Whilst Kenya’s gemstone industry is mostly informal, the government is attempting to legalize and industrialize the sector.
By Catherine Howe
IMAGE: Courtesy of Base Titanium
The third largest producer of soda ash worldwide and seventh of fluorspar, Kenya is also home to a large cocktail of minerals and gemstones, including ruby, tsavorite, sapphire, several types of garnet and tourmaline. East Africa is one of the most prominent suppliers of gemstones worldwide but, despite an apparent wealth of precious stones, Kenya remains relatively underexplored and little data on the quantity and quality of resources present is available.
A push by the government to increase development of the extractives sector to account for 30% of GDP from a relatively low 1%, and a growing focus on small-scale mining activity, will see increasing attention shifted to Kenya’s gemstone industry. In particular, the 2016 Mining Act brings a much-needed update to the policy framework, and the upcoming airborne geophysical survey will provide the first step in increasing investor confidence by giving an indication of the quantity and quality of resources available.
Artisanal and small-scale mining activities
The dominance of small-scale and artisanal operations has created difficulty in capturing potential financial return and building data due to the informal nature of the activities and gemstone trading. Accounting for over 60% of annual gemstone production in Kenya, artisanal miners are largely inexperienced when it comes to market valuation and optimizing operations, and lack access to advanced technology and machinery.
If the scope of the operations and their output could be captured, there could potentially be a huge increase in returns from the sector. “Artisanal and small-scale mining is the future of the country when considering the strengths within the sector,” claimed Moses Njeru, CEO of the Kenya Chamber of Mines. “If not addressed, this type of mining could negatively impact the large-scale operators by interfering with the social license to operate or interfering with the geology of a particular area. However, if we are able to assist these artisanal and small-scale miners in formalizing their operations to become strong entities with an economic base, we will get more from the mining sector as a country.”
The Kenya Chamber of Mines has established six initiatives regarding the protocol against illegal exploitation of natural resources, and the formalization of informal mining activities is one of these. “The Kenya Chamber of Mines has approved plans aimed at assisting the artisanal and small-scale operators with the necessary information on making their operations more profitable by embracing practices offering better recovery, better methods and greater concern for the environment. This will lead to more sustainable operations and better economic gains,” added Njeru.
Access to market
A large portion of gemstones are traded informally, and many artisanal miners do not have access to fair-trade distribution. Equally, getting the stones to market at all can be a challenge for small-scale operators, particularly in an industry with a historically negative perception. Because there is currently no valuation procedure, gemstones are exported without appropriate taxation or correct valuation, which means both miners and the government lose money.
Small companies face many challenges when entering different markets, particularly when confronted with high import duties. “Some countries are much more accessible than others,” commented Diana Atieno, founder and managing director at Porini Gems. “The United States is the best market for us because gemstones are duty-free as one of the commodities under AGOA (Africa Growth and Opportunities Act). Regardless of the volume, I just need clearance from a customs broker, costing between $350 and $500. Some countries impose tax of up to 20%, which is a problem I would face exhibiting in London, for example, and is a strong deterrent as exhibitors can never be sure of business and whether the investment will pay off.”
Porini Gems mines tsavorite and tourmaline, but also trades other gemstones sourced from across East Africa, including tanzanite, diamonds, sapphire and rubies. The company attends many exhibitions and trade shows worldwide to raise the profile of gemstones sourced in Africa.
Set up to help artisanal miners find a market for gemstones, Thamani Group is focused on educating and disseminating information, and providing a voice for the miners. Originally established in 2012, the initial vision of the company was to educate on mineral knowledge, sustainable practices and regulatory frameworks and policies, and to provide value addition. The company also sought to facilitate access to capital and investment, and work on fair-trade distribution of the gemstones and create an awareness of colored gemstones particularly in the local African markets. As the mining act was being reviewed, the focus shifted from trade to policy and advocacy issues, and providing a voice for the miners unable to participate in these conversations. “We are deeply invested in unlocking value, not only for the communities we work in and the ASM operators that we work with, but also for the larger local and international gemstone market,” said Majala Maglui, Thamani Group’s CEO and founder.
Thamani Group has also partnered with the World Gem Foundation to provide affordable online career-oriented courses through the Kenyan Gem Academy for those interested in the gemstone industry and gemological education.
Atieno also cited certification as a key challenge, as it cannot be acquired in Kenya on an international level. “Porini Gems is currently the only company in the country with a Scannox planning system, which can carry out certification for gemstones,” Atieno stated. “The equipment also does laser mapping of rough or cut gemstones to give the best yield for faceting. With the current gem technology, a lot can be done to shape the industry in Kenya and bring it up to speed with industry trends. Sensitization of the industry and its products will be key in enhancing growth going forward.”
The new Mining Act
The 2016 Mining Act has gone some way in addressing the challenges of artisanal mining by formalizing activities. The first major revision since the 1940s, Kenya’s new Mining Act provides clarification on aspects such as royalties and valuation of minerals. “The new Mining Act in Kenya brings a great advantage particularly for the ASM sector – becoming formalized and legalized opens the door to financing and working effectively,” said Maglui. “The main barrier is that most financial institutions are still more risk-averse when it comes to exploration or ASM operations, particularly in minerals such as gemstones.”
Explaining that financial institutions generally have greater confidence in companies dealing with resources with a clear commodity price, defined market and clear variables for valuing the goods, Maglui continued: “Gemstones, however, are a luxury good, and price points vary considerably depending on market access. This makes it very difficult for financial institutions to lend capital towards production, machinery or working capital because they do not have a solid indication of the return on investment or debt repayment capability.”
Whilst the Mining Act is certainly a step in the right direction, a great deal of further support is needed to facilitate the growth of the gemstone industry. The key factor to address in terms of attracting foreign investment is data – more detailed information on the resources will give investors greater confidence that they will see financial return.
Increasing Kenya’s return: adding value before export
A large percentage of gemstones traded worldwide have been mined in Africa but are cut and traded overseas due to inadequate capacity and expertise. Because of the lack of value addition, Kenya is missing out on revenue that could be captured in-country. Kenya’s Ministry of Mining is,, however hoping to reduce the amount of raw gemstone exports with measures such as the establishment of a gemstone center in Voi, which is on track to open in mid-2017.
“Whilst most gemstones are mined in Africa, we are always seen at the lower end of the chain,” commented Atieno. “Other countries present a glamorous façade even though 60% to 70% of their gemstones came from Africa, and I would like to see African countries in general up their game and move from being solely producers to manufacturing and consuming.”
Porini Gems also plans to work with higher learning institutions and experts from institutions such as GIA and AGL to develop gemology courses within curriculums. Taita Taveta University, which recently received its full university charter status, is also pushing to become a center of excellence in mining education and training.
Kenya’s gemstone industry has been relatively neglected despite great potential. The perception of gemstones sourced in Kenya is generally very high, and it will be paramount going forward for the government to develop the sector sustainably, taking into account the entire value chain to maximize in-country return.