A man holds raw diamonds 10 August at the Gold and Diamond department of Sierra Leone Central Bank in Freetown Photo : Issouf Sanogo/AFP

FREETOWN, Aug 19, 2007 (AFP) - As it pieces together its shattered mining sector after a 10-year civil war fuelled by so-called "blood diamonds," Sierra Leone is turning attention to processing its uncut gemstones.

For years, the diamond-rich west African country has mined diamonds and exported them raw, but as the industry gradually edges its way up back to pre-war levels, focus is now on "beneficiation" as it is known in the industry.

A new law was recently passed to license and monitor the cutting and polishing of rough diamonds, a gem first mined in the 1930s in Sierra Leone.

"There is no cutting going on at the moment, but the government has adopted a policy to add value to most of our minerals, including diamonds," Mines Minister Swarray Deen told AFP.

But the plan is not without hurdles.

Sierra Leone's leading mining consultant, Andrew Kilie, says huge amounts of the stone are required to sustain a cutting and polishing plant.

Skilled workers to do the work are also not readily available in the impoverished country rated the second least developed in the world.

"In cutting diamonds you need volumes of stones, and the skills to do it. The skills base is not there," said Kilie.

He said most of the small-scale producers and alluvial panners who produce around 80 percent of the country's diamonds are organised into cartels which sell to markets abroad.

Some of the producers are backed by the foreign buyers for whom they have set quotas.

"So to convince the dealers to sell locally is not going to be easy," said Kilie.

"We are not saying it cannot be done, but it is complicated," he added.

Government director of mining Alimany Wurie said local exporters have made a pledge to sell to local cutters.

"The availability of diamonds on the market could be one challenge, although exporters have made a commitment to sell to local cutters," said Wurie.

Increased revenue on government levies and job creation have been the motivating factors behind promoting diamond cutting and polishing.

If polishing takes place inside the country, "it creates employment and results in increased revenue to government," said Wurie.

Government levies a 3.0-percent tax on all diamonds exports and processed stones fetch a higher value and more revenue.

But since cutting and polishing is not labour-intensive, few in Sierra Leone -- reeling under a 70-percent unemployment rate -- are to reap benefit directly from the planned venture.

Even if polished here, not many of the stones are likely to be used here.

A Freetown jeweller said diamonds were not appreciated in Sierra Leone.

"Ordinary Sierra Leoneans know or have heard about diamonds, and that they are valuable, but they prefer to invest in land and property than diamonds," said Riad Hassan, who runs one of the very few jewellery shops in Freetown.

"And in any case, many cannot afford it," said Kilie. Seven in 10 Sierra Leoneans live on less than one dollar a day.

About half a dozen American, Russian and British companies have expressed interest in setting up shop on cutting and polishing of the gems.

In all, Sierra Leone's mining industry used to account for 20 percent of the national economy and raked in nearly 80 percent of export earnings before the war, according to the government.

"We are working on meeting those levels and even doing better than that," said Mines Minister Deen. Diamonds used to account for half of revenue.

The country's established diamond fields cover an area of nearly 20,000 square kilometres, about a quarter of the country, mainly in south and eastern parts, according to government documents.

But the 1991-2001 rebel war in which the stone was smuggled out in exchange for arms -- the origin of the "blood diamond" tag -- saw the gem lose its sparkle in official channels.

With greater access to mining areas, annual earnings have been rising steadily, reaching 125 million dollars (92.7 million euros) last year and are expected to rise to 160 million dollars this year.

The international diamond tracking system know as the Kimberley Certification Process, aimed at curbing illicit diamond trading, and a sub regional plan which tries to harmonise diamond taxes in Sierra Leone, Liberia, Ivory Coast and Guinea, have been credited for improved earnings.

by Susan Njanji