MADAGASCAR - TO BENCHMARK 8-11.p65

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MADAGASCARMADAGASCAR TO BEBENCHMARK FOR GLOBALGEMSTONE TRADE REFORM?The gemstone sector is a small niche globally, avoided by the large scale mining groups, and is suitedto small private, often informal, operators. Madagascar is the source of a significant portion of theworld’s sapphire production, and is rich in most other gemstones. However, the country’s gemstoneindustry remains opaque and much of the trade in this sector is illicit.his is not unique as much of gasy national withthe world gemstone trade links to bothlacks transparency, and to government anddate efforts to formalise its work- the World Bank.ings have met with limited suc- She has beencess. Regulation of the gemstone placed into aindustry in Madagascar faces an position where sheadditional hurdle in that this is a can facilitate thecountry that has only emerged development of therecently from decades of misrule. country’s miningHowever, in the fluid environment sector, and whileof Madagascar’s re-emergence she says the fourthere also lies an opportunity to priority commoditytransform its gem- areas she isstone industry. This focusing on areGemstones mined in Madagascar, including somecould place the ilmenite, nickel,featuring inclusions in quartzite.country in a position to iron ore, and coal,set a benchmark for the gemstone sector is on her in Madagascar could be differentthe sector elsewhere, radar. because instead of the standardsuch as Zambia, career bureaucrats, the ...

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• Publié par: Faut
• Nombre de lectures: 22
• Langue: English

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MADAGASCAR

MADAGASCAR TO BE BENCHMARK FOR GLOBAL GEMSTONE TRADE REFORM?

The gemstone sector is a small niche globally, avoided by the large scale mining groups, and is suited to small private, often informal, operators. Madagascar is the source of a significant portion of the world’s sapphire production, and is rich in most other gemstones. However, the country’s gemstone industry remains opaque and much of the trade in this sector is illicit.

his is not unique as much of the world gemstone trade lacks transparency, and to date efforts to formalise its work ings have met with limited suc cess. Regulation of the gemstone industry in Madagascar faces an additional hurdle in that this is a country that has only emerged recently from decades of misrule. However, in the fluid environment of Madagascar’s reemergence there also lies an opportunity to transform its gem stone industry. This could place the country in a position to set a benchmark for the sector elsewhere, such as Zambia, where attempts to regulate its emerald industry have met with little success to date.

Nadine Ranorosoa, national coordinator of the projects to govern mineral resources in Madagascar.

Tom Cushman, driver of the World Bank’s initiative to formalise Madagascar’s gem stone mining sector.

In Madagascar the World Bank and the country’s new govern ment, which is com mitted to progress and development, is formulating the country’s new mining policy and law. This is being done through an initiative called Projet de Gouvernance des Ressources Minerales (PGRM), and which looks to use the minerals sector to galvanise economic growth in Madagas car. PGRM is being coordinated by someone with good credentials, Nadine Ranorosoa, a Mala

gasy national with links to both government and the World Bank. She has been placed into a position where she can facilitate the development of the country’s mining sector, and while she says the four priority commodity areas she is focusing on are Gemstones mined in Madagascar, including some ilmenite, nickel, featuring inclusions in quartzite. iron ore, and coal, the gemstone sector is on herin Madagascar could be different radar. becauseinstead of the standard career bureaucrats, the World The gemstone sector affects aBank has hired Tom Cushman to large number of people in Madaguide the programme. He is a gascar, with an estimated 500,000streetwise gemmologist and a people active in this sector in theformer gemstone dealer with country. With so many Malagasy15 year’s knowledge of nationals involved in miningMadagascar’s gemstone sector. gemstones, often using the simplest manual digging methods,In addition to his role as advisor, development of this industry isCushman was appointed to also seen as having the potentialmanage the Institute of to help meet the World Bank’sGemmologies de Madagascar, poverty reduction and developand he has helped build a mental goals. Madagascar’s GDPgemmology school that began has remained static since theteaching courses in October 2004. 1970s and the country has seenIt has been licensed by the little foreign investment over theGemmology Association ofGreat past decades, to the extent that atBritain. one point the country’s biggest source of income was funds fromJust about every gemstone other environmental NGOs.than tanzanite and jade can be found in Madagascar, and the All this in itself means little, ascountry’s diamond potential is also World Bankled initiatives havebeing taken seriously with five had a chequered track record ingroups exploring for diamonds in galvanising the sort ofthe country. These include the groundbreaking changes that aremajors, Rio Tinto, De Beers and necessary to have a real impactBHP Billiton, as well as a couple on the gemstone sector. However,of juniors, Diamond Fields Interna there is a real chance the scenariotional and Pan African Mining

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Corporation. The country’s diamond potential remains to be proven; two diamonds were recently reported to have been found in Madagascar, but there remains significant doubt as to their actual origin.

However, what is not in doubt is Madagascar’s role as a premier source of some of the world’s highest value sapphire gem stones. Sapphires are abundant across what is the world’s fourth largest island and have been found on what is described as the island continent for over a 100 years. They are found in alluvial gravel layers that are up to 3,000 metres deep.

“Madagascar could be the source of 10% or 30% of the world sapphire production at the mo ment, but no one really knows,” Cushman says. “But in its heyday one sapphire producing area in the country was producing stones worth about US$1 million a week, and there is no reason to assume this is not still the case today.”

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Antananarivo, capital of Madagascar, a country that is one of the world’s major producers of sapphires and other gemstones.

There were attempts to regulate the sector, under the previous regime. But these regulations led to a system where no new opera tor could get the paperwork approved to mine for gemstones. It led to the formation of what were known as ‘paper miners’. Genuine

miners of gemstones had to transact via these paper miners who fronted for them, for a fee, in order to register their production. Another law saw a ban on foreign ers buying gemstones unless it was through a Malagasy com pany, and the effect of these laws was to further push the gemstone trade underground.

“Today a lot of the gemstone trade continues to leave the country ‘sideways’ and part of our initia tives are aimed at legalising normal business behaviour,” Cushman says.

To this end legislation has just been signed into law whereby foreigners can now buy gem stones. Foreigners who wish to buy gemstones have to register, pay a small fee, and keep a list of their purchases. Those that do not deal through a Malagasy company then pay a 2% royalty based on the production bought.

“The tax has been kept to a very low level so as to encourage

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legitimate business activity,” Cushman says.

He is confident this initiative will work. “We are going to turn things around. There is a lot of interest and people are keen for us to make it work. One of the reasons is that while people who are 50 years old have done very well out of the existing system, those younger people, those who are in their thirties have not done so well, “ he says. “For the cost of 2% of their profit, those people will welcome the chance to operate without having to front through a paper trader, since overall it will save them money, and it will bring them into a system of legitimate trade.”

Beneficiation forms part of the overall initiative, and for example the 2% royalties tax is reduced to zero for polished stones.

“Madagascar produces a lot of gemstones, but has no cutting industry,” Cushman says. “We would like to change that.”

Cushman says, though, that gemstone beneficiation in Mada gascar will never compete with the massive hightech Chinese factories that employ 2,000 people

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each and cut cheap gemstones. Instead the aim in Madagascar is to set up people to cut the larger stones, and here Cushman envisages small cutting factories employing three to five people each. The World Bank has also eschewed the free duty export zone concept and is rather looking to empower small businesses that mine the gemstones to enable them to cut and sell their own jewellery. Plans to set up a jewellery school will be pro gressed in 2007.

The gemmology courses that Cushman is teaching cover a full spectrum. In addition to the eight month residence course aimed at training gemmology specialists who will train others, there will also be two week intermediate classes. These are aimed at production gemmologists, people who trade in gemstones, and will give those people the basic information to run businesses involving the gemstone trade. The next level down is also covered in the form of one day workshops throughout the country that will reach people who are mining gemstones, and teach them what to look for, as not all gemstones have value, and how to gain more value from their mining activity.

Gemologist training centre operated by the World Bank to provide Malagasies with skills in this sector.

“We are hoping to provide people across the country with the skills that will enable a number of them to use gemstones to ‘cut’ their way out of poverty,” Cushman says.

The mining code that is being drawn up is also taking into account the requirements of small scale miners. Madagascar has a system where mineral rights are allo cated in squares of 2.5 by 2.5 km, but someone mining gemstones with a pick and shovel does not need or want that size claim. And the cost of holding those rights is not trivial for a smallscale gemstone miner. The legislation is looking to take this into account by

allowing smaller blocks of 625 m by 625 m within larger blocks, so that largescale explorers and smallscale gemstone miners can coexist.

Marc Jobin a gemstone dealer and miner, based in Antananarivo, with a long time involvement in Madagascar’s gemstone sector is not quite as confident as Cushman about the potential of the World Bank initiatives to transform the industry. While he lauds the attempt he suspects that with gemstones also used in money laundering there will be significant inertia in formalising the sector.

“While Madagascar is indeed a treasure trove for rare coloured gemstones, the country’s mining sector will evolve far more mean ingfully through the involvement of large mining companies in large scale mining projects in other commodities. The gemstone sector is a niche industry run by small groups and families.”

Jobin says the sector can be further summarised in the fact that while there are thousands of junior listed groups exploring for a range of minerals globally, there is an almost complete dearth of such companies prospecting for gem stones. Gemstone prices have also not shared the good fortune of other commodities, and have fallen in real terms over the past 17 years.

"Commercial interest in natural untreated cut gemstones has in general declined over the years due to lack of production and there are only a few hundred collectors around the world who really understand and appreciate natural untreated gemstones.”

Marketing also plays a role, and compared with the large sums spent by De Beers and others in marketing diamonds, because of the small business basis of the gemstone industry very little is spent on marketing its products.

Like Cushman, Jobin can only hazard a guess as to the contribu tion of Madagascar to the world gemstone market, but agrees that

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it is significant. The most valuable gemstones in general are those in the primary green, red and blue shades, i.e. emeralds, rubies and sapphires. Jobin says that while Madagascar hosts a wide variety of gemstones, including emeralds, currently some 70% to 80% of the country’s gem industry by value is in sapphires. Fifteen years ago the majority of the value was in emerald and aquamarine stones, and before that quartz featured prominently. Rarity and size of the gem comes into it and depending on these criteria a five carat faceted top Kashmir sapphire can reach US$100,000 a stone. A top 5 ct faceted Malagasy sapphire might reach US$20,000  US$25,000 stone.

“Perhaps 20% or 30% of world sapphire production originates in Madagascar,” Jobin says. “In its heyday trade in sapphires from Madagascar was generating at least some US$2 to $3 million a month.” Almost none of this went through official state channels.

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Jobin says that the way the sector has evolved is that it is more profitable to let the locals do the mining and buy from them. He does operate three gemstone mines himself though, partially because of his speciality interest in a specific type of stone, quartz ite stones containing inclusions. The operations essentially consist of gang crews who work open pits using labour intensive methods. Because Madagascar is vast, gemstone production mostly consists of people finding these stones on the surface.

The sapphire trade is dominated by Thailand and Sri Lanka, while that of emeralds is dominated by Colombia, Zambia, India and Israel. People in this sector are expert at treating stones, which often includes impregnating them with plastic or glass to enhance their transparence. The gemstone industry has also suffered from the production of synthetic stones, and these are hard to spot. This is fairly widespread.

Jobin says: "In the 1970s, for example, the Soviet Union produced synthetic amethyst. As the cost of testing a synthetic amethyst is three times or more the value of the stone, theindustry suffered a great deal of damage.”

Jobin estimates that Gem trader and gem at that time 90% of stone miner, Marc Jobin. cut amethysts were synthetic and in general the cheap end of the gemstone industry is littered with artificially created stones.

Thus while the cheap end of the market has subsided beyond hope, at least in terms of its value as a mined commodity, and the gemstone sector as a whole faces challenges, Madagascar is shaping up to be the world’s most important testing ground for the future of this global industry.

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