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

UNCLAS SECTION 01 OF 02 FREETOWN 000205 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR AF/W, AF/EPS, EB 
 
E.O. 12958: N/A 
TAGS: EAID ECON EMIN SL
SUBJECT: SIERRA LEONE'S DIAMONDS REGAINING SOME SPARKLE? 
 
REF: 06 FREETOWN 586 
 
FREETOWN 00000205  001.2 OF 002 
 
 
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Summary 
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¶1. Sierra Leone's legal export of alluvial diamonds lost some 
luster in 2006 with declines from 2005 of 17.25% in value and 
12.31% in volume, ending seven years of dramatic increases. 
This decline was partially offset by a 3.99% rise in the 
value of kimberlite exports, but overall diamond exports were 
down 13.48% in total value.  Diamond exports appear to be 
regaining their sparkle in 2007 with a 25% increase in the 
value of alluvials in January/February exports compared with 
the same 2006 period,and an overall increase of 37% in value 
when kimberlites are factored in.  The 2007 figures are more 
significantly an 18% increase in value over January/February 
2005, which was a record setting year for Sierra Leone. 
Whether these increases can be sustained throughout 2007 will 
depend on numerous variables including diamond quality, 
quantity, and prices; expansion of kimberlite mining; and 
disincentives for illegal alluvial mining and smuggling.  The 
abysmal working conditions of alluvial diamond diggers remain 
problematic for Sierra Leone's stability, but are attracting 
world attention.  End Summary. 
 
-------------------- 
2006 - A Dismal Year 
-------------------- 
 
¶2. 2006 was a bad year for Sierra Leone's diamond exports 
with a 13.48% decline in value to $125,304,841 from 
$141,940,244 in 2005.  This was the first year that the total 
value of legally exported diamonds has declined since 1999 
when total exports barely exceeded $1 million. 
 
¶3. The average value per carat declined by 2.24% to $207.61 
in 2006, down from $212.26 in 2005.  However, the principal 
cause for the drop in export value was a 10.79% reduction in 
the volume exported to 603,565 carats, falling from 668,709 
carats in 2005.  Alluvial (riverine) production declined in 
value by 17.25% in 2006 to $101,857,434, compared with 
$119,429,528 in 2005.  This reflects a 12.31% decline in 
legally exported production from 552,044 carats in 2005 to 
491,526 carats in 2006, and 4.4% reduction in value per carat 
from $216.34 in 2005 to $207.23 in 2006.  Kimberlite 
(volcanic stem) exports actually rose in value by 3.99% in 
2006 to $23,447,407 from $22,510,716 in 2005.  This increase 
was due to a 7.08% rise in value per carat to $208.28 in 2006 
from $192.95 in 2005 despite kimberlite production falling by 
4.13% to 112,039 carats in 2006 from 116,665 carats in 2005. 
 
¶4. Given the history of diamonds in Sierra Leone, illegal 
smuggling of larger, better quality diamonds bypassing the 
Kimberley Process is immediately suspected for the decline of 
alluvial exports in 2006.  According to a specialist in 
USAID's Integrated Diamond Management Program (IDMP), other 
factors may be at play.  Diamond production was somewhat 
disrupted in 2006 by the cancellation of many small scale 
diamond licenses that were reallocated to larger mechanized, 
mainly foreign, private sector operations that did not go 
into full production during the year.  This change in the 
sector might also have led to former license holders engaging 
in illegal mining and smuggling.  There was a dearth or new 
diamond mining areas opening up, and evidence of falling 
production in existing alluvial mining sites.  An exodus of 
Lebanese diamond dealers from the traditionally productive 
Koidu area suggests that those fields are being depleted. 
The imposition of 30% income tax on diamond exporters may 
have led to some of them bypassing the Kimberley Process for 
their higher value diamonds.  According to a leading Lebanese 
diamond exporter, the income tax dispute in early 2006 
affected alluvial exports for the entire year. 
 
-------------------------- 
2007 - Diamonds Rebounding 
-------------------------- 
 
¶5. Diamond exports have rebounded during January/February 
¶2007.  Their total value has increased by 37% to $21,918,026 
as compared with $18,506,099 during the same period in 2006. 
Alluvial diamonds, which usually have a high gem quality 
content, have increased by 25% in value to $16,001,634 thus 
far in 2007 as compared with $11,945,411 in 2006.  Alluvial 
 
FREETOWN 00000205  002.2 OF 002 
 
 
production has improved by 17% to 70,101 carats and in price 
by 15% to $228 per carat in January/February 2007 when 
compared with 2006 figures.  Kimberlite mining, which is more 
tightly regulated than alluvial mining, has improved even 
more in 2007.  There was a 33% increase in total value to 
$6,983,409 over 2006, based a dramatic 104% increase in 
production to 47,685 carats despite a 35% drop in price per 
carat to $146 as compared with January/February 2006. 
Although kimberlite diamonds fetched only a per carat average 
of $102 in January 2007 due to their poor quality, higher 
quality kimberlite exports in February brought an average of 
$265 per carat.  According to an industry insider, this may 
be because Koidu Holdings, the sole kimberlite company, has 
begun to take kimberlite stones from a new site in Tongo 
Fields. 
 
¶6. After a dismal 2006, the improved figures thus far for 
2007 have returned some sparkle to Sierra Leone's diamond 
sector.  Compared with January/February 2005, which was a 
record setting year for Sierra Leone, the total value of 
legal exports is up by 18% based on a 16% increase in carats 
produced and a slight increase in price per carat.  Whether 
Sierra Leone's volume of legal exports can be sustained 
following last year's drop-off remains to be seen.  The 
country's leading alluvial diamond exporter has told the 
Ambassador that he expects 2007 to finish about equal to 2006 
despite the strong start. 
 
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Comment 
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¶7. After a year in which Sierra Leone's image has been 
battered by the "Blood Diamond" film and various 
documentaries including the History Channel's "Blood 
Diamonds" and CNN's "Blood on the Stone," the significant 
increase in Kimberley Process compliant exports is a positive 
development indeed for the diamond sector and for the country 
itself.  Despite this good news the working conditions for 
alluvial diamond diggers remain abysmal.  However, the 
attention being given to their exploitation by USAID's IMDP 
and the world media should improve their situation.  At a 
minimum, the Diamond Areas Community Development Fund 
(DACDF), which assists diamond producing communities from a 
portion of the 3% export tax on alluvial diamonds, should 
increase from the $141,385 available in 2006.  Any increase 
in the DACDF will benefit stability in Sierra Leone since 
diamond community discontent contributed to the conflict 
diamond situation during the civil war.  End Comment. 
HULL