Identifier
Created
Classification
Origin
07FREETOWN205
2007-03-27 17:36:00
UNCLASSIFIED
Embassy Freetown
Cable title:  

SIERRA LEONE'S DIAMONDS REGAINING SOME SPARKLE?

Tags:  EAID ECON EMIN SL 
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VZCZCXRO6814
RR RUEHMA RUEHPA
DE RUEHFN #0205/01 0861736
ZNR UUUUU ZZH
R 271736Z MAR 07
FM AMEMBASSY FREETOWN
TO RUEHC/SECSTATE WASHDC 0924
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHOR/AMEMBASSY GABORONE 0027
RUEHKI/AMEMBASSY KINSHASA 0065
RUEHLU/AMEMBASSY LUANDA 0027
RUEHSA/AMEMBASSY PRETORIA 0368
RUEHWD/AMEMBASSY WINDHOEK 0027
RUEHJO/AMCONSUL JOHANNESBURG 0027
UNCLAS SECTION 01 OF 02 FREETOWN 000205 

SIPDIS

SIPDIS

DEPT FOR AF/W, AF/EPS, EB

E.O. 12958: N/A
TAGS: EAID ECON EMIN SL
SUBJECT: SIERRA LEONE'S DIAMONDS REGAINING SOME SPARKLE?

REF: 06 FREETOWN 586

FREETOWN 00000205 001.2 OF 002


-------
Summary
-------

UNCLAS SECTION 01 OF 02 FREETOWN 000205

SIPDIS

SIPDIS

DEPT FOR AF/W, AF/EPS, EB

E.O. 12958: N/A
TAGS: EAID ECON EMIN SL
SUBJECT: SIERRA LEONE'S DIAMONDS REGAINING SOME SPARKLE?

REF: 06 FREETOWN 586

FREETOWN 00000205 001.2 OF 002


--------------
Summary
--------------


1. Sierra Leone's legal export of alluvial diamonds lost some
luster in 2006 with declines from 2005 of 17.25% in value and
12.31% in volume, ending seven years of dramatic increases.
This decline was partially offset by a 3.99% rise in the
value of kimberlite exports, but overall diamond exports were
down 13.48% in total value. Diamond exports appear to be
regaining their sparkle in 2007 with a 25% increase in the
value of alluvials in January/February exports compared with
the same 2006 period,and an overall increase of 37% in value
when kimberlites are factored in. The 2007 figures are more
significantly an 18% increase in value over January/February
2005, which was a record setting year for Sierra Leone.
Whether these increases can be sustained throughout 2007 will
depend on numerous variables including diamond quality,
quantity, and prices; expansion of kimberlite mining; and
disincentives for illegal alluvial mining and smuggling. The
abysmal working conditions of alluvial diamond diggers remain
problematic for Sierra Leone's stability, but are attracting
world attention. End Summary.

--------------
2006 - A Dismal Year
--------------


2. 2006 was a bad year for Sierra Leone's diamond exports
with a 13.48% decline in value to $125,304,841 from
$141,940,244 in 2005. This was the first year that the total
value of legally exported diamonds has declined since 1999
when total exports barely exceeded $1 million.


3. The average value per carat declined by 2.24% to $207.61
in 2006, down from $212.26 in 2005. However, the principal
cause for the drop in export value was a 10.79% reduction in
the volume exported to 603,565 carats, falling from 668,709
carats in 2005. Alluvial (riverine) production declined in
value by 17.25% in 2006 to $101,857,434, compared with
$119,429,528 in 2005. This reflects a 12.31% decline in
legally exported production from 552,044 carats in 2005 to
491,526 carats in 2006, and 4.4% reduction in value per carat
from $216.34 in 2005 to $207.23 in 2006. Kimberlite
(volcanic stem) exports actually rose in value by 3.99% in

2006 to $23,447,407 from $22,510,716 in 2005. This increase
was due to a 7.08% rise in value per carat to $208.28 in 2006
from $192.95 in 2005 despite kimberlite production falling by
4.13% to 112,039 carats in 2006 from 116,665 carats in 2005.


4. Given the history of diamonds in Sierra Leone, illegal
smuggling of larger, better quality diamonds bypassing the
Kimberley Process is immediately suspected for the decline of
alluvial exports in 2006. According to a specialist in
USAID's Integrated Diamond Management Program (IDMP),other
factors may be at play. Diamond production was somewhat
disrupted in 2006 by the cancellation of many small scale
diamond licenses that were reallocated to larger mechanized,
mainly foreign, private sector operations that did not go
into full production during the year. This change in the
sector might also have led to former license holders engaging
in illegal mining and smuggling. There was a dearth or new
diamond mining areas opening up, and evidence of falling
production in existing alluvial mining sites. An exodus of
Lebanese diamond dealers from the traditionally productive
Koidu area suggests that those fields are being depleted.
The imposition of 30% income tax on diamond exporters may
have led to some of them bypassing the Kimberley Process for
their higher value diamonds. According to a leading Lebanese
diamond exporter, the income tax dispute in early 2006
affected alluvial exports for the entire year.

--------------
2007 - Diamonds Rebounding
--------------


5. Diamond exports have rebounded during January/February

2007. Their total value has increased by 37% to $21,918,026
as compared with $18,506,099 during the same period in 2006.
Alluvial diamonds, which usually have a high gem quality
content, have increased by 25% in value to $16,001,634 thus
far in 2007 as compared with $11,945,411 in 2006. Alluvial

FREETOWN 00000205 002.2 OF 002


production has improved by 17% to 70,101 carats and in price
by 15% to $228 per carat in January/February 2007 when
compared with 2006 figures. Kimberlite mining, which is more
tightly regulated than alluvial mining, has improved even
more in 2007. There was a 33% increase in total value to
$6,983,409 over 2006, based a dramatic 104% increase in
production to 47,685 carats despite a 35% drop in price per
carat to $146 as compared with January/February 2006.
Although kimberlite diamonds fetched only a per carat average
of $102 in January 2007 due to their poor quality, higher
quality kimberlite exports in February brought an average of
$265 per carat. According to an industry insider, this may
be because Koidu Holdings, the sole kimberlite company, has
begun to take kimberlite stones from a new site in Tongo
Fields.


6. After a dismal 2006, the improved figures thus far for
2007 have returned some sparkle to Sierra Leone's diamond
sector. Compared with January/February 2005, which was a
record setting year for Sierra Leone, the total value of
legal exports is up by 18% based on a 16% increase in carats
produced and a slight increase in price per carat. Whether
Sierra Leone's volume of legal exports can be sustained
following last year's drop-off remains to be seen. The
country's leading alluvial diamond exporter has told the
Ambassador that he expects 2007 to finish about equal to 2006
despite the strong start.

--------------
Comment
--------------


7. After a year in which Sierra Leone's image has been
battered by the "Blood Diamond" film and various
documentaries including the History Channel's "Blood
Diamonds" and CNN's "Blood on the Stone," the significant
increase in Kimberley Process compliant exports is a positive
development indeed for the diamond sector and for the country
itself. Despite this good news the working conditions for
alluvial diamond diggers remain abysmal. However, the
attention being given to their exploitation by USAID's IMDP
and the world media should improve their situation. At a
minimum, the Diamond Areas Community Development Fund
(DACDF),which assists diamond producing communities from a
portion of the 3% export tax on alluvial diamonds, should
increase from the $141,385 available in 2006. Any increase
in the DACDF will benefit stability in Sierra Leone since
diamond community discontent contributed to the conflict
diamond situation during the civil war. End Comment.
HULL