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CASE NUMBER: 294
CASE MNEMONIC: ANGDIAM
CASE NAME: ANGOLA DIAMOND MINING
A. Identification 1. The Issue While Angola remains one of the poorest and worst war ravaged countries in the world it is blessed with an abundance of natural resources such as oil, gold, diamonds and fertile land. The Angolan diamond trade has a complex history encompassing cold war interests and rampant corruption. Diamond mining in Angola is a pivotal issue because its level of success will determine the countries future towards democracy and peace. In the background remains the environmental impact that the unregulated mining for diamonds is causing. This will continue to be overlooked as long as the practice provides the much needed revenue for the crippled country. Until the countries political problems are sorted the region will remain semi autonomous threatening the safety of the 7,000 strong United Nations Angola Verification Mission (UNAVEM III) and the 1994 Lusaka peace talks and possibly the world diamond industry. 2. Description Angola is the third largest country in Sub-Saharan Africa, encompassing approximately 1.3 million square Kilometers, a population of approximately 11.2 million and an annual population growth rate of about 2.7%. It is also one of the poorest countries in the world with an estimated average life expectancy of 45 years and approximately 65% of the population living in absolute poverty. Plagued by more than thirty years of war first with its Portuguese colonial rulers and later because of internal ideological differences Angolan is now emerging as a country in economic and social ruin. Although the civil war has ended bloodshed continues for much of the population because the country is plagued by more than 10 million land mines which to date have lead to more than 100,000 deaths and at least 15,000 amputees (See LANDMINE case). The Republic of Angola emerged from its Portuguese colonial rule in 1975, but was immediately thrown into a savage civil war as the Movement for the Popular Liberation of Angola (MPLA) and the National Union for the Total Independence of Angola (UNITA) attempted to gain the upper hand and rule the country. During the 1980's Angola became the favorite of a number of prominent congressmen, such as Senator Jesse Helms, and was targeted as a spot to fight the Russians and the scourge of communism in far off lands. Subsequently, it became a cold war satellite country which benefited little from the fuel which both the U.S. and the U.S.S.R. put into its seemingly endless civil war. At the Cold waržs height the U.S. spent large sums of money in covert operations, arms shipments in support of UNITA while the U.S.S.R. did the same for the Marxist leaning MPLA. Both warring Angolan factions also received support from foreign troops. In the case of UNITA South African troops were used and in the case of the MPLA Cuban troops were used. As the cold war dissipated so did the super poweržs attraction to Angola, but the civil war, starved of external assistance, raged on. Instead of relying upon the U.S. and Russia the two warring sides fueled their armies by exploiting their own natural resources, the MPLA through Angolažs vast oil reserves, and UNITA through the mining and selling of diamonds. In 1991/92 a brief interlude to the war occurred following the Bicesse accords which was brokered through a joint international effort from the U.S., Portugal and Russia. The period saw a return to normal relations between the two sides and a internationally recognized free and fare presidential election. However, Dr. Jonas Savimbi, the leader of UNITA, following a narrow victory by the MPLA claimed that the election was rigged and the country was thrown back into civil war. The post Bicesse accords war was the most brutal that Angola had felt in its protracted thirty year war. Factories, banks, schools, and health centers were further destroyed and left inoperable. The level of destruction can clearly be seen by the 22.6% decrease in GDP and the 11 fold decrease in the countries currency (Kwanza (NKz)) during 1993. In addition to the deterioration of the basic infrastructure the reduction of health services have left Angola with poor water and sewage systems which in turn have led to a huge increase in endemic disease and thus Angola is left with one of the highest infant mortality rates in the world, 209/1000 live births. The 1994 Lusaka brokered cease fire may have ended the hostilities, but each sidežs claim to their respective resources has not dissipated. The internationally recognized government of Angola, the MPLA, still controls the countries oil reserves, accounting for over 90 % of the countries GNP, and UNITA continues to control the countriesž diamond reserves. The division between UNITA and the MPLA concerning the countries major resources remains a sticking point for the proposed integration of both sides into a united government and military. Therefore, the issue of laying the groundwork for more environmentally friendly diamond mining techniques will, for the time being, remain insignificant to Angolan policy makers. Mining specialists divide the African continent into two sectors; South Africa and the rest. The distinction is made because South Africažs mining industry has been developed by a technologically advanced, first world economy. Angola, however, despite its rich resource potential, has languished in a morass of nationalizations, war, corruption and political disunity stunting any attempt to fully realize the countriesž vast diamond potential. Mining experts consistently agree that the country has the potential to become a major force in the production of gem quality diamonds. Therefore, following the longest period of peace in post independence Angolan history, many mining companies and individuals alike are clambering to get a piece of the Angolan diamond pie. Diamonds were first discovered in Angola in 1913 and the major identified resources to date are located in the remote Lunda Norte province near the boarder with Zaire. Angolan diamonds are found in two areas, alluvial diamonds, which are washed out from volcanic pipes known as kimberlites, and kimberlite pipes. Kimberlite diamond mining is the most profitable area for large scale mining and to date more than 600 such pipes have been discovered. However, the cost of Kimberlite mining is great and therefore large mining companies have been reluctant to undertake such investments considering Angolažs volatile economic and political history. The countriesž diamond reserves are considered extensive and particularly marketable with approximately 70% classified as gem quality, 20% as near gem quality and only 10% as industrial. The disturbance of the civil war, in which the diamond mines were captured by both sides on more than one occasion, has left official diamond production at less than one half of the level achieved before independence in 1975. Unofficial levels are unknown, but considered to be substantial because diamonds were one of the few resources that UNITA had to buy weaponry. Subsequently the tightly controlled world diamond market has been skewed in recent years with such large numbers of unaccounted for Angolan diamonds flooding the market. In accordance with policies set out by the International Monetary Fund and the World Bank the Angolan government began to liberalize its economic policies and move to a more market orientated economy in the early 1990s. Consequently, the government passed law 2/91 which has allowed foreign mining companies to apply for and be granted mining concessions. The law also permitted individual Angolans to do the same and thousands have flocked to the region to try their hand at diamond mining. In addition, the most recent round of peace has added to the diamond rush problem because it has enabled Angolans greater freedom of movement and consequently thousands more people to reach the diamond areas. A number of newspaper reports have described the region as resembling a žwild westž type place where corruption is rampant and law and order is unenforceable. The reports describe gangs of diggers and dealers smuggling large quantities of diamonds out of the country through neighboring Zaire where they are then dispersed throughout the world. In a country where unemployment is over 40% the actions of the hoards of prospectors is not surprising. For the last forty years the diamond giant De Beers, through its London based Central Selling Organization (CSO), has held a virtual monopoly on the diamond industry by controlling the sales of some 80 percent of the worlds diamonds on behalf of the industriesž major producers. However, De Beers, in recent years, has lost control of a sizeable portion of its market share as major diamond producing countries such as Russia and Angola have realized their bargaining position and sought better deals from De Beers by threatening to sell outside of the CSOžs artificial price level. This combined with the fact that UNITA smuggles more than $200 million a year in diamonds onto the world market has the diamond industry in a flux over the possibility of world diamond prices plummeting as the market is flooded by excess diamonds. With the world diamond market undergoing such a monumental transition it is unlikely that mining companies will be willing to invest in the Angolan diamond regions to the level that is required for the current environmental degradation to stop and the economy of Angola to start. The development of the Angolan diamond industry is directly linked to the ability of foreign direct investment to increase its efficiency and production. Private investment in Angola has been hampered by the civil war and the uncertainty felt by many firms as to the safety of their investments from government nationalizations and a general lack of law and order. If the current cease fire holds and UNITA and the MPLA manage to successfully implement a united government foreign investment will continue to trickle in slowly to test the validity of the peace. However, the government continues to attract long term private sector investment in the diamond sector which one day will bring with it the most technologically advanced and environmentally friendly equipment and procedures. Currently three international companies are investing in Angolažs diamond industry, Odebrecht of Brazil, the South African diamond giant De Beers and Almazi Rossii-Sakha, a Russian company. The investments, to date, remain in their first phases because of the countries political instability, but they offer the only chance of a solution to the environmental problem in the diamond region. The instability of the region also threatens the success of UNAVEM III. There have been countless reports of cease fire violations and attacks on both U.N. and international aid agency personnel in the region. The U.N. Security Council has threatened to pull UNAVEM III out of Angola if the violations continue. However, both the MPLA and UNITA do not have complete control over their forces because many of their former officers have taken on the role of war lords attempting to make quick profits while the level of confusion permits. If the Angolan authorities do not take control of the diamond regions in a timely fashion the U.N. will certainly pull out and with it Angolažs prospects for peace. To date, due to lack of government resources and international access, the seriousness of the environmental problems in Angolažs diamond region have not been fully established, but they are presumed to be great because of the lack of government intervention. For the last two decades diamond mining activities have focused on quick revenues to fuel the civil war. This has resulted in the use of outdated and environmentally damaging mining procedures and equipment. At present the major environmental damage resulting from diamond mining is the diversion of rivers to allow for the mining of alluvial diamond deposits. After the mining is completed, the rivers are not redirected to their original courses which in turn results in the pollution of waters and destruction of surrounding flora and fauna. The mining activities also degrade the surrounding land by increasing atmospheric air pollution, contaminating surface and ground water and increasing soil erosion and leaching. The pollution is, in the most extreme cases, leading to desertification and permanently changing land use from agriculture to waste rendering it useless to traditional inhabitants when the diamonds have all been mined. In the short run the inhabitants of the region are suffering from sickness and disease related to contaminated drinking water supplies. Such diseases include dissintry, Malaria, schistosamiases and Biomphalaria pfeiffer. The most recent mining law no. 1/92 on geological and mining activities stipulates the paying of compensation for damage caused by mining. However, with the shaky political situation, and the fact that UNITA continues to control the large majority of the diamond region, there is little inclination that the government either wants to or even can enforce such legal requirements. Further complicating the problem is the shortage of trained individuals in the Angolan government capable of monitoring and analyzing the environmental effects of diamond mining. The government recognizes the importance of assessing the environmental impacts of diamond mining, in part to improve productivity and also to protect the fragile ecosystem, however, the country is crippled by foreign debt from years of war which brings into question whether it will choose the environment over profit. The discovery of diamonds should be seen as a benefit which will bring wealth and prestige. However, in the case of Angola diamonds are a curse which fuel greed and threaten the very existence of the country. The Angolan diamond mining situation is a complicated case in which the future of peace in Angola is closely tied. Without peace in the region the U.N. will pull out and without the U.N. the country will most likely return to war. A return to war will not allow for the much needed foreign investment in the diamond region and the environmental damage will continue unabated. The detrimental affects on the environment caused by diamond mining will be the last of the problems to receive an adequate solution in a country which is paralyzed by many other pressing issues. 3. Related Cases BOLGOLD Case BRAGOLD Case COPPER Case TRAIL Case SIERRA Case YELLOW Case BOLGOLD Case Key Words: (1): Domain = AFRica (2): Bio-geography = TROPical (3): Environmental Problem = POLL 4. Draft Author: Sean D. Morris, May, 1996 B. Legal Clusters 5. Discourse and Status: DISAGReement and INPROGress There are four major actors involved in this case: The opposition party UNITA has controlled the diamond rich regions for a number of years now. Following the end of the Cold War UNITA mined the alluvial diamonds to fund their war effort against the MPLA, therefore the region and the diamond deposits are of strategic importance to UNITA. Thus, following the most recent round of the peace talks (Lusaka accords) UNITA is using the region as a bargaining chip for further concessions from the government of Angola. In this regard the subject of pursuing more environmentally friendly mining techniques has not been broached. The MPLA's (government of Angola) agenda towards reintegrating the diamond rich region into the country has two main objectives. Firstly, the MPLA must unite the country if it is to successfully bring peace and prosperity back to Angola because Lunda Nortežs current renegade province status is a major problem in the ongoing peace talks. Secondly, the MPLA must have control of the diamond resources if it is to institute a policy of rehabilitation and reconstruction for the country. Diamonds constitute the second largest export for Angola after the petroleum sector and thus are a lynch pin for the future of the countries beleaguered economy. The subject of instituting more environmentally friendly mining techniques will continue to be ignored by the MPLA until the dispute with UNITA is resolved. Those companies and individuals that are currently mining in the region are adversely affecting the environment with their techniques. Rivers are being diverted causing dislocation of people and vast areas of land are being ruined with spoil hills and dredging ponds. In addition, the water table is being polluted and thus drinking water has become contaminated causing sickness in the mining communities, local villages and indigenous wildlife. Until the problems between UNITA and the MPLA are resolved and regulations can be instituted the mining techniques will continue to adversely affect the region. The local population will continue to be displaced from the mining areas, but ultimately will not be adverse to the changes because the mining is providing a source of much needed employment. In the long term when the country is able to provide regular employment in more traditional sectors such as agriculture and a regulatory body institutes environmental laws, there will be dissatisfaction from the local population. However, in the short term those causing the current environmental damage with their relaxed mining techniques are also employing the disadvantaged locals. 6. Forum and Scope: ANGOLA and UNILAteral With the current and ongoing peace negotiations between both UNITA and the MPLA mining regulations, with the end goal of protecting the environment, will not proceed any time soon. Law 2/91 has created a number of problems because the increase in the number of small scale miners will make it more difficult for a future united Angolan government to regulate mining activities. Incentives for both mining companies and small scale miners will need to be developed by the government of Angola if new environmental techniques are to be successfully implemented. 7. Decision and Breadth: 1 The international community is not concentrating its efforts towards changing the current mining practices because of the importance of the ongoing peace talks. However, when the two sides do come to a final agreement organizations such as the World Health Organization, the World Bank and international environmental groups such as Green Peace could conceivably become involved to help a unified Angolan government rectify the situation. 8. Legal Standing: Law Angolan geological law no. 1/92 stipulates that mining operations causing environmental damage must pay some form of compensation. However, no enforcement mechanism currently exists because of the current political situation. C. GEOGRAPHIC FILTERS 9. Geography: Continental Domain: AFRICA Geographic Site: Southern Africa Geographic Impact: ANGOLA 10. Sub-National Factors: YES The more than twenty years of civil war in Angola has divided the country to the point that many question if it can ever again be united. The current disagreement between UNITA and the MPLA concerning the diamond regions of Lunda Norte high lites the countries division. The region has been likened to a bygone age of the American žWild Westž where the rule of law is not obeyed and neither side has complete control over the actions of the miners. 11.Type of Habitat: TROPical and DRY D. TRADE FILTERS 12.Type of Measure: LICENsing To date, because neither the MPLA nor UNITA are in complete control of the area, little if anything has been done to address the situation. The licenses that have been issued pursuant to law No. 1/92 have only intensified the problem by increasing the number of small mining operations and the logistical problems of administering such large numbers of people. 13. Direct vs. Indirect Impacts: DIRect 14. Relation of Measure to Impact a. Directly Related to Product: YES Diamond b. Indirectly Related to Product: NO c. Not Related to Product: NO d. Related to Process: YES POLLution Land [POLL] 15. Trade Product Identification: DIAMOND The majority of diamonds are traded in the rough because UNITA does not have the capacity to refine the large numbers that it is mining. However some are refined to increase their marketable price. 16. Economic Data The importance of the diamond industry on the rehabilitation of the Angolan economy can be shown by the fact that in 1994 diamonds constituted the second largest product for exports ($96 million) behind oil ($2,821) for the Angolan economy. This figure was lower than previous years because of disruption in production caused by the civil war. 17. Degree of Competitive Impact: MEDIUM 18. Industry Sector: Mining (M) 19. Exporter and Importer: ANGOLA and Many E. ENVIRONMENT CLUSTERS 20. Environmental Problem Type: Pollution Land [POLL] The local population in the diamond region is at risk from the mining activities as rivers are rerouted. This causes increased silting and pollution in the rivers which in turn pollutes the drinking water spreading dissintry, cholera and an increase in the number of mosquitos carrying malaria. In addition, the degradation of the land and forested areas causes soil erosion and exposer which in turn depletes the fertility of the land for agricultural use. 21. Species Information: 22. Impact and Effect: HIGH and REGULatory Angola's diamond reserves are massive when the untouched Kimberlite sources are added to the equation. However, alluvial diamond reserves have been greatly depleted and the techniques used to mine the alluvial deposits have taken a great toll on the surrounding environment. As alluvial reserves further deplete large mining operations will move to the more expansive Kimberlite reserves, but small operations will remain and continue to pollute the surrounding land. 23. Urgency and Lifetime: MEDium and LOSS of Years 24. Substitutes: Synthetic It is conceivable that technology will create a synthetic substance that will resemble a diamond so closely demand for the real thing would rapidly decrease. This would cause the international market price for diamonds to plummet and most diamond mining operations to cease. F. Other Factors: 25. Culture: No 26. Human Rights: Yes The 1996 Human Rights Watch Report claims that UNITA is taking children, who were fighting against the MPLA, and forcing them to mine for diamonds rather than sending them to quartering areas as commanded by UNAVEM III. Because of the lack of law and order turf wars are ongoing between prospectors which are leading to many human rights violations. 27. Trans Boundary Issues: Yes Problems with Zairians surging over the border, mining and then removing the diamonds. Press reports have indicated that prospectors from all over the world are traveling to the diamond regions taking advantage of the regions lack of effective law enforcement. 28. Relevant Literature: African Conference on Mining Investment- Opportunity for Mining Investment in Angola, Denver, Colorado, USA, 6-9 June, 1994. Angola is the Focus of Hot Diamond Competition, African Business Dec. 1992 Angola Mineral Resources, Africa Research Bulletin, Jan.-Feb. 1992 pp. 10724 Angolažs Minerals: Miner Attraction, The Economist July 1, 1995 pp. 56-58 Diamonds in the Heart of Africa, Odebrecht Informa Sept./Nov./91 Diamonds - Scintillating Performance in Growth and Prices, by Harben, Peter, and Notstaller, Richard, March 1991 pp 35-47. Law on Geological and Mining Activities, The Peoples Republic of Angola, Jan. 17, 1994 Lure of Quick Riches Has Kept Peace Out of Isolated Region of Angola, The Washington Post, Feb. 16, 1996 The Lure of Diamonds, Newsweek, Nov. 9, 1992