Economic environment of the diamond industry in Mozambique and Tanzania

Economic Environment of the Diamond Industry in Mozambique and Tanzania

The Economic Environment of the Diamond Industry

In Mozambique and Tanzania

Both nations of Mozambique and Tanzania are among the poorest globally, with each supported through foreign subsidies and foreign direct investment (FDI) (Tanzania, 2011). The relative levels of poverty however have led to political unrest in Mozambique and diamond smuggling to Zimbabwe, where gems are in high demand in that nations' economy which is rampant with information today

(Latham, Katerere, 2011). Due to the strength of its mining operations in aluminum and abundance of natural resources however, Mozambique's GDP growth rate is expected to reach 8.3% in 2010 according to the CIA Factbook.

Tanzania is the 16th highest ranked producer of diamonds globally, having one of the highest quality of diamonds produced in their mining operations of any on the African continent (Macklem, 2003). Paradoxically however, Tanzania has a negative balance of Payments, far higher Debt ($7.6B) and higher inflated (12% than Mozambique.

Economic Analysis

Both Mozambique and Tanzania are uniquely positioned to continually improve their economies given the support from foreign direct investment (FDI) and investment from multinational corporations (MNCs) in the infrastructure of both nations (Laffin, 2000). Both nations have for years concentrated on Corporate Social Responsibility (CSR) programs that seek to create greater competitiveness in the markets each sells into while also seeking to create greater investments in their respective infrastructures as well (Offenheiser, 2003). The stigma associated with the unethical practices in diamond trading, specifically "dirty" diamonds or those mined using slave labor (Economist, 2000) have in the past drastically reduced demand for Sierra Leone and Tanzania diamonds as well (Macklem, 2003).

The future direction of both economies is predicated on three critical economic goals being attained. Mozambique and Tanzania are reliant on investments from MNCs for their infrastructure, investment in education, and investments in IT systems and platforms to become more knowledge-based and less reliant on natural resources. These three catalysts are critical for the nations to capitalize on their diamond trade (Moldofsdky, 2004). Investing in infrastructure, education, and IT will also create more effective diamond trading networks further accelerating GDP growth and stabilizing inflation (Tanzania, 2011). For both nations to mitigate the risk of turning into a purely commodity-driven economy that must eventually rely on unethical labor to attain its ends (as is the case in Sierra Leone) (Economist, 2000) the judicious and effective management of MNC investment is critical. Table 1, Comparing Mozambique and Tanzania Economic Factors, shows comparisons of economic metrics over time and the forecasted values as based on the CIA Factbook data as the baseline. The political instability of Mozambique is a critical issue today and must be dealt with urgently through MNC-based programs that deliver on CSR-based goals. This has to be the path to this nation to gaining greater stability and economic growth needs to be based on capital investment in infrastructure, education and long-term investments in IT for the diamond industry to have a strong network to trade within.