Harare - Zimbabwe’s diamond revenues for the first two months of 2012 have been significantly below target.
According to an update by the Finance Ministry, diamond revenues for January and February were far below expectations.
“Diamond revenues amounted to US$5 million against a target of US$41.5 million for the two-month period,” Finance Minister Tendai Biti told journalists in Harare recently.
Zimbabwe’s diamonds were expected to flow into the international market in huge volumes following Kimberley Process Certification in November 2011. However, there have been no major auctions since then.
The Zimbabwe government has been banking on diamond revenues to consolidate and then boost economic growth.
Biti has planned a US$4-billion budget for 2012, with US$600m of this coming from diamonds.
Secretary-General of the COMESA Business Council, Trust Chikohora, said diamond revenues could boost capital expenditure in the long-term.
“Diamond money should be put into the fiscus and budgeted for in the normal course of business. The focus should be on capital expenditure, which government has not been able to do due to lack of fiscal space.
“The main areas in which the funds should be are on infrastructure development, which has a multiplier effect on the economy and is crucial for the growth of industry and commerce, including: electricity generation, rail transportation, water, coal production, and revamping of key economic infrastructure,” he said.
With just US$5m raised this year from diamonds, there are serious doubts that the annual US$600m target will be met. Failure would throw the wheels off the government’s capital expenditure plans for 2012.
Companies mining diamonds in Zimbabwe include Mbada Diamonds, Marange Resources, Diamond Mining Company, Anjin and Rio Tinto’s Murowa Diamonds.
Expectations are that diamond revenues will nurse the illiquid economy.
Government expenditure in recent years has been minimal because of a lack of fiscal space, which has protracted the liquidity crunch that was ushered in by the adoption of a multiple currency system in 2009.
The international diamond market is believed to have suppressed demand, as production is currently below peak levels. Market watchers say global diamond production fell about four percent to approximately 122 million carats last year, while the value of production rose around 25 percent to an estimated US$4b. At its peak between 2005 and 2006, global production – excluding Zimbabwe – stood at around 176 million carats.
The difference between the current and the peak value indicates that there is a market that Zimbabwe can tap into.
Meanwhile, despite the depressed revenues diamonds were the second-largest contributor to exports across all minerals in the first two months of this year, showing their increasing significance to the economy.