Russian sanctions unsettle diamond power politics
Mbongeni Mguni | Monday March 28, 2022 10:27
The Kimberley Process Certification Scheme, encompassing all major diamond producers in its membership of 82 countries and NGOs, was set up nearly 20 years ago to root out conflict diamonds from the global market.
In recent years, meetings of the organisation have featured fiery debates over broadening the definition of conflict diamonds to include vices such as human rights violations, among others. At present, the Kimberley Process (KP) maintains its original, broad definition of conflict diamonds as being “rough diamonds used to finance wars against governments”. In practice, however, the definition is limited to diamonds used by rebel groups to fight legitimate governments, a definition that has meant the KP’s focus has been on war torn Africa such as the Central African Republic and Sierra Leone.
As chair, Gaborone is due to host a key KP meeting in June and the definition of conflict diamonds is expected to once again feature prominently. Russia and the Ukraine are both KP members, as is the United States and the European Union, which have all slapped sanctions on Moscow for its invasion.
Alrosa, meanwhile, is the world’s largest rough diamond producer by volume followed by De Beers, and is owned 33% by the Russian government.
The US recently extended its sanctions to Russian rough diamonds, but critically did not extend this action to polished diamonds, which is where the bulk of retail buyers access diamonds. Russian diamonds can thus and are being polished in global centres such as India and further processed into jewellery elsewhere before entering the US, which is the world’s largest diamond market accounting for more than 50% of demand.
Analysts say the effect of the US sanctions at the moment is minimal as the origins of polished diamonds or jewellery is difficult to ascertain for retailers. The origin of rough diamonds is easier to determine but far less of these are sold directly into the US from Russia.
However, sanctions or similar actions taken at KP level would involve all diamond producing nations taking a stand on Russia and effectively blacklisting its stones by listing them as “blood diamonds”.
That action, however, is nearly impossible, diamond industry experts say.
At last week’s United Nation Economic and Social Council meeting an organisation coincidentally chaired by a Motswana, Collen Kelapile, Russia’s invasion of Ukraine appeared to be the elephant in the room. The UN special meeting was called to look at the “Lessons from the Kimberley Process,” but most main speakers preferred to avoid the issue of Russia entirely.
Russia, the immediate past chair of the KP, presented at the meeting via pre-recorded video, and focussed on broader diamond industry issues.
The matter was not skipped entirely however.
“Diamonds can fuel conflict and, in this regard, we cannot ignore that Russia accounts for a significant portion of rough diamonds production and that these proceeds help finance the government’s operations, presumably including its military,” the US representative at the UN meeting said.
“At the same time, Russia has launched an unprovoked invasion of Ukraine and we strongly condemn this premeditated, unprovoked and unjustified war which flagrantly violates international law and undermines international peace and security.
“The Kremlin’s actions are antithetical to the KP’s mission of keeping diamonds from funding conflict against legitimate governments.”
Representatives from Belgium and the European Union made similar remarks, with the latter stating that natural resources should serve communities not armies or to fund human rights abuses.
Botswana’s representatives at the meeting, preferred to keep the middle road. Former president, Festus Mogae, the keynote speaker at the meeting due to his role in establishing the KP, stressed the need to review the organisation’s effectiveness, without specifying what areas he was referring to.
“It is evident that in two decades of is existence, the KP cannot be as effective as was originally conceived,” he said.
“The mechanism has become what we envisaged but like everything else, it is not as effective as when it was first created.
“Even with myself, I was more knowledgeable and could speak very well when I was younger, but now sometimes I forget my own name.
“That is a logic of circumstance that when you have something that is working, over time you should look at it and see if it’s working as it was originally intended.”
Mogae said with the benefit of hindsight and new knowledge and experience, the KP needed to introspect to better ensure that diamonds benefit ordinary citizens through their governments and that the fight against conflict diamonds continues.
Botswana’s Diamond Hub coordinator, Jacob Thamage told the UN meeting that the country would use its one-year chairmanship of the KP to revive the organisation’s peer review assessments, which had collapsed due to the pandemic.
“These play a crucial role in monitoring compliance and without them, it’s difficult to know what’s happening on the ground and what needs to be done,” he said, adding that Zimbabwe had offered to host its first peer review in May.
The neutral stance adopted by Botswana and other African states at the KP mirrors the continent’s general position towards the Russian invasion of Ukraine. Analysts say some African states, which comprise the majority of diamond producers, have felt threatened by the expansion of the definition of conflict diamonds, believing it could result in powers such as the US blacklisting their diamonds for any government actions the superpowers disapprove of. Perceived actions on opposition parties, such as is happening in Zimbabwe, could raise the spectre of an adverse listing under the expanded definition, analysts have speculated.
Robert Bates, news director at global leading diamond publication, JCK, this week noted that while the Ukraine issue has riveted the West’s attention, it is less of an issue in Africa, where conflicts have been raging for years but have not received as much global media interest.
In an article, Bates said even if one of its members moved the motion, it was highly unlikely that the KP would approve a Russian ban, as the organisation requires absolute consensus.
The KP’s members include not only Russia—which wouldn’t be allowed a vote—but also nonaligned nations such as the United Arab Emirates, India, and China, which have maintained a soft approach on Russia’s invasion.
“Russia currently oversees two of the six KP working groups, and the United States and United Kingdom have refused to attend any meeting chaired by Russia.
“Russia responded angrily, noting the issue is outside the KP’s remit,” wrote Bates.
The length of time the KP has taken debating the definition of conflict diamonds also points to the unlikelihood that any consensus would be reached against Russia.
Meanwhile, global diamond players warn that the KP has to make tough decisions as the world body responsible for the market’s perception of diamonds. As consumers, particularly those in the US, become more ethical about their purchases, any perception of diamonds as a troubled commodity could lead to boycotts of a stone that, on its own, has little intrinsic value.
“The other day I pointed out that consumer desire is the only value driver for diamonds,” World Diamond Council president, Edward Asscher, told the KP previously.
“And it is to ensure that consumer desire is maintained that we are here as representatives of the diamond industry.
“We are here to protect consumer confidence, which is the basis for all demand for natural diamonds.”
He added: “This holistic approach is imperative for all of us in the business of selling diamonds, because
who today wants to buy a pair of sneakers, a t-shirt, coffee beans or chocolate – let alone emotionally symbolic jewellery – if there is any doubt about the conditions in which its components were sourced and the impact they had on society?”
Diamond marketing is all about emotions at a time when the global market is demanding more transparency about the impact of every commodity on the environment and society. So while the US sanctions alone may not impact Russia, the KPs appearance of reticence on taking a stand could harm the industry as a whole or at least the segments that are particularly sensitive to ethical retail.
Rapaport senior analyst, Avi Krawitz explains the potential impact for Botswana of the US sanctions on Russia. Debswana, a member of the De Beers group, is the main producer of rough diamonds after Russia in terms of volume.
“If US retailers decide to take a tougher stance and not use Russian diamonds in their supply, as some have already done, it would boost demand for Botswana diamonds,” he says.
“We may see a bifurcation in the market whereby the US focuses on sources such as Botswana and Canada, while other centres which are not expected to impose sanctions, such as China, take the Russian goods.”
In essence, while Botswana could benefit from increased demand for its diamonds due to the Russian invasion, the industry as a whole could suffer in the long run from the lack of debate on the definition of conflict diamonds.
Botswana is not only a KP founder and chair for 22, but also boasts the cleanest and longest running record on the use of diamonds for development. The country can also the upcoming meeting in Gaborone to reinforce the diamonds for development mantra and guide the discussions that will inevitably take place on Russia and conflict diamonds.
According to Asscher, the KP is reaching a moment of truth.
“In the not-too-distant future, there will be a difference between rough diamonds that can be guaranteed to have fulfilled the consumers’ demands and expectations, and other diamonds.
“Responsibly sourced diamonds will be more in demand. They will obtain better prices in the marketplace, and buyers at jewellery stores will demand proof that they are indeed responsibly sourced before purchasing them as polished,” he told the KP previously.
Asscher continued: “The Kimberley Process has the ability to create a level playing field.
“If it meets these consumer expectations, then all natural diamonds from all participating countries will be represented.
“But there is clearly resistance, and I believe it is because some of us see the Kimberley Process Certification Scheme as an enabler of trade, whilst others see it as a restrictor of trade.
“But if the KP loses relevance, all will lose.
“This is because the KP will neither be a restrictor, nor an enabler. It will lose relevance, and then it will be each to their own.
“So, who then will be left behind?”