By Denine Walters
The Central African Republic’s diamond mining industry: Misguided governance and foreign involvement
Diamonds are naturally strewn and liberally scattered over the Central African Republic (CAR). Mining companies have frequently tried to extract diamonds on an industrial scale and repeatedly failed because the deposits are alluvial,(2) spread thinly across two river systems. Instead, approximately 80,000 to 100,000 mostly unlicensed miners dig for daily rations.(3) Middlemen purchase the stones at meagre prices and sell at a higher price to exporting companies. Exacerbating this practice is the fact that the Government benefits most from exploiting such informal diamond extraction; and corrupt and greedy regimes have kept and continue to keep tight control on the country’s diamond industry. While strict legislation (4) applies to the mining sector, the institutions responsible for enforcing them are weak. This CAI discussion paper will explore the diamond mining sector of the CAR by focusing on Government involvement in the sector, its misguided governance of the sector, and (the lack of) foreign involvement.
CAR’s diamond mining industry
The CAR is one of the world’s least developed countries, with an annual per capita income at purchasing power parity (PPP) of only US$ 750 in 2009.(5) The African country is sparsely populated, landlocked and mostly agrarian; however, it is also endowed with abundant natural resources in the form of diamonds, cobalt, gold, uranium, copper and other minerals, most of which remain largely un- or under exploited. Diamonds are the only mineral currently being extracted and worked by artisanal and small-scale mining (ASM) means,(6) contributing 60% to the country’s export earnings.(7) Two international companies, Canadian-owned Axim and France-based Areva, are also carrying out exploration for gold and uranium respectively.
All of the diamond deposits in the CAR have been identified as alluvial. This wide dispersal makes it troublesome for the weak and fragile state to control its mining sector. Furthermore, it also makes it difficult for industrial mining operations to exploit the scattered diamond deposits, as assessing the sites and finding diamonds in sufficient concentrations is all but impossible, making operations economically unviable. Thus, artisanal miners with handheld tools are better suited to exploit diamonds,(8) but unfortunately, do not benefit much from their work. Indeed, all of these factors together hinder the population from benefiting from the wealth derived from selling and trading diamonds. These include a history where politicians have used their influence to gain control of the diamond sector, conflict, illegal mining and smuggling.
Artisanal mining, the means by which most CAR miners are involved in the sector, has remained mostly informal, uncontrolled, and illegal despite the Government’s efforts to register miners through a licensing system. This environment has bred crime, as unlicensed miners try to avoid the authorities for fear of being punished, and the informal nature of mining makes it difficult for miners to appeal to the Government for assistance (financial or otherwise). Smugglers export the diamonds illegally and sell them at higher prices elsewhere through transnational trade networks. As the state security forces are also weak, bandits have profited in the mining zones or on diamond traders’ routes.(9) Even though institutional capacity is weak, the CAR mining authorities rely mostly on the Kimberley Process Certification Scheme to guard against illicit trading and smuggling.(10)
Licensed miners or resourceful business leaders, particularly from West Africa, with expertise in valuing and trading diamonds, find in CAR a profitable niche buying diamonds from artisanal miners and selling them to one of the registered buying offices, or Bureau d’Achat (11) (diamond exporting companies). The latter export and sell the stones on the international market and sustain production by financing the middlemen, or collectors, who, in turn, finance the miners. The (unlicensed) artisanal miners are dependent on the collectors and obliged to sell them the diamonds for small amounts.(12) As such, a mines-to-export production that started when Oubangui-Chari (now CAR) was a French colony from 1903 has developed in the CAR that continues today.
The CAR Government’s involvement in diamonds
Since the country’s independence in the 1960s, the CAR Government’s approach to industrial and artisanal mining has remained the same as successive rulers have turned the “responsibility of governance into a business opportunity.”(13) The Government lacks the capital to launch its own diamond mining operations or exporting offices, and as such, the ruling elite has lived off the largely foreign companies who do have mining operations by demanding a share of the production and heavily taxing the exports. This has enabled those in power to enrich themselves and their families and to buy political loyalty through a patron-client network.(14)
Even the presidency’s continued involvement in the diamond business has led a former Central African politician to say “Central African heads of state are first and foremost diamond merchants.”(15) The state’s involvement – and its associated elitist greed - in the mining industry has been a reason why the proceeds from the diamonds have failed to trickle down to the majority of citizens at the bottom of the socio-economic sphere. While the greatest example of this presidential parasitism is Jean-Bédel Bokassa,(16) current President François Bozizé keeps tight control of the diamond industry to enrich and empower his own Gbaya ethnic group and does little to alleviate poverty that drives informal miners to dig in dangerous conditions. As a result, poverty and crime remain hallmarks of the diamond sector, and ties between diamonds and conflict in the CAR have strengthened.
It did not have to be that way. In March 2003, Bozizé, then army chief of staff, seized power and inherited a largely informal diamond mining sector that traditionally was kept under strict presidential control. Initially, the new Government indicated a willingness to “clean up mining governance.”(17) However, in April that year, the President cancelled all prospecting and mining permits and soon thereafter, undertook to review the industry. On 1 February 2004, the CAR’s National Assembly issued a new mining code to align itself with international standards – the first since 1961. Bozizé has been cautious to not openly enter into a private diamond enterprise as he is more wary of international reproach than any of his predecessors. Not much has really changed; however, there is some reason for optimism as Bozizé has declared an alacrity to make some reforms to the sector.
Misguided governance of the mining industry
The CAR’s mining industry’s fiscal regime and legal framework is inflexible, and its management is centralised and non-transparent. The Ministry of Mining has devoted little time and effort to develop artisanal mining or to assist miners in escaping the poverty trap. High taxes have acted as incentives for smuggling and the mining authorities are too weak to put an end to it. Moreover, Government’s excessive greed in terms of the demanded signing hours (18) has been partially responsible for why many of the industrial mining companies have left the country. Together, these factors – a parasitic state, poverty, and crime – “move jealous factions to take up arms and create conditions in mining zones that enable armed groups (19) to collect new recruits and use profits from diamonds to perpetuate their fight.”(20)
Since Bozizé came to power, the CAR Government has made some progress along reforming the mining industry as is in accordance with the World Bank’s Poverty Reduction Strategy Paper (PRSP). This PSRP for the country for the two-year period prior to 2010 included an action plan for the mining sector. The plan concentrated on three objectives: improving the sector’s legal, institutional, and tax framework; improving transparency in managing the sector; and increasing mining production and improving the incomes of the inhabitants of mining zones. So far, the measures that the CAR Government have implemented include a revision of the mining code, participation in the Extractive Industries Transparency Initiative (EITI),(21) and the creation of a national union for artisanal miner cooperatives. Although the Government has implemented some of these measures, it still has a long way to go before the mining sector, particularly diamond mining, has been reformed.(22) Furthermore, the PRSP for 2011 to 2013 is in its final drafting stage and should incorporate a tangible strategy for improving the governance in the mining sector and supporting artisanal miners.(23) The aim of this RPSP is to further encourage mining sector reform in CAR by providing further measures for implementation.
International involvement in CAR’s mining industry
The Government has failed to keep industrial mining companies in the CAR. There were 11 mining companies operating in the African country before Bozizé’s coup, but after the review of the mining sector and renegotiation of contracts in 2004, only four were left in the country. According to the Government,(24) in mid-2010, there was one diamond company still active in the CAR – a company exploring for diamonds in the Kotto River. The other mining companies in the country include French-Areva, which is planning to mine uranium near Bakouma, and Axim, a Canadian-based gold exploration firm that was awarded a permit to start mining near Bambari in August 2010.
Foreign mining companies have left the CAR for various reasons, primarily:
The high cost of importing material and laborious bureaucracy making it difficult for start-up business to begin;
The difficulty of finding economically viable deposits of alluvial diamonds and other major logistical problems;
The Government’s stringent and costly conditions shrinking profitability; and
The Government’s demand for signing hours, the size of which is unspecified in the mining code.
In 2005, one company reportedly agreed to pay US$ 750,000 each year for the first two years for the privilege of exploration, and US$ 500,000 for the following three. In 2008, another firm paid, in addition to regular fees, US$ 200,000, plus vehicles and computers for its exploration permit. In March 2009, Axim applied for a mining permit and only received the permit after agreeing to pay an US$ 11 million signing bonus.(25)
Mining authorities are weary of foreign companies seeking to exploit the Government’s weak control, and as such, have imposed these various actions to not allow companies to take advantage of the Government and the country’s diamond deposits. In return, their demands are so great for foreign firms that they often outweigh potential profits and incentives in the mining code such as tax holiday on imports.(26)
Concluding remarks
Reform of the CAR’s mining sector is imperative for the country’s economic growth. Furthermore, the government should make practical changes to introduce greater transparency and re-orient governance of the mining sector to benefit the population, rather than only the political elite, their families and ethnic group. Further restructuring of political control in CAR should include improving governance, by enhancing transparency and building capacity; increasing democratic control by modifying the mining code so that power of revenues are distributed among larger and more diverse groups and these processes opened to public scrutiny; strengthening anti-smuggling measures by curtailing the ability of smugglers to profit from diamonds; and boosting development in mining areas by lowering the price of artisanal mining licences. Finally, such increased political control of the industry could benefit CAR both economically and also be incorporated in the country’s peace-building strategy.
(1) Contact Denine Walters with Consultancy Africa Intelligence’s Africa Industry and Business Unit ( industry.business@consultancyafrica.com ).
(2) ‘Central African Republic: Poverty, peril for diamond mining communities in east’, Integrated Regional Information Networks (IRIN) News, 27 December 2010,http://news.irinnews.org.
(3) ‘Africa Report No 167 – Dangerous little stones: Diamonds in the Central African Republic’, International Crisis Group, 16 December 2010, http://www.crisisgroup.org.
(4) The severe laws applied to the mining sector comprise high taxes on exporting diamonds and high licence fees for miners and collectors.
(5) ‘Background note – Central African Republic’, US Department of State website, 2010, http://www.state.gov.
(6) Artisanal and small-scale mining means that artisanal miners work on a small scale and hires a team of diggers, ranging from six to 15 persons, whereas small-scale mining companies operate in the CAR by either hiring digger to exploit the diamond deposits or by acting as buyers, collectors and exporters. For more information, see Chirico, P.G., Bartélémy, F. and Ngbokoto, F.A., ‘Alluvial diamond resource potential and production capacity assessment for the Central African Republic: Scientific investigations report 2010-5043’, US Geological Survey (USGS),http://pubs.usgs.gov.
(7) ‘Diamond mining in Central African Republic – Overview’, Mbendi Information Services, 2010, http://www.mbendi.com.
(8) ‘Africa Report No 167 – Dangerous little stones: Diamonds in the Central African Republic’, International Crisis Group, 16 December 2010, http://www.crisisgroup.org.
(9) Ibid.
(10) If internal tracing and exporting procedures of the diamonds do not meet the minimum standards as set out by the Kimberley Process, which aims to ensure against the trade in so-called ‘blood’ or conflict diamonds, the country risks being suspended and losing access to the world diamond market. Smugglers in the CAR mostly source diamonds from poor, exploited settings. In 2008, two assessment teams from the Kimberley Process visited the CAR and were generally satisfied with the country’s internal controls. The teams, however, noted technical irregularities, the mining authorities’ incomplete coverage of the mining areas, risks linked to porous borders, and the proximity of the rebels to diamond zones.
(11) In 2003, there were seven diamond exporting companies in the CAR; however, in 2008, the CAR Government closed many of these companies. More information on these companies are not available. See ‘Diamonds in the Central African Republic: Trading, valuing and laundering’, Relief Web, 13 January 2003,http://www.reliefweb.int; ‘Africa Report No 167 – Dangerous little stones: Diamonds in the Central African Republic’, International Crisis Group, 16 December 2010,http://www.crisisgroup.org.
(12) Ibid.
(13) Ibid.
(14) Ibid.
(15) Ibid.
(16) Early in his career, Bokassa as an army officer confiscated diamonds from smugglers in return from their freedom. Once he became the army’s chief of staff, he took to power in a coup. For the first three years, he supervised the continued growth of the diamond sector and thereafter established a mining company under which he owned the majority of the shares for maximum profit. For more information, see ‘Africa Report No 167 – Dangerous little stones: Diamonds in the Central African Republic’, International Crisis Group, 16 December 2010, http://www.crisisgroup.org.
(17) Africa Report No 167 – Dangerous little stones: Diamonds in the Central African Republic’, International Crisis Group, 16 December 2010, http://www.crisisgroup.org.
(18) Signing hours refer to the fees and royalties the companies have to pay to the CAR Government. Some of these include: issuance of a prospecting permit, issuance, renewal and transfer of an exploration or mining permit, investigation and issuance of a mining concession, and its transfer, and Issuance and renewal of an artisanal mining permit. For more information, see ‘Mining in Central Africa Republic – Overview’, Mbendi Information Services, 2010, http://www.mbendi.com.
(19) The diamonds are smuggled in smaller quantities to the Republic of Congo and the Democratic Republic of the Congo (DRC), where export taxes are considerably lower and there is little risk of detection because the stones look much the same as local ones. Furthermore, illegal exports from the CAR continue because inadequate controls elsewhere allow smugglers to sell the diamonds back into legal channels, either in producing countries where they are indistinguishable from local ones or in places where diamonds are cut, polished or traded, especially in the Near and Far East. Diamonds smuggled out of the CAR often find their way to Dubai, Bombay, Beirut or Tel Aviv, and as soon as they are cut, they are no longer subject to the Kimberley Process, and all trace of origin is lost. Thus, rebel groups, which include smugglers, can use illegal exports to fund their operations.
(20) Ibid.
(21) EITI is an organisation, led by the United Kingdom (UK) with strong support from the United States (US), concerned with the implementation of measures aimed at strengthening resource revenue transparency to aid governance, and thus the development of resource-rich countries, as these resource-rich countries, specifically in Africa tend to under-perform economically, have higher incidence of conflict and suffer from poor governance. For more information, see ‘EITI benefits’, Extractive Industries Transparency Initiative, 2010, Available at: http://eiti.org, Accessed on: 14 January 2011.
(22) Africa Report No 167 – Dangerous little stones: Diamonds in the Central African Republic’, International Crisis Group, 16 December 2010, http://www.crisisgroup.org.
(23) Ibid.
(24) Ibid.
(25) Ibid.
(26) Ibid.
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