately return calls seeking comment. A company spokesman claimed earlier that Congo had been under pressure from IDI’s competitors and the International Monetary Fund to annul the deal.

IDI president Dan Gertler secured monopoly rights in July to a flow of diamonds worth up to $600 million a year. His feat angered other firms that had operated previously in Congo, and some said he sealed the deal by arranging Israeli military training for the Congolese army.  

Gertler denied the allegations.  

The government’s decision to end IDI’s monopoly came amid evidence that Congo was losing some $25 million in diamond earnings each month due to smuggling. IDI’s critics argued it was paying less than a fair market price for its diamonds, leading producers to sell them illegally elsewhere.  

The government’s move was a “a very positive development,” said Tim Weekes, spokesman for the Diamond Trading Co., a London-based marketing arm for rough diamonds for the De Beers cartel. De Beers was among the buyers of Congolese diamonds that pulled out of the Congolese capital Kinshasa last fall.  

“I’ve got no reason to believe that the liberalization of the diamond sector in Kinshasa won’t lead to a marked improvement in the export figures for the Congolese government,” he said.

IDI reportedly agreed to pay Congo’s cash-strapped government as much as $20 million for its monopoly rights. A U.N. report last week said IDI ended up paying only $3 million and called the deal a “nightmare” for Congo’s government and a “disaster” for its diamond trade.  

Kabila was assassinated in January and succeeded by his son Joseph, who has expressed an interest in more competitive marketing of the country’s diamonds.

Under the new arrangement, Congo’s government will require each buyer to pay a licensing fee of $200,000 plus a refundable deposit of $50,000, and to export at least $48 million worth of diamonds annually, Weekes said.  

However, he added that De Beers won’t resume buying Congolese diamonds until Congo’s government can certify that its output is free of diamonds that are used to finance wars or rebellions.

Laurent Kabila mortgaged much of his country’s mineral wealth to pay for his side of Congo’s civil war, which broke out when Rwanda, Uganda and their Congolese rebel allies launched a military campaign to oust the late president.  

Angola, Zimbabwe and Namibia joined the war on Congo’s side, and Laurent Kabila granted them lucrative mining concessions to keep them loyal.  

“The problem of conflict diamonds has certainly not gone away,”  Frank Lucas, a geologist with London-based mining consultancy Loeb Aron & Co., told AP.  

Congo plans to organize a scheme to certify that its exports are clean of blood diamonds, but analysts were cautious in predicting its effectiveness.  

“No reasonable person, let alone a firm of auditors, could give any assurance as to the origin or methodology of production or provenance of Congolese diamonds,” Lucas told AP.

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