MAKING DIAMONDS WORK FOR THE ECONOMY
Economy

PRIVATE SECTOR INITIATIVE COULD BE THE KEY TO UNLOCKING THE POTENTIAL OF THE COUNTRY'S VITAL MINING SECTOR

In their own WORDS ALTHOUGH THE Angolan diamond industry is dominated by the state through the national concessionaire agency Endiama, the government realizes that private sector participation provides the dynamics needed to jump start mining operations that for so many years have been a drain on the nation's economy rather than a stimulus.

Strict mining regulations aimed at controlling the proliferation of the so-called conflict diamonds have whittled down the sector to a handful of respectable companies, the most successful being the Angolan Selling Corporation, or ASCORP, jointly owned by the government and private players. According to Angolan law, all diamond trading must be undertaken through Endiama or a proxy company appointed by Endiama, a role that ASCORP has filled since it was created in February 2000 with state and private financing. ASCORP also assists the government program aimed at registering illegal diamond miners. "We feel that if we register the illegal miners and qualify them to work with a company that has an agreement with the state then we can crack down on the dealers of these illicit minerals and assist the government in terms of revenues and the flow of diamonds," explains ASCORP president Firmino Valeriano.

According to Mr. Valeriano, ASCORP's three main objectives are "to fight illicit diamond traffic as set down by United Nations resolutions, increase revenues to the state budget, and reinvest the profits into other areas of industry, because diamonds are a non-renewable resource." ASCORP's private funding comes from one of Angola's most respected businessmen, Uzbek-born Lev Leviev, who in 1997 helped rescue the Catoca diamond project with a US$70 million investment and turned it into one of the world's most prosperous mining operations.

Mr. Leviev is today the largest private diamond manufacturer in the world, with diamond polishing plants in Russia, India, South Africa, Ukraine and Armenia, as well as eight marketing agencies around the world. Thanks to Mr. Leviev's funding, in the first 11 months of ASCORP's existence, the Angolan diamond industry contributed US$60 million to the national budget, hundreds of percentage points higher than in any previous year. A good chunk of those revenues reflects the continued success of the Sociedade Mineira de Catoca, which along with its partners Endiama, Almazi Rossi-Sakha, Daumonty Financing and Odebrecht operates the highly profitable Catoca diamond project in the central Angolan province of Lunda Sul.

Catoca employs some 1,500 people and, unlike most mining projects in Angola, Catoca's operations have never fallen into rebel hands. In 2000, Catoca contributed about half of the US$70 million the government earned from the diamond industry, and according to the company's general director, JosÚ Manuel Augusto Ganga Jr., production is expected to nearly double from 1.8 million karats to 3.2 million by the year 2003.

"Angola has very high diamond- producing potential, so much so that it cannot even be properly quantified," Mr. Ganga stresses. "But what Angola needs is partners whose interests also include the social development of the country. The diamond industry needs financing not only to conduct detailed geological studies of the potential, but also to get the sector up and running. The business opportunities in the industry here are end-less."

The largest contributor to the government's development plans after Catoca is the alluvial diamond-mining project Chitotolo in north-east Angola, which also includes Endiama in its list of partners. "Chitotolo is the major contributor to the government, excluding Catoca, which mines kimberlite sites where the production level is far greater," notes Chitotolo managing director Na´m Martins Cardoso. He says Chitotolo's three partners-Endiama (35% and the exploration license holder), ITM Mining (50%) and Lumanhe (15%)- "recently authorized investments of more than US$5 million to procure new equipment and step up production at our mining area in Lunda Norte."

Chitotolo's production averages some 12,000 carats a month. "Diamonds have been mined in the region for 70 years and we are still achieving high production levels," Mr. Cardoso says. "The potential is so great that we are investing a great deal into prospecting and plan to expand the mining area."