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Viewing cable 08KABUL3276, AFGHANISTAN GEMSTONE OUTLOOK IN 2009 AND BEYOND SHINES

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Reference ID Created Released Classification Origin
08KABUL3276 2008-12-23 12:57 2011-08-24 01:00 UNCLASSIFIED Embassy Kabul
VZCZCXRO3498
PP RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #3276/01 3581257
ZNR UUUUU ZZH
P 231257Z DEC 08
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 6521
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS SECTION 01 OF 02 KABUL 003276 
 
DEPT FOR SCA/RA, SCA/A, EEB, EEB/ESC/IEC (GRIFFIN) 
DEPT PASS AID/ASIA/AA ELLIS, AID/ASIA/SCA 
DEPT PASS USTR FOR LILIENFELD AND KLEIN 
DEPT PASS OPIC FOR ZAHNISER 
DEPT PASS TDA FOR STEIN AND GREENIP 
CENTCOM FOR CG CFC-A, CG CJTF-76, POLAD, JICENT 
NSC FOR JWOOD 
TREASURY FOR ABAUKOL, BDAHL, JCASAL, AND MNUGENT 
MANILA PLEASE PASS ADB/USED 
PARIS FOR USOECD/ENERGY ATTACHE 
OSD FOR SHIVERS, SHINN 
COMMERCE FOR DEES, ALAM, HAMROCK, AND FONOVICH 
 
 
SIPDIS 
 
Reftel Kabul 02827 
 
E.O. 12958:  N/A 
TAGS: ENRG EFIN ETRD KPWR EAID PGOV AF
SUBJECT: AFGHANISTAN GEMSTONE OUTLOOK IN 2009 AND BEYOND SHINES 
BRIGHTER 
 
1. (U) Summary.  Worldwide demand for colored gemstones has 
increased in recent years.  Such a development bodes well for 
Afghanistan, a land with an abundance of emeralds and rubies, two 
gemstones that rival diamonds in exclusivity and value.  The 
gemstone industry in Afghanistan suffers from a lack of capacity and 
infrastructure as well as antiquated techniques, a lack of formal 
regulation, and undesirable/illicit management elements. 
Afghanistan lacks expertise in high-quality gem-cutting; as a 
result, most current production is smuggled to Pakistan for 
finishing.  Notwithstanding these difficulties, a number of 
organizations, donors, and governments have recognized the sector 
holds promise in providing an avenue towards employment and revenue 
generation in Afghanistan.  Their efforts, although nascent may spur 
additional support and transformation.  End Summary. 
 
--------------------------- 
Overview of Gemstone Sector 
--------------------------- 
 
2. (U) Gemstones, notably rubies, emeralds, aquamarine, tourmaline, 
lapis lazuli, and kunzite are prolific in Afghanistan.  Significant 
deposits are concentrated in the northeastern provinces of Panjshir, 
Nuristan, Konar, Badakhshan, Baghlan, Kunduz, and Kabul. 
Unfortunately, the industry in Afghanistan is mired in century's 
old, crude, dangerous, and resource-damaging techniques, and very 
little if any foreign investment has taken root.  Deposits are 
exploited by local people, often in cooperation (in some cases 
unwilling) with mafia-like traders and regional tribal leaders. 
There is some evidence that gemstone smuggling is aiding the 
insurgency. 
 
3. (U) After extraction, all but the highest quality stones are sold 
to local traders who smuggle them to Pakistan, typically Peshawar, 
where cutting and polishing takes place, adding up to five times to 
their value.  Most experts estimate 80 percent to 90 percent of all 
gemstones follow this route and thus do not contribute to Afghan 
employment, revenue collection, or value-chain processes.  High 
quality stones are brought to Kabul and sold to a handful of 
internationally registered gem traders.  Gemstones that are legally 
exported have their value estimated by the Ministry of Mines (MOM), 
which imposes a 15 percent royalty and a 16 percent export tax. 
When these two taxes are combined with a variety of "unofficial" 
taxes, a typical high-value gemstone may have as much as 50 percent 
of its value taxed, a significant deterrent to legal exportation of 
gemstones from Afghanistan.  In contrast, royalty and export taxes 
in Pakistan currently total 12 percent, where the industry employs 
directly or indirectly 20,000. 60 percent to 80 percent of the 
gemstones are of Afghan origin. 
 
4. (U) Worldwide demand for all colored gemstones is estimated at $5 
billion dollars with the United States representing approximately 20 
percent of that demand.  According to a Development Associates 
International (DAI) study commissioned by USAID in 2007, due to the 
illicit nature of gemstone trade in Afghanistan, current yearly 
production estimates vary widely, from $10 million to $160 million. 
However, if resources where properly exploited, production could 
jump to $300-$400 million.  Afghan rubies, emeralds and lapis lazuli 
are considered among the best in the world; prices for top quality 
rubies and emeralds rival and exceed that of diamonds on a per carat 
basis.  Clearly the gemstone sector in Afghanistan is troubled. 
Overcoming misguided government over-regulation and traditional 
mindsets will not be easy, but momentum is shifting towards bringing 
this sector into the modern age (or at least the 20th century) 
 
-------------------------------------------- 
Turquoise Mountain Foundation (TQMF) Efforts 
-------------------------------------------- 
 
5. (U) TQMF has an established a gem cutting and polishing school 
under its jewellery program.  All the students in the institute also 
undergo rigorous English, Dari, mathematical, business, and computer 
training over a 36 month period.  At the end of the 36 month period, 
 
KABUL 00003276  002 OF 002 
 
 
the students receive a stipend (half of which is paid monthly, other 
half received lump sum upon graduation) so that they may establish 
their own businesses or cooperatives, armed not only with specific 
vocational/trade skills, but also with the other vitally important 
skills required for success in entrepreneurship.  TQMF is planning 
to expand their gem cutting and polishing school to areas near 
gemstone deposits.  The first such expansion will take place in 
cooperation with Provincial Reconstruction Team (PRT) Panjshir in 
late spring 2009. 
 
-------------------- 
Working Group Formed 
-------------------- 
 
7. (U) Embassy Econoffs and TQMF have organized a Gemstone Working 
Group (GWG), which includes participation from the World Bank's 
Sustainable Development of Natural Resources Project, Project 
Management Unit (PMU) embedded within the MOM, USAID's Economic 
Growth and Afghanistan's Small and Medium Enterprise Development 
(ASMED) programs, and the Export Promotion Agency of Afghanistan 
(EPAA).  Several noteworthy projects were discussed. 
 
8. (U) ASMED has recently invested $300K in conjunction with an 
Afghan company (total invested $3.8 million) for the establishment 
of small-scale mining operations and lapidary training in Baghlan 
province.  Implementation of this project will take place in 2009. 
The World Bank is sending international mine safety experts in early 
to 2009 to build capacity within this discipline at the Afghan 
Geological Survey (AGS).  Communities and Artisanal Small Scale 
Mining (CASM), a global networking and coordination facility, 
currently chaired by the UK's Department for International 
Development (DFID) is also considering entering Afghanistan to set 
up gem cutting and polishing facilities. 
 
9. (U) EPAA reiterated that the gemstone sector had been identified 
as one of the four key sectors the EPAA will focus on in 2009, and 
it plans on opening gemstone centers in Kunduz and Badakhshan 
provinces in 2009 and 2010 respectively.  The centers are being 
supported by the German as Association for Technical Cooperation 
(GTZ), the main investor in the EPAA. They will focus on capacity 
building in cutting and polishing, which will expand the human 
resource capital necessary in establishing value added supply chain 
operations in the sector. 
 
------------------------------------------ 
2009 exhibits more luster, but gaps remain 
------------------------------------------ 
 
10. (U) While hurdles to expansion and growth in the sector will 
undoubtedly take time to overcome, strategies are taking shape that 
should gradually improve the sector's future.  The establishment of 
training centers and cutting/polishing schools through the efforts 
of TQMF, US PRT, EPAA, and other entities is the first step toward 
creating a value added supply chain that can contribute to an 
economic development.  Embassy efforts to promote the need for the 
formalization of the mineral sector through the establishment of 
detailed regulations in the Mining Law that specifically address 
small scale and artisanal mining will continue.  The World Bank's 
PMU team has played a lead role in this endeavor, and regulations 
have been drafted and are under review. 
 
11. (U) For its part, EPAA is participating in industry trade shows 
in Arizona and Dubai in the coming year to increase interest in 
Afghan gemstones.    Nevertheless, gaps in confronting the 
challenges posed by inefficient and unsafe extraction techniques, a 
stultifying regulatory environment, and poor access to electricity 
must be confronted in order for the industry to begin the long road 
toward being a commercially-viable export-oriented industry. 
WOOD