Bloody Diamonds - Diamonds and Economic Development in Africa

Abstract: Diamonds are regarded to be one of the most valuable natural resources on earth, with an average rough diamond price of $71 per carat in 2000. This gives scope for great economic success in diamond abundant countries. Some of the worlds most diamond abundant countries are found in Africa, ironically also some of the poorest. In recent years it has been brought to the world’s attention that illicit diamond trade has helped fueling civil wars and conflicts in Africa. With this enlightenment followed volition to limit this source of funding and stop this steam of blood diamonds to reach the world diamond market and the Kimberely Process Certification Scheme (KPCS) was born. This paper studies whether diamond resources has had any influence on growth and development in a number of African diamond abundant countries during 1990-2005. Additionally the paper also investigates whether the implementation of the KPCS has helped to counteract the negative effects on growth that diamonds contribute to.Each country’s diamond abundance is put in relation to average growth and Human Development Index (HDI) to se if the relationship between diamond abundance and growth and development is positive or negative. Additionally the characteristics of the KPCS are scrutinized in order to detect features that counteract the negative influence that diamonds have on growth and development.The results obtained indicate that for a majority of the countries in the sample the relationship between diamond abundance and both growth and development is negative. Still not all countries follow this pattern. With the highest diamond abundance and the highest growth Botswana is the exception which proves the rule. Hence the conclusion to draw is that the existence of diamond resources seems to enforce growth and development either positively or negatively. Moreover, the regulations that the KPCS imposes on participating countries will help to check for those growth and development hampering activities that diamonds are involved in.