Diamond IndustryAnnual Review

sierraleone2006

Partnership Africa Canada, Ottawa, CanadaNetwork Movement for Justice and Development,Freetown, Sierra LeoneFebruary 2006

Editor: Lansana GberieManaging Editor: Josée LétourneauSeries Editor: Ian Smillie

The Money TrailEditorial Comment

Official diamond exports from Sierra Leone for 2005 have reached more than $140 million, a sig-nificant increase over 2004’s $126 million. This follows a pattern set since the end of the war in2002: from almost nothing in 2001, diamond exports have risen steadily, and are projected to riseeven further by the end of 2006. Even this, some knowledgeable observers say, is significantlybelow the country’s potential. After an extensive investigation of the artisanal sector – which stillaccounts for close to 90% of Sierra Leone’s official diamond export – the Peace Diamond Alliance(PDA) estimates the value of current diamond production at $400 million a year. Sierra Leone gov-ernment officials think this is an exaggeration, and have questioned PDA’s methodology. They callit a ‘guesstimate’. They may have a point, but even they admit that there is still rampant illegal min-ing and smuggling [see interview below with Mineral Resources Minister Mohamed Swaray-Deen.]

That has been the historical problem of theindustry. Largely of an alluvial nature, its veryhigh unit value, the ease with which it can bemined — without need for sophisticated pro-cessing and transport facilities — its immenseattraction to smugglers and other criminalpredators, the diamond industry in SierraLeone is extraordinarily difficult to manageand control. Indeed it was these very factorsthat made the country so vulnerable to insta-bility. But government officials are right toclaim that they have made progress inexpanding the licit sector. By end of the war,there were fewer than 100 mining licenses;today the number is close to 2,400. And thesteady increase in official exports clearly indi-cates at the very least an improvement inmanagement and control. But the problem isnot just illegal mining and smuggling. There isthe issue of pricing. The pre-export trade indiamonds – that is, marketing within SierraLeone – is notoriously confusing and opaque.

Locally-based dealers buy diamonds from arti-sanal miners, who are ill-informed about world market prices. The dealers then sell to exporters –or, in some cases, they smuggle the gems themselves. Some foreign exporters grumble that SierraLeone’s diamonds are uniformly expensive, which may be true. But some of the biggest exporters

An Interview with the Mineral ResourcesMinister

Swaray-Deen Discusses Smuggling,Management and Nationalization

Alhaji Mohamed Swaray-Deen, Sierra Leone’sMinister of Mineral Resources, is one of thelongest serving cabinet ministers in PresidentTejan Kabbah’s government. He has beenhead of this important ministry since 1998.Swaray-Deen is a mining engineer, and hasworked in Sierra Leone’s diamond sector as aprofessional since he left university in 1965. Hewas a senior official of the now-defunctNational Diamond Mining Company (NDMC),a failed government venture, and his knowl-edge of how that venture failed, he says in thisinterview, informs some of the policies that hehas since pursued as Minister.

ANNUAL REVIEW: What do you think are themost serious lingering problems in SierraLeone’s diamond Industry?

Swaray-Deen: Without doubt, illegal miningand smuggling, but especially smuggling. Wehave put in place a number of strategies tocombat illegal mining, and they are working.We have the Mines Monitoring Officers(MMOs), who are a very important arm of theministry. They, and the Mines Wardens, repre-sent the legal strategy of combating illicit activ-ities in the mining sector. Anyone they catchillegally possessing diamonds goes straight tojail for three years if found guilty. It is five yearsif you are caught in an actual attempt tosmuggle diamonds. There is no option of finesor bail. But we have a non-legal approach aswell. We have over the past three years co-opted chiefs and other local authorities in theattempt to combat illegal mining. It is a less vis-ible, less tangible strategy, but it is no lessimportant for that. We have instituted theDiamond Area Development Fund (DACDF)through which a mining chiefdom gets a smallpercentage of export Community tax on dia-monds [More on this below]. We have since

Esther Massah KamaraThis 2006 edition of the Sierra Leone Annual Review is dedicated with deep affection to thememory of Esther Massah Kamara, who managed the Campaign for Just Mining in SierraLeone between 2003 and 2005. Esther’s commitment, hard work and her dedication to pos-itive change will be greatly missed by her many friends and colleagues.

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Children going to try their luck at digging.

disbursed millions of leones to mining com-munities, chiefs and other local authorities,who administer these funds once they are dis-bursed to the chiefdoms. It means that nowthey have an interest, a very personal interest,in combating illegal mining activities andsmuggling. The more diamonds that gothrough the legal system the more money getsinto DACDF funds. So there is a carrot andstick approach.

Then of course there is the Kimberley Process,which we are implementing rigorously. It hasbeen a great boost.

ANNUAL REVIEW: How do you respond to critics– and there are many – who say that theMinistry’s attempts have been feeble and inef-fective?

Swaray-Deen: I’ll ask them to look at therecords, at actual, tangible outcomes. Our firstobjective is to maximize revenue from dia-monds. Revenue has been increasing signifi-cantly over the past three years. We are talk-ing of a situation where there were virtually nolegal exports before, and we are now officiallyexporting well over $100 million dollars everyyear. And there has been an increase everyyear since three years ago. We have officials inevery mining district in the country, and everyyear there are tens of mining licenses issued.Surely this should tell any objective observerthat illegal activities are on the decrease.

ANNUAL REVIEW: The increase in legal exportsmay also mean that diamonds are beingsmuggled into Sierra Leone from Liberia orGuinea or Côte d’Ivoire …

Swaray-Deen: You hear these rumours butwhere is the evidence? There is no doubt thatmining activities in Sierra Leone have dramati-cally increased since the war ended [in 2002],and no one can dispute that government’scapacity to administer and police the miningsector has also increased. There have been sig-nificant new diamond finds. Look atKamakwie, for example. Let me see who candispute this.

ANNUAL REVIEW: Wasn’t Kamakwie a fluke?

Swaray-Deen: No. We have issued 50 min-ing licenses there, and there have been impor-tant finds. Mining activities are still going onthere. These activities always decrease duringthe rainy season. It is normal.

ANNUAL REVIEW: There are those who thinkthat government’s revenue from diamonds istoo small compared to what is taken out ofthe country, mostly by foreigners. The exporttax, for example, is a low three per cent. Thismeans that while over $120 million worth ofdiamonds were taken out of Sierra Leone in2004, government got only about $3 millionfrom this huge sum. Some people think thatnationalizing the industry would greatly boostgovernment’s revenue.

Swaray-Deen: It is easy to lose perspectivehere when you quote these figures. In the firstplace, government revenue from the dia-monds is not limited to export tax. We getmoney from licenses issued for mining, deal-ing and exporting, and the sums are notinsignificant. There is also a corporate tax onthe bigger mining companies like KoiduHoldings Limited (KHL).

You suggest nationalization. This is incredible!What do you nationalize? KHL? The venturesof small artisanal miners? Nationalizationwould be a recipe for chaos, if indeed it ispracticable. We simply don’t have the capaci-ty, or the funds, to do it. We can’t, as a gov-ernment, borrow money and burrow into suchan uncertain venture. What sense would thatmake?

We made that mistake with the Sierra LeoneSelection Trust (SLST) when we nationalized itand called it the National Diamond MiningCompany (NDMC). We took 51% of theshares of the company, and were then forcedto pay 70% tax to the government. But thegovernment still wanted a share from thecompany’s finds — half of the remaining30%. The government did not have money topay for its shares, so they were paying fromdividends they got from NDMC each year. Itwas absurd. NDMC was forced to pay divi-dends each year, and so there were noreserves, no savings, no investment by thecompany. I was an official of the NDMC. Wewere not able to replace old machines; therewas no money to invest in equipment.Everything collapsed in short order.

That is the story of one failed attempt atnationalization. It doesn’t work; we should noteven talk about it.

The current policies that we are pursuing aresimply the only option we have, and they areworking. The key is to minimize illegal miningactivities and smuggling. It is important toattract bigger mining operations. Look atKoidu Holdings. KHL has given 20% of itsshares free to Sierra Leone, 10% for the gov-ernment and 10% for Kono District, the areaof their operations. We are working on a wayto get government’s share into NASSIT[National Social Security Insurance Trust], andwe want a Kono citizen to be on KHL’s board,as well as a GoSL financial official who’ll haveaccess to the company’s financial records. He’llbe able to know what the government’s, andKono’s, shares amount to each year. This is farpreferable to outright nationalization.

ANNUAL REVIEW: You spoke about KoiduHoldings, KHL. It has generated quite a bit ofcontroversy since it started operations here,hasn’t it? Some people say its environmentalpractices are irresponsible, and that the com-pany is not socially responsible.

Swaray-Deen: Let’s try and understand theissues here. KHL is using new, very complexmining techniques. It is deep mining, and thisinvolves blasting. That’s one issue – we can’tgo around it except if we say there should beno kimberlite mining, which would be foolish.The other one is that the company is operat-

TABLE OF CONTENTS

From page 1

The Money Trail .................................................1

An Interview with the Mineral Resources Minister..............................................................1

The Miners: Less than a Dollar a Day.................3

All That Glisters: The Gold and DiamondDepartment (GDD).............................................5

Governance: Problems Remain ..........................6

Government Revenue from Diamonds ..............7

Cadastre System Defined...................................9

The Exporters.....................................................9

Sierra Leone Diamond Export Data....................9

KHL & SLDC: Different Peas in the Same Pod ..............................................10

Giving Back to Mining Communities...............11

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ing in an area once held byNDMC, which actually discov-ered the kimberlite but wastoo broke to exploit it. NDMC,however, long demarcated thekimberlite sites, preventingpeople from building housesin and around them. With thecollapse of NDMC, however,people began to build resi-dences there. They were notsupposed to; it was a leasearea, and it was illegal to buildhousing there. But nobodystopped them. KHL inheritedthis problem. And so you havethose so-called homeowners,and NGOs supporting them,raising hell about environmen-tal issues and about issues ofsocial responsibility once KHLstarted operations in the area,an area legally leased to themby the government and localauthorities. Now that issue hasbeen largely resolved. The company is buildingnew housing for them, away from the miningsites, and the Kono authorities themselves areinvolved in the construction effort.

ANNUAL REVIEW: The other company that hasraised questions is the Sierra Leone DiamondCompany, SLDC. What exactly is their situa-tion?

Swaray-Deen: SLDC has taken about a quar-ter of Sierra Leone for airborne exploration.This is obviously in the interest of government.We have not done this kind of comprehensiveexploration before; it is very expensive. Theyare using aircraft, and they are extracting themagnetic property of rocks, and investigatinganomalies that could lead to mineral finds.

This is a sophisticated operation, and theextent won’t be obvious to many people. It isalso a long-term process. We don’t expectthem to be making monthly reports and thatkind of thing. They’ll produce a comprehensivereport in the final analysis, and this will be veryuseful for us. In addition to this, they are tak-ing licenses to cover smaller areas… Now peo-ple say that SLDC has exploration licenses butthey are actually mining. This is ridiculous;

unlikely. We are not talking about a small scaleartisanal operation here. We are talking abouta big mining corporation that is spending mil-lions of dollars in the country. How can such acompany mine furtively? This is not serious.There is simply no evidence for that.

ANNUAL REVIEW: So what’s the future of thediamond industry in Sierra Leone?

Swaray-Deen: We’re optimistic. For the pastten or twenty years the rumour has been thatdiamond deposits in Sierra Leone were almostdepleted, but look at the production figurestoday. There have been important new discov-eries. We have Kamakwie. The area is part ofthe SLDC exploration lease area, and they havelooked at it. We expect them to give us, atsome point, a report regarding its potential.

The work on the cadastre system [see below],once completed, will also help. Donors likeDFID [the British Department for InternationalDevelopment] and the World Bank have beenvery helpful in this respect. We are particularlygrateful to DFID for the huge investment theyhave made over the past three years or so inthe diamond sector, and we look forward tocontinuing cooperation with them.

The Miners:Less than aDollar a Day?In 2005, Partnership Africa Canada and GlobalWitness jointly published a study of the sociol-ogy of artisanal mining entitled Rich Man, Poor– Development Diamonds and PovertyDiamonds: The Potential for Change in theAlluvial Diamond Fields of Africa. The study,investigating conditions of artisanal mining infive African countries, was one of the mostextensive of its kind, and it drew grim conclu-sions. It noted that while the artisanal sectorproduces hundreds of millions of dollars eachyear, enriching a few people, the vast majorityof miners live below the poverty line, often sub-sisting on less than one dollar a day. The studydescribes artisanal mining – where the minersare concerned – as a dismal form of gambling:a ‘casino’ system where the miners earn lessthan subsistence wages, sharing their ‘win-nings’ with their ‘supporters’. Many end upwith very little, if anything at all, however, per-petuating a system of enormous exploitation.

No one disputed these well-researched findingsat the time. Less than a year later, however, theSierra Leone-based Peace Diamond Alliance(PDA), a USAID-funded NGO which had earlier,in a widely circulated report, described the con-ditions of Sierra Leone’s artisanal miners as‘alarming’ and ‘worsening’ compared to ‘thosedozen or so companies that enjoy most of thefruits of the diamond resource’,1 issued a morenuanced picture of artisanal mining. In Miningthe ‘Chaos’ in Sierra Leone’s Diamond Fields(June 2005), PDA now found conditionsamong artisanal miners ‘less desperate, morecollegial, and less internally discriminatory thanis often portrayed.’ PDA noted that the deci-sion to engage in the artisanal sector in SierraLeone as a labourer is not ‘an impulsive act,based on irrational assessment of risk, as isoften portrayed. Rather than resembling a visitto the casino, engaging in mining is the resultof the rational balancing among very limitedalternatives.’

A lot, of course, can happen within a year ortwo, and Sierra Leone’s diamond sector is noto-

SierraLeone

Guinea

Atlantic Ocean

Towns Major Roads Rivers Diamonds Alluvial Diamonds

Guinea

Liberia

KabalaKamakwie

Koidu

NjaiamaSewafe

Tongo

Kenema

Bo

MokanjiGbangbatok

Port Loko Makeni

Freetown

0 100 200 kms

N

S

EW

Africa

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riously volatile. Still, the PDA report seemed toprotest too much. The fact that many artisanalminers prefer the tributor system – by whichthey are provided simple tools and subsistenceby a ‘supporter’ so that they can partake ofthe ‘winnings’ they hope to make – may notbe irrational but it is still gambling. Few actu-ally find anything that can make any differ-ence in their condition, and most remainbelow the poverty line. But the report, a seri-ous investigative study with wide-ranging pol-icy implications, is a good wake-up call tothose who would reduce every social problemto a stock formula.

Sierra Leone is a very poor country. The GoSL’sPoverty Reduction Strategy Paper of February2005 notes that 82% of the country’s popula-tion lives in absolute poverty. It also notes that‘with a Gini Index of 66, Sierra Leone has onethe most skewed income distributions in theworld.’ The paper implicates the mining sector,bad governance, corruption, and the civil warof 1991-2002 in perpetuating this problem.While poverty is endemic in Sierra Leone, theGoSL paper still found the poverty in diamondmining areas particularly striking. KonoDistrict, for example, which has produced overthe past three decades billions of dollars worthof diamonds and is home to the largest con-centration of artisanal miners, has a far higherlevel of poverty than Pujehun District, a large-ly agricultural area. Rural Kono has a povertylevel of 79.6 % compared to rural Pujehun’s59.6 %; and urban Kono has 56.3 % of ‘totalpoor’ compared to Freetown’s 17.1 %.

The Sierra Leone gov-ernment officiallyputs the number ofworkers in the dia-mond industry at100,000, most ofthese in the artisanalsector. Privately, offi-cials say that the actu-al figure may bebetween 150,000 and200,000, reflectingthe still-robust illegalsector. In spite of theimportance of the sec-tor – in terms of both

its economic and security implications – thegovernment has never conducted researchinto miners’ livelihoods, a necessary first steptowards designing effective policies for pover-ty reduction.

Annual Review interviews in Kono in August2005 reveal that a miner in the artisanal tribu-tor-supporter system gets about 2,000 leones(about 85¢) a day for sustenance (in TongoFields, each gets 1,500 leones.) A mineremployed on contract – that is, working forone of the smaller scale companies, with nostake in the finds – gets about 6,000 leones($2.50). This means that miners in the tributor-supporter system in Kono (not to mentionTongo Fields) is, according to theGovernment’s Poverty Reduction Strategypaper, ‘food poor’ – unable to ‘provide thelevel of theoretical expenditure to attain theminimum nutritional requirement’; in otherwords, dead poor.

The question is: why do miners stay in suchharsh working conditions? No doubt thisreflects the lack of economic alternatives, asthe PDA study notes. Koidu Town, capital ofKono District, has been growing by 150,000 ayear since 2002, according to UN officials. Thetown was completely destroyed during thewar, and its (then) 200,000 residents mostlyscattered. Since the war ended, there hasbeen a boom in diamond mining, and many ofthe new migrants are petty traders or miners,most of them young.

A report prepared by Sierra Leone’s Ministry ofYouth and Sports with UNDP funding in May2004, ‘Mining and Marginality: Kono andTongo Fields,’ notes that of 550 miners inter-viewed in Kono, 465 claimed they started min-ing after the war; 75% were between theages of 21 and 30, and all cited poverty and‘survival’ as reasons they went into mining.The report notes that for 70% of 852 minersinterviewed, ‘mining remains the most attrac-tive option for the bulk of the young men whocite poverty (39%), survival (37.2%) andfinancial (23.7%) as the primary cause’ formoving into Kono. The report notes that anoverwhelming 88% of 175 miners inter-viewed in Kono were illiterate – in contrast tothe PDA study, which found that 46% of theartisanal miners they interviewed claimed tohave gone to secondary school.

One Problem, Two Approaches

The PDA study estimates that $400 millionworth of diamonds are produced in SierraLeone each year, but very little of that accruesto the artisanal miner. However rational theirchoice in becoming artisanal miners, the sys-tem in which these labourers toil is inherentlyexploitative, suggesting that some people –perhaps many people – are being duped andcheated. Since the war ended, two approach-es have been initiated to minimize the prob-lem.

The first was launched by Sierra Leonean civilsociety groups, led by the Network Movementfor Justice and Development (NMJD), involvinghigh-profile media and other public awarenesscampaigns around the issue of ‘just mining.’ Itis called the Campaign for Just Mining (CJM).The CJM has advocated a ‘rights-basedapproach’ to the issue of mining, highlightingthe exploitation of workers and environmentalinfractions, and sometimes working closelywith government and international agencieson legislation and measures aimed at makingthe mining industry more transparent andsocially responsible.

The other approach, less apparent but perhapsmore systematic, has been the one adopted bythe PDA, an initiative of USAID which believes

From page 3

Diamond mining pits near Koidu

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All that Glisters: The Gold and Diamond

Department (GDD)Headed by Lawrence Ndola Myers, a former De Beers employee, the GDD has a staff of eleven (allSierra Leone nationals), backed up by an independent international firm of valuators who fly in sev-eral times a year to audit and advise GDD staff. The GDD, housed in the Bank of Sierra Leone com-plex in central Freetown, values and levies export taxes on all diamonds that are officially exportedfrom Sierra Leone.

When it was set up in the 1980s, the GDD had a staff of 100. This number was reduced to 57 in1992, and still further down to 17 in 2003. The current staff strength of 11 was reached after theintervention of the newly-established National Revenue Authority, NRA. The GDD has six valuators,one secretary, one financial controller and his assistant, and three auxillary staff. Expert advice fromthe NRA, GDD’s Myers says, has been very helpful to the GDD. Export proceeds have gone up andthe annual salaries of local staff have increased from an average of Le2.5 million per annum to Le12million (US$5,100). This increase in salary has led to greater efficiency and has probably reducedconsiderably the temptation for workers to act unethically.

The GDD’s role has changed over the years. When it was set up in 1985, the then GGDO was sup-posed to value and purchase all diamonds mined in Sierra Leone. This was to serve as collateral forgovernment in dealing with external loan management. In practice, however, because the govern-ment did not have liquid cash, it only intermittently bought diamonds, and this function was givenup in the 1990s after the National Provisional Ruling Council (NPRC) looted the GGDO’s reserves.

The GDD gets 0.75% of the 3% export tax on diamonds, amounting to approximately $1 millionin 2004. This increased in 2005, reflecting the increase in exports. The GDD pays it staff from thisrevenue. Whether this percentage will be reviewed if, say, export figures are doubled, is open toquestion. It certainly became an issue in the case of the external valuators.

The valuation firm Diamond Counsellor International, which has held the position for several years,was being paid 0.4% of the export value. At the time, export was minimal, and the pay for the con-sultant, who flew in three times a year to assist the GDD, appeared reasonable. Now that exportshave significantly increased, the pay looks much more generous, and in 2005 the government askedfor a review. DFID recommended that the government put the contract out to tender, and an adver-tisement for ‘independent diamond training & valuation services’ duly appeared in an October 2005edition of The Economist. The ad called for a ‘second, independent valuation of diamond parcelsexported through the GDD,’ to ‘ascertain the international market value of diamonds produced andexported from Sierra Leone whilst supporting the capacity-building within the GDD.’ The selectionof a firm was postponed at the end of November because of new recommendations from the LawReform Commission which covers a hoped-for domestic polished diamond manufacturing sector.The new valuator will be expected to provide additional services to the domestic as well as theexport market.

At the GGD there are plans to introduce new security technologies, including CCTV. The CCTV cam-eras will maintain non-stop surveillance around the GGD work site, especially focusing on diamondsorting tables. The GDD has received good reviews over the past two years, and is probably one ofa few institutions in Sierra Leone that maintains standards of transparency and efficiency that arehard to assail.

that ‘Stemming the flow of illegally exporteddiamonds will ensure that the profits from thediamonds are not used for illegal or terroristpurposes.’2 It seeks to convert Sierra Leone’sdiamond resources ‘from a source of war anddesperation to a foundation for peace andprosperity.’ The PDA’s approach has involvedthe establishment of cooperative schemes,identifying suitable mining areas, training min-ers in diamond valuation, instituting a creditscheme through which a mining group couldhave access to as much as $10,000 in credit (tobreak the capricious chains of reliance of ‘sup-porters’). The PDA also aims for diamond buy-ing at attractive prices. The PDA started a pilotscheme in Kono in 2002 and has now startedone in Tongo Fields, two areas that representnearly 70% of all mining licenses in the coun-try

Only time will tell whether these twoapproaches will lead to much-needed funda-mental changes in the country’s all-importantmining sector. Everyone agrees, however, thatthe work needs to be intensified and sus-tained, and that it demands much more thanreports and press releases.

Poster of United Mineworkers Union, Sierra Leone.

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The diamond mining industry falls under thedirect remit of the Ministry of MineralResources, which is housed at the Youyi Buildingin Freetown. The Ministry, which has been thefocus of extraordinary attention over the pastthree years because of its strategic importance,has also been a subject of sustained criticismfrom many quarters. A review of the diamondindustry by a major donor in 2005 found thatalthough there has undoubtedly been progressmade towards ensuring that the potential ben-efits from diamond deposits are fully realized bythe government and people of Sierra Leone, thecapacity of the Ministry of Mineral Resourceshas only marginally improved, and remainsweak at national and particularly at local levels.The donor report also said that the ministry hasa narrow focus, lacks management, monitoringand training capacity, and there is no clear strat-egy for confronting the strong vested interestsof politicians and chiefs.

Senior ministry officials bridle at these charges.We have come a long way, they claim, with verylimited resources and support. In 2001, theMinistry, virtually dormant during the war years,did not have a single official vehicle, moraleamong its depleted staff was low to non-exis-tent, and there was no strategy to confront themining industry, then largely reduced to aninformal sector, as government slowly started tore-establish itself at the conclusion of the disar-mament process. Now the Ministry hasrecouped some of its staff; has, with donorassistance, promulgated new legislation such asthe important Core Mineral Policy (2004); it hasrevamped the Gold and Diamond Department(GDD); and morale among its staff hasimproved, they argue.

Both sides are at least partly right; but the prob-lems of properly administering the diamondindustry need to analyzed carefully if they are tobe effectively confronted. The first thing to noteis that the ministry was, in the 1960s and 1970s,the biggest contributor to Sierra Leone’s GDP,providing the country with over 70% of its for-eign exchange earnings, 20% of its GDP, and15% of its fiscal revenue. The hope that itwould quickly recover this position is one reasonwhy a recent donor proposal to focus on six lineministries for upgrade and support included the

Ministry of Mineral Resources — even though itdoes not directly provide services to the coun-try’s citizens, like the Ministries of Health orEducation. The fact that the Ministry is notdoing as well as it used to is a source of grow-ing anxiety among donors, who appear prema-turely eager to scale down their support to thewar-ravaged nation.

The Ministry, drawing its legal authority from anumber of laws – including the Mines andMinerals Act of 1996, the Income Tax Act, theForeign Exchange Control Act, theEnvironmental Protection Act of 2000, and theBusiness Exchange Control Act – issues thelicenses that regulate the mining, sale, andexport of diamonds. It also has monitors, war-dens and superintendents, many of them exten-sion workers, who do the actual administeringof the industry on the ground. These officialsdraw upon a number of recent regulations,including the Mining Code of 2004 and the2005 Policy on Artisanal and Small-scale Mining(PSSAM). Two professional departments of theministry supervise its functions: the MinesDepartment, which monitors and regulates themining and marketing of precious minerals likediamonds; and the Geological Surveys Division(GSD), which provides geological information.Both are seriously under-staffed, with the func-tions of some of the professional staff of theGSD being less than clear. Overall, the Ministryhas 260 professional staff, and 207 temporarystaff.

The Mines Department is headed by theDirector Mines, A.M. Wurie, a longtime figure inthe Ministry. This department issues mining,dealer and export licenses, and provides anoversight function where the diamond businessis concerned. The department has an age prob-lem: within the next five years, four of its eighttop-level professionals will retire, in addition to20 of its 102 mid-level staff. Worse still, a recentinternal GoSL review noted that 16 of the sen-ior Mines Wardens, all 84 of the MinesWardens, and 11 Area Superintendents werenot qualified for their jobs.

The department employs and supervises theMines Monitoring Officers (MMOs) and MinesWardens. There are currently 207 MMOs – an

increase of seven over the previous year. The cri-teria for employment of the MMOs are threesubject passes at GCE O-level, but the GoSLreview noted that appointments have been‘loose and political, with preference for retiredservicemen’. Once appointed, the MMOs aresubjected to in-house training before theirdeployment. Some Ministry officials complainthat most of the MMOs are illiterate, and can-not fulfill reporting requirements.

Except for a very few, most of the MMOs arenot civil servants, have no job security, and at$50 per month are paid poorly. They are alsoseriously handicapped by poor logistics. Take thealmost ramshackle Mines Department offices inKenema, one of the most important centres ofthe diamond trade, which the Annual Reviewvisited in August 2005. It supervises 51 MMOs,certainly too small a number to cover such anextensive area. The problem is compounded bythe fact the MMOs have to make do with eightold motor bikes. While in the field – in placeslike the volatile Tongo Fields – they cannot com-municate with the Kenema office: there are noradios, and cell phone coverage has not yetreached Tongo. In any case, the MMOs are notprovided with cell phones. MMOs operating inthe Tongo Fields area have in the past been sub-jected to violent assault by illegal miners, manyof them rebel ex-combatants. In the all-impor-tant Kono District, there are only 64 MMOs andsix Mines Wardens. Both sections want thenumber of MMOs at least doubled.

The Precious Minerals Monitoring Team, whichincludes eight police officers and eight MMOs,and which – unlike the overall MMO – has pow-ers of arrest, is regarded as largely ineffective. Itsformer operational head, Teddy Kargbo, whoreceived training in South Africa in 2004, wasreplaced in 2005 by an officer with no suchtraining.

The Geological Survey Department (GSD) issuesprospecting licenses and monitors the activitiesof exploration companies across the country. A

Governance: Problems Remain

Diamond mining pits, Kono region.

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GoSL internal review found that several seniorstaff at the GSD are also employed by privatemining companies, and that there is no mecha-nism for accounting to the GSD for their workwith such companies.

The Department has so far issued 65 ExclusiveProspecting Licenses, but three – all held byTebasco International Corporation Ltd. – haveexpired, and the Department was uninformedabout the validity of four held by OlympusDevelopment Company Ltd. and one by LionCorporation Ltd. The most prominent and activeprospecting licenses are those held by the SierraLeone Diamond Company (SLDC), about whichmore below. The Department is piloting acadastre system in Kono – covering a limitedarea of 400 of an estimated 1000 plots in thedistrict – with plans for a national system by theend of 2006. The World Bank has expressedstrong interest, and has made completion of thesystem a condition for funding of up $15 milliontowards the diamond sector.

The 2005 Kimberley Process review team rec-ommended that in the absence of effective x-ray scanning of all passengers passing throughLungi International Airport, passengers should

be body-searched, and their carry-on luggageopened and searched, to prevent the smugglingof diamonds. Searching all passengers for smallparcels could prove both unmanageable andunpleasant, but random detailed spot checksbefore each flight might be a useful dissuaderfor those tempted to bypass legal channels.Little apparent checking is in fact being done.

The problems of the ministry and its depart-ments all point to the fact that the GoSL’s com-monly cited problem of a lack of capacity islegitimate. But a more serious problem may beits inability to properly utilize what little it has tostart with. One key problem is a lack of internalcommunication and coordination between thevarious arms of the GoSL that deal with the dia-mond industry – the Ministries of MineralResources, Finance and Justice, the Office ofNational Security and the Department ofImmigration, and Customs and Excise. There isno coherent fiscal policy towards mining com-panies among the Ministry of MineralResources, Customs and Excise, andImmigration. For example, without notifying theMinistry, Immigration in early 2005 increasedfees for the registration of expatriate workers by

1,000% - to Le 5 million per person per annum(US$2,130). The move was probably aimed atLebanese traders, who bring in dozens of rela-tives from the Middle East each year to runshops or to do jobs that many unemployedSierra Leoneans are well placed to do. Thismove, however, severely irked Koidu Holdings,which has dozens of expatriate workers fromSouth Africa trained in specialist mining. KHLpleaded with the Ministry to intervene and theMinistry had in turn to plead with Immigrationto reduce the fees.

The Ministry’s pleas for tax concessions onbehalf of choice mining companies, however,are a source of friction between it and Customsand Excise, as well as with the Ministry ofFinance. The GoSL internal review states thatcumulative revenue losses from tax concessionsto a company like the titanium miner SierraRutile will be $98 million over the period 2004-2016. In mitigation, however, the governmentwill acquire up to 30% equity stake over time.Still, it would help if there was a more coherentfiscal regime governing all mining companies.

Government Revenuefrom DiamondsGovernment’s principal revenue from diamonds comes in the form oflicense fees and export taxes. On average, monthly exports in 2005 werealmost $12 million, for a total of $141.9 million in 2005.

The export levy on diamonds forms a substantial part of government’s dia-mond-related revenue. For the first nine months of 2005, government taxrevenue was approximately $2.2 million. Government also gets revenuefrom licenses – mining, dealer, and export – license fees, as well as the cor-poration tax paid by KHL. Revenue from licenses and the three per centexport tax in 2004 was $5.2 million, of which $2.9 million came fromlicenses. There are three categories of people to whom dealer and exportlicenses can be issued (mining licenses are issued only to Sierra Leoneans,although foreigners sometimes obtain them through Sierra Leonean prox-ies). These are ‘citizens’, ‘ECOWAS citizens’ and ‘foreign nationals’.Information relating to business and other credentials is not sought beforelicenses are issued to ‘ECOWAS citizens’ and ‘foreign nationals’, and it isoften the case that dealers — even ‘foreign’ or ‘ECOWAS citizens’— areactually mining supporters. In addition, both dealers and exporters can be

agents. This has serious implication for transparency and for governmentrevenue generation.

Nearly 2,400 mining licenses were issued in 2005, and though not alwaysas detailed as one would wish, monthly reports on mining activities are pre-pared by Mines Monitoring Officers (MMOs) across the country. Theseinclude details on the number of licenses issued, income derived from theselicenses, and the activities of mining companies and ‘gangs’.

Records on more established companies like KHL are more coherent.Ministry of Mineral Resources records show that KHL, which has 54 expa-triate workers directly employed at its Koidu operations and another 23expatriate sub-contractors, has been paying by far the biggest royalties togovernment. From the records made available to the Annual Review, thecompany paid $75,618 in March 2005, $90,276.34 in April, $46,435 inMay, $131,028.47 in June (along with $14,000 for renewal of its TongoFields diamond exploration licenses), $131,227.67 in July, $121,349 inAugust, and $71,275 in October. KHL’s South African manager Jan Joubertclaims – in an interview with the Annual Review in September 2005 – thatthe company has operating costs of $1.3 million a month, losing $6 millionin 2004. Joubert says the company is now breaking even, and expects tostart making a profit in 2006.

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are locally-based Lebanese traders, many ofwhom, through a network of relatives andfriends, also fund artisanal mining and deal-ers. And profit margins on the exchangebetween the dealers and miners are uni-formly huge. Quoting from a PDA source, aninternal Government of Sierra Leone (GoSL)investigation cited the case of a dealer whobought a stone for $30,000 from an arti-sanal miner and then sold it to an exporterfor $180,000. This may be ‘exceptional’, toquote the GoSL finding. More likely it iscommon practice.

Given the fact that smuggling is most oftendone by dealers – and exporters who mayhave close business ties with the dealers –the loss to the nation must be huge. The lossto the artisanal miners, the labourers whoseem forever stuck in poverty, is evengreater. This should be a concern, not justfor government but for anyone interested insocial justice, and something should bedone about it.

Something, but what? The diamond indus-try is hopelessly unwieldy, and as MinisterSwaray-Deen argues [see interview], anyattempt to tighten control through intrusivegovernment action could backfire. Just howlimited government’s control of the industryis can be seen from the actual revenue thatthe government itself gets from it each year.Government’s revenue from diamondscomes chiefly from licenses (mining, dealer,and export), and the three per cent tax onexports. In the case of a company like KoiduHoldings Limited (KHL), there is also the cor-poration tax, which is not insignificant. Butartisanal alluvial mining is by far the moreimportant sector, both in terms of the vol-ume of production, and the number of peo-ple it employs. In 2004, alluvial miningaccounted for $112.7 million of the $126million worth of diamonds officially export-ed out of Sierra Leone. In 2005, alluvial min-ing accounted for $119.4 million, a six percent increase. However, government’s rev-enue from licenses and taxes, including thethree per cent export levy, was only $5.2 mil-

lion from the alluvial sector in 2004. Themining, dealer and export licenses made up$2.9 million of that sum.

The fiscal constraints for government arecompounded by the fact that the revenue itgets from export taxes, which constitutesabout 40% of what it earns from the dia-mond trade, is shared between the statetreasury, the Government Gold andDiamond Office (GDD), external valuators,and the communities from which alluvialdiamonds are mined (in the form of theDiamond Area Development Fund). This isan important point, because too often peo-ple, including the country’s major donors,confuse the total value of exports with theactual revenue that government gets.

Can the Government of Sierra Leone getmore from diamonds than it does now? Thequestion must be yes. The problem, howev-er, is how. A 2005 IMF review of the PovertyReduction and Growth Facility in SierraLeone3 noted that the country has a solid fis-cal regime, and that the existing Mines andMinerals Act (1994, amended 1996), whichsets royalties and licenses fees, and theIncome Tax Act of 2000, are well-thought-out. But the country is just emerging fromwar, has very poor infrastructure, and is des-perate to attract external investors. It hastherefore had to grant special deals to indi-vidual mining companies in terms of taxconcessions. KHL, for example, has on occa-sion been granted duty-free facilities forequipment and other mining-related goodsit imports into the country, and has hadwaivers on residential permits for its dozensof foreign employees. The IMF review is just-ly critical of this approach, because thereappears to be no documentary frameworkto support it; it is ad hoc and open to abuse.It also means a huge loss of revenue for thegovernment. In a case unrelated to dia-monds but relevant to the mining industryas a whole, a GoSL review estimates thatrevenue loss from several concessions grant-ed to the titanium mines under Sierra LeoneRutile, will amount to $98 million between

2004 and 2016.

Could government itself invest in the dia-mond industry, set up and support artisanalminers’ cooperatives, and buy the diamondsthey produce? This is not a far-fetched idea– the PDA has a pilot project – but it wouldneed a significant upgrade of the GoSL’scapacity. At the moment that capacity is seri-ously limited. Mines monitors, for example,are too few, are badly paid and ill-equipped,and there is evidence that many are incom-petent. Even some of the senior staff of theMinistry of Mineral Resources is problemat-ic, to put it no stronger. Governance limita-tion, in other words, is still the core problemin the country.

In some areas, however, governance hasregistered a marked improvement. Childlabour, for example, once so ubiquitous inthe diamond fields, is now largely con-tained. The GoSL highlighted the problem inits Core Mineral Policy of 2003. The policyaimed to improve ‘employment practices,encourage participation of women in themineral sector, and prevent the employmentof children in the mines.’ Nothing much wasdone about the issue in 2003 and 2004,however, and the Annual Review, amongothers, highlighted its persistence. In 2005,however, Mines Monitors and Wardenswere tasked to make the issue a serious partof their job, and applicants for mining licens-es are now made to sign an undertaking notto employ children. On-the-spot checks byMines Monitors have led to the penalizationof a few culprits, and the problem appearsto have diminished.

This limited but important success showsthat with determination, government canactually produce positive results. Pressure forit to do so should remain.

From page 1 (The Money Trail)

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The ExportersThere are nine major exporters of diamonds from Sierra Leone. They aremostly foreign nationals and mostly of Lebanese extraction. There aresome eighty persons or companies serving as agents for the majorexporters.

An alluvial diamond exporter’s license costs US $40,000 per year while anagent’s certificate costs $25,000. The present crop of dealers’ licenses willexpire in July of 2006. Hisham Mackie, by far, is the leading exporter,accounting for 51% of all official exports by July 2005. That is an increaseof more than 10% over his performance in 2004. Andre Hope, the SierraLeonean exporter who trailed Mackie in second place in 2004 with 19%of the exports, lost his licenses in 2005, and appeared to be out of busi-ness. Bajibu Kabba, a Sierra Leonean newcomer, is now the biggestindigenous exporter, but his share is less than 5%. All of these exportersdeal in alluvial diamonds.

KHL, however, is steadily emerging as a major exporter. In 2004, it export-ed 79,000 carats of diamonds worth some $13.8 million. In 2005, thefigure rose to $22.5 million, an impressive 62.4% increase. However,GDD officials expressed concerns to the Annual Review about recenttrends in KHL exports. They observe that KHL’s more recent exports havebeen of much lower-quality gems than in the past. KHL claims, inresponse, that because of complaints from Kono residents about blast-ing, they have been digging deeper, and therefore the diamond occur-rences are of lower grade.

Cadastre SystemDefinedDeveloping a cadastre system is now considered by donors inSierra Leone to be of urgent and strategic concern. The aim isto make an accurate map of mineral deposits and mineralpotential which would allow for more strategic investments. Butwhat exactly is a cadastre system? In general, cadastral mapsdefine legal repositories of land ownership, value, and location,allowing individuals and businesses to raise capital based onproperty values. The online Wikipedia encyclopedia definescadastre as ‘a register of the real property of a country, withdetails of the area, the owners and the value.’ The word, it says,came into English by way of French and Italian, giving ‘rise tothe adjective cadastral, used in surveying and public administra-tion, and referring to the division of land into units for survey-ing, taxation or administrative purposes.’ In the case of themuch-talked-about cadastre system in Sierra Leone, the concernis about creating an accurate survey of mineral (in this casemainly diamond) occurrences with a view to guiding strategicinvestments and making fiscal (in the form of government taxrevenue) projections. The project, still in its pilot stage – and lim-ited to a small area of Kono District – has received both DFIDand World Bank support.

Sierra Leone Diamond Export Data2003 Export Data 2004 Export Data 2005 Export Data

Month Export Carats Price/Carat Month Export Carats Price/Carat Month Export Carats Price/Carat($) ($) ($) ($) ($) ($)

Jan 4,612,174 37,853 121.84 Jan 6,732,551 55,347 121.64 Jan 9,676,953 57,349 168.74

Feb 7,087,005 40,612 174.51 Feb 9,956,715 67,192 148.18 Feb 8,829,145 42,153 209.45

March 4,827,357 29,566 163.27 March 12,186,650 61,730 197.41 March 9,857,565 47,966 205.51

April 7,363,137 45,259 162.69 April 12,219,747 72,589 168.34 April 12,950,368 63,982 202.41

May 5,526,897 41,334 133.71 May 9,824,063 49,712 197.61 May 12,440,447 54,896 226.62

June 7,673,862 56,612 135.55 June 17,371,974 89,560 193.97 June 21,573,844 77,115 279.76

July 5,417,475 37,191 145.67 July 12,925,172 59,194 218.35 July 13,180,714 54,372 242.41

August 7,527,192 49,182 153.05 August 9,689,861 50,172 193.13 August 13,543,472 62,980 221.46

Sept 6,828,932 50,068 136.39 Sept 9,897,734 51,781 191.14 Sept 7,123,957 34,101 208.91

Oct 6,789,034 44,032 154.18 Oct 9,588,852 46,014 208.38 Oct 10,607,968 51,528 205.87

Nov 5,868,077 35,121 167.08 Nov 9,215,901 51,310 179.61 Nov 11,873,960 54,248 218.88

Dec 6,465,401 39,903 162.03 Dec 7,052,411 37,152 189.82 Dec 10,281,845 68,015 151.17

Total 75,969,753 506,723 149.92 Total 126,652,634 691,757 183.09 Total 141,940,244 668,655 212.27

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In terms of financial investment, Sierra Leone’sdiamond sector is dominated by two foreign-owned companies, the South African KoiduHoldings Limited (KHL), which has acquired all ofthe country’s known kimberlite deposits (in Konoand Tongo Fields), and the Sierra Leone DiamondCompany (SLDC), mainly a prospecting firm.Both companies have been active in the country,in various incarnations, since the 1990s, andboth have attracted controversy.

KHL, the bigger, more visible company, appearsnow to be gaining traction. Its managers, whosquirm at any mention of the company’s formerlinks with mercenaries, point to a number ofrecent successes. It has largely settled the prob-lem that dogged the company’s operations into2005: clashes with Kono locals over environmen-tal and property ownership issues. Some of theproblem had to do with an EnvironmentalImpact Assessment (EIA), produced at the com-pany’s behest in 2003. This stated that 284households, comprising 4,537 people, would beadversely affected by KHL’s blasting, and thatthese needed to be relocated to new housingwhich the company should construct. KHLdithered for over a year – partly because, itargued, it had not budgeted for the housingscheme. Its agreement with the governmentindicated that the land was ‘unoccupied’ (thearea was marked out as a ‘safe zone’ in the mid-1960s, making it illegal for private housing to beconstructed there). Residents disagreed. The landwas theirs, not government’s to give out to a for-eign company.

The stand-off attracted vocal NGOs and rightsgroups. KHL responded by putting up a fewcheap buildings for the ‘home-owners’ (whorejected them), and proceeded with its opera-tions, involving dynamite blasts at least twice aweek, with little apparent consideration for resi-dents. The district teetered on the verge of vio-lence. On 16 February 2005, the AffectedProperty Owners Association — a group repre-senting the displaced residents — wrote to thegovernment and KHL threatening strike actionwithin 72 hours if ‘the conditions and terms of

the EIA report’ were not honoured. The groupclaimed that KHL had not treated them ‘fairly ashuman beings’. A series of frantic meetings wasthen initiated by government officials, and inMay 2005, an agreement was reached underwhich houses were to be constructed for theaffected homeowners ‘by the community peoplethemselves, and the cost of material, labour andsupervision [to] be provided by KHL.’ Tentatively,that seems to have resolved the matter.

With $26 million invested, KHL claimed that itwould start breaking even by the end of 2005,an obvious relief for thefinancially cornered gov-ernment, whose close-ness to the company hasbeen a source of anxietyto some observers.

Senior government offi-cials are believed to beeven closer to the SierraLeone Diamond compa-ny (SLDC), the formerlyCanadian (nowB e r m u d a - b a s e d )prospecting companywhose main shareholderis Romanian-born busi-nessman Frank Timis. SLDChas been active in Sierra Leone since 1996.Under Canadian Alan Dolan, the company wascalled Africa Diamond Holdings Limited (ADHL).In 2005, the Annual Review reported that theSLDC, in which Timis had invested $12 millionthe previous year, was ‘on the move,’ with theinitiation of a series of high resolution airbornemagnetic surveys over its licenses areas, account-ing for more than a third of Sierra Leone’s landarea. The Annual Review, relying on informationfrom the SLDC, reported that the survey was 40per cent complete by end of 2004. Now we arenot so sure.

In the first place, SLDC’s surveys seem largelyintermittent, and there are conflicting reportsabout progress made. Also, there is sometimes

confusion about what exactly the company isprospecting for, or whether prospecting is all it isdoing.

In November 2003, ADHL, precursor to SLDC,signed an indenture with the government for$10,000, allowing them to prospect not only fordiamonds but for bauxite and other minerals.The application envisaged environmental andother problems in areas where the companywould operate, and pledged to introduce‘improved varieties of most commonly cultivatedcrops,’ ‘sustainable farming,’ and programs ofHIV/AIDS education. None of these programsappear to have been initiated yet in SLDC’s areasof operations.

The company has a number of subsidiaries withprospecting and exploration licenses in Sierra

Leone. Among them are Fatkad MiningCompany Limited, Kangaroo Mining CompanyLimited, and Molans Mining Company Limited.Directors and officers of SLDC also have benefi-cial interests in North West Diamond and Gold(Like SLDC, registered in Bermuda), and SLDCrecently acquired North West’s 10,000 km2exploration licenses in Sierra Leone. This tangleof corporate names and interests creates someconfusion.

The Annual Review has seen GoSL documentsthat raise concerns over key aspects of SLDC’s2004 Annual Report. One notes that ‘only a sin-gle paragraph’ in the entire report describes ‘theAirborne Magnetic Survey…which should havebeen the thrust of [SLDC’s] operations’. The

KHL & SLDC: Different peas in the same pod

Koidu Holdings diamond plant near Koidu.

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SLDC report noted that ‘follow-up explorationwill use geophysics and an excavator for pitchingand trenching of identified gold and diamonddyke or pipe targets.’ A GoSL report says this is‘incomprehensible when you consider that the[SLDC’s] license is basically reconnaissance andtargeting — mainly [the] aeromagnetic survey.’The report called for ‘clarification’ from SLDC, toinclude a proper definition of ‘aeromagnetic sur-veys.’ None appears to have been officially pro-vided, and GoSL officials were defensive whenqueried about this by the Annual Review. In ane-mail note to the Annual Review, however,SLDC’s London-based manager, David Gadd-Claxton, noted that an aeromagnetic survey is‘an airborne magnetic survey designed to lookfor magnetic signatures of potential Kimberlitebodies in the earth.’ Gadd-Claxton claims thatthis survey has now been completed ‘at a notinconsiderable cost.’ He added, ‘We have spendin excess of $5 million on’ the program.

In June 2005, Moseray Fadika, the SierraLeonean General Manager of SLDC’s North WestDiamonds and Gold Ltd., notified government ofthe discovery of ‘minerals not specified’ in thecompany’s license, and asked for an amendmentof the license to cover those minerals. The gov-

ernment subsequently approved ‘exclusiveprospecting licenses’ (EPLs) and one explorationlicense covering 142 square miles in TonkoliliDistrict (covering iron ore, rutile and bauxite, aswell as diamonds), and another covering 1,316square miles for two years in southern and east-ern Sierra Leone. Total annual payment for thesewas put at $178,400, but Fadika asked for areduction (figure not stated) in view of the factthat the company would be investing $2.5 mil-lion during the first phase of its investigations.

Residents in Kenema and Kono Districts claimthat SLDC engages in small-scale mining, andthere have been reports of clashes betweenSLDC employees and residents, as well as withMMOs. Both the government and SLDC dismissthese claims, but Gadd-Claxton told the AnnualReview in September 2005 that SLDC plans toembark on ‘large scale alluvial mining opera-tion[s]’ and that the company is now trying togenerate ‘near term cash flow’ for this. Gadd-Claxton says that SLDC will employ 600 to 800people in the operation.

The company claims to be spending half a mil-lion dollars a month in Sierra Leone. This expen-diture is difficult to track, although the salary forits Sierra Leonean General Manager runs to six

figures (in US dollars.) A scheduled meetingbetween Gadd-Claxton and the Annual Reviewin London to discuss some of these issues inOctober 2005 was cancelled at the last minute.Gadd-Claxton did not respond to further emailinquiries after that.

In January 2005, SLDC was floated on the AIMmarket of the London Stock Exchange with theaim of raising £100 million for its Sierra Leoneoperations. The announcement triggered pressreports focusing on Timis’ controversial past,including two admitted drug convictions, andother unsavoury allegations. A British MP wasalso criticized for improper links to the company,in the form of lobbying and improper payments.To paraphrase an internal review of Timis’ recordwith respect to another of his companies, RegalPetroleum, Timis’ ‘prior conduct’ may have ‘nomaterial adverse effect on [SLDC] and in particu-lar on the validity of its interest’ in Sierra Leone.Nevertheless, a little more transparency on thecompany’s operations in Sierra Leone would goa long way in reassuring locals that the companyreally is ‘on the move’ in ways that will benefitthe country.

Giving Back to MiningCommunitiesSierra Leone’s diamond mining areas are among the poorest and leastdeveloped in the impoverished country. This is partly because the dia-mond mining sector seems to attract mainly fly-by-night investors withlittle interest in reinvesting profits into other productive economic activi-ties in the diamond areas. Most miners and dealers are in effect‘strangers’ who simply move their money back to where they came from.In view of this, NGOs and donors in 2000 pressured the government todevise a scheme whereby a percentage of what accrues from official dia-mond exports would be sent back to the communities where the dia-monds were mined.

On 20 December 2001, the Sierra Leone government established theDiamond Areas Community Development Fund (DACDF). The govern-ment approved the allocation of 25% of revenue accruing fromDiamond Export Taxes (i.e. 0.75% of total export value) to a fund for thedevelopment of diamond mining communities. As a result of this deci-sion, the Gold and Diamond Department (GDD) was asked to deposit

this proportion of Diamond Export Taxes into an ad hoc account with theSierra Leone Commercial Bank.

Matching arrangements are unclear, but by the end of 2004, 54 chief-doms with a combined 2,313 licenses had benefited from the fund. Atotal of nearly $1,923,000 has since been paid out to mining chiefdomsby the government, almost $850,000 in 2004 alone.

Continued on page 12

Copyright: Partnership Africa Canada, February 2006

Graphic Design: Marie-Joanne Brissette

ISBN: 1-894888-91-X

Diamond Industry Annual Review: Sierra Leone 2006

The disbursement of funds, however, and community capacity to imple-ment and monitor projects, has provoked controversy from various quar-ters. The fund targets those chiefdoms where diamond mining takesplace. Chiefdoms benefit according to the number of diamond mininglicenses issued and the value of legal exports overall. This, of course, rais-es an argument that a chiefdom with, say, 20 licenses but with highvalue diamonds might contribute more to export tax than a chiefdomthat produces less valuable stones but has more mining licenses.Chiefdoms, however, get added rewards for ‘special stones’ – stones ofextraordinary value.

No official rule was made about how DACDF funds were to be used bychiefdoms, but it was generally understood that they would go to proj-ects that would enhance social and economic development in diamondmining communities. Priority was placed on the following components:

• Community infrastructure: schools, health centers, markets, roads,bridges, water supply, waste disposal, community centres (barries) orcourt houses;

• Community agriculture, especially post-harvest crop-processing (dry-ing floors and storage facilities);

• Vocational skills training centres.

Initial management of the funds, mostly in the hands of chiefs who werejust returning to their chiefdoms after years of displacement and dispos-session during the war, was problematic. Anticipating this, the govern-ment in 2001 sought to establish a set of criteria. Proposals about howthe funds were to be used, with clear project aims and objectives, wereto be submitted before the funds were disbursed. Additionally, a techni-cal team answerable to a sub-cabinet committee was proposed as anoversight body, to approve community proposals and, where necessary,to provide technical assistance to communities. This proposal wasdropped after donors and NGOs complained that such a bureaucraticbody would create a barrier to the ‘urgent’ distribution of funds – codedlanguage suggesting that officials themselves might divert the funds.

By 2002, it was clear that a number of chiefdoms were not effectivelyutilizing the DACDF fund. In 2003, a coalition made up of a number ofNGOs and government line ministries (the Ministry of Local Governmentand Community Development and the Ministry of Mineral Resources)engaged in series of activities to ensure that the DACDF would be moreeffectively utilized by the recipient chiefdoms.

Problems continued, however, and government suspended further dis-bursement of the funds at the end of 2004. The funds continue to bedeposited in the Sierra Leone Commercial Bank.

1 PDA, The Diamond Sector Financial Constraints, June 2003.

2 USAID: http://www.usaid.gov/sl/sl_democracy/news/031001_pda_launch/

3 IMF, June 2005: http://www.imf.org/external/pubs/ft/scr/2005/cr05194.pdf

Notes

This Annual Review is co-published byPartnership Africa Canada and the NetworkMovement for Justice and Development. Bothorganizations wish to thank the many peoplewho provided the time and information need-ed to make this Annual Review possible: TheMinistry of Mineral Resources and the Goldand Diamond Department provided valuabletime, information and advice. We would alsolike to thank John Kanu, Mark White, DavidTam-Baryoh, Jan Ketelaar, Sallieu Kamara,Abass Kamara, Joseph Rahall and the manyothers who helped to make this report possi-ble.

The Diamonds and Human Security Project ofPartnership Africa Canada is supported by theCanadian International Development Agency,the British Department for InternationalDevelopment, Development and Peace, theInternational Development Research Centre,Foreign Affairs Canada, DevelopmentCooperation Ireland, the CanadianAutoworkers Social Justice Fund and others.

Further information can be found at the fol-lowing website:

Partnership Africa Canada (PAC)www.pacweb.org

Network Movement for Justice andDevelopment (NMJD)www.nmjd.org

PAC can be reached at: info@pacweb.organd NMJD can be reached at nmjd@sierratel.sl or nmjd@nmjd.org

Photo Credits & Copyrights:

Partnership Africa Canada and NetworkMovement for Justice and Development

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