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Mitsui Lunch-Time Forum: Blood Diamonds and Price Transparency
On March 20th, Martin Rapaport, Chairman of the Rapaport Group, which provides consulting services to the diamond industry, discussed the complex problems surrounding “conflict” or “blood” diamonds, whose sales are used to finance military struggles in Africa, and the potential business threat this poses to an industry that has always commanded a luxury premium in the marketplace.
Martin Rapaport (L) and Weissman Center Director, Terrence Martell (R)
In recent years, Rapaport, who publishes an influential industry newsletter, which provides market analysis and pricing data, has taken on a new role as a leading reformer in how diamonds are mined and sold. In the process, he is pushing the boundaries on the meaning of corporate social responsibility, especially in underdeveloped countries.
As Rapaport explained, conflict diamonds are mined and sold to finance an insurgent or invading army’s war efforts. While the diamonds may or may not be the cause of the conflict, the ease with which they are transported and their high value create an income stream that can easily be diverted to buy weapons and pay soldiers. Frequently, this makes military struggles more intense. “Diamonds are the death of Sierra Leone,” he said, making reference to the civil war that has raged there in recent years and is largely paid for by the profits from diamond mining. Conflict diamonds have also helped finance military struggles in the Congo and Angola.
In order to reduce the ability of irregular armies to commandeer the proceeds of diamond sales for military purposes, governments, NGO’s and the diamond industry agreed in November 2002 to set up the Kimberly Process. Like many efforts to promote fair labor practices or promote sustainable development, the Kimberly Process uses the mechanism of certification to signal to the market place that a product comes from a legitimate source. In this case, it confirms that the diamond for sale was not mined and sold to support military activities.
The need for something like the Kimberly Process is particularly important in the diamond industry, Rapaport said, because the price of diamonds is largely determined by emotion. If people come to associate diamonds with war and suffering instead of love and affection, the ability to command high prices could easily be hurt.
While the Kimberly Process is a step in the right direction, he argued that much more needs to be done. The Kimberly Process does not deal, for example, with labor conditions. Also, many diamond mining countries in Africa suffer from poor governance. “Who takes over when the government fails to protect its people?” he asked. In particular, he decried the shortcomings of the government in Sierra Leone.
Skeptical of the value of government aid programs that often do not work and can sometimes make matters worse, he said that private investment is crucial to create jobs and improve infrastructure in developing countries, but here he admitted that high levels of corruption make the risk of doing business very high. “These are all very complex problems,” Rapaport concluded.
- Story contributed by Edgar Acero
Please visit the Baruch Digital Media Library to view a full video of Mr. Rapaport's lecture.