A Call for Venture Capital

Diamond-Related Profits in the
Democratic Republic of Congo

Art Madsen, M.Ed.

From the ashes of the Mobutu Regime in the Central African nation once known as Zaïre, widely recognized as the richest prize in geological terms of the entire continent, a new nation is emerging. With the accession to power of Laurent Kabila, a gold-smuggler and rebel leader, supported by his contingent of loyal statesmen, the newly renamed Democratic Republic of Congo is becoming a lucrative playing field for the world's most powerful executives and visionaries, representing large multinational firms and consortiums such as Anglo-American Corporation, Tenké Mining Corporation of Canada and American Mineral Fields of Texas. These formally-established firms know ex-Zaïre well and recognize the tremendous potential for working within the liberal guidelines of the new Congolese government. All are scrambling for a meaningful and profitable share of the vast diamond reserves of Kasaï, centered in the areas of Mbuji-Mayi and Tshikapa.

Elsewhere throughout this enormous treasure-trove, spanning thousands of square miles of equatorial territory, a limited number of smaller firms are also vying for a modest -- but potentially highly profitable -- share of various Congolese commodities, such as hardwood, pharmaceutically-suited plants, malachite, cobalt, copper, manganese or both industrial and gem caliber diamonds.

As government controls descend on major operators exploiting this mineral or botanical wealth, gaps remain in the system which may well enable smaller, less highly visible entrepreneurs to realize considerable profit.

The present prospectus will outline a viable and pragmatic profit-oriented strategy and line of reasoning based on more than six years' tangible professional experience in the Congo. The confidential details related herein will convince the potential investor of the solid foundation on which a small enterprise could realize significant financial profits, given the state of flux, transition and uncertainty in the Congo at this juncture.

The present analysis, therefore, will focus on a two-phase model, one comprising a self-sustaining surface-enterprise suitable for generating on-going monthly operating expenses and another, a sub-rosa, invisible component of this same enterprise, the primary objectives of which will be threefold:

(1) to gather intelligence relating to diamond-trading activity on the periphery of, or clearly beyond, government approved or formally licensed diamond mining or trading throughout the Republic;

(2) to identify viable channels for the transport of "extra-legal" industrial or gem quality diamonds toward lucrative markets in the Republic of the Congo (Brazzaville), Europe or the Middle East; and

(3) to serve as consultants or actual liaison-agents between or among traders operating on the periphery of governmentally sanctioned trading.

Each of these services, whether providing vital intelligence, identifying secure routing, or furnishing actual transport, would be available to clients willing to purchase them at prices to be determined as a function of the net retail value of the merchandise to be ultimately marketed in Europe or the Middle East.

To place this proposal in proper perspective, it is useful to present a synopsis of similar operations throughout the modern history of both the former French Congo, known as Congo-Brazzaville, and the former Belgian Congo, later known as Zaïre, referred to, for our purposes, as Congo-Kinshasa.

I. A Concise Historical Overview of Diamond Trading
in Congo-Brazzaville and Congo-Kinshasa

The lure of diamonds in Equatorial Africa has long served as an underlying motive for exploration, colonization and, of course, exploitation of these phenomenal reserves. While South Africa, Namibia, Angola and to a lesser degree Botswana have provided large quantities of gem caliber stones, Congo-Kinshasa has generally been recognized as the leading source of industrial diamonds, of alluvial origin, principally located in Western Kasaï Province, accessible via roadways and aérodromes in the vicinity of Kananga, Mbuji-Mayi and Tshikapa.

It is safe to assert that entire cities, such as Antwerp, have thrived in Europe largely on the profits obtained by diamond merchants over the last two centuries. On a broader scale, Belgium, as a nation, has derived enormous revenue, not only historically, but in contemporary times, from its Société Générale Minière (SGM) with profits generated by refining copper, cobalt and manganese. Much of this revenue was not only derived from coercing Congolese and, later, Zaïrians to channel toward Brussels significant percentages of profits derived from mineral wealth, but from direct export to Belgium of raw industrial diamonds, as well.

At various points in history, the twinned Congos, Brazzaville and Kinshasa, earlier Léopoldville, interacted to the mutual benefit of both. In Brazzaville, just to the north of Kinshasa across the Congo River, diamond counters were established for the evaluation of stones and payment of moderate prices to those intrepid adventurers who had located uncut stones in Kasaï. Later, the Brazzaville counters exported, for phenomenal profit, these diamonds to European gem-cutters and jewelers. This resulted in a curious state of affairs. Congo-Brazzaville, with no known reserves of diamonds, became a major world-scale exporter of this commodity.

The reality of quasi-legal diamond-trading, or trafficking, in these two former colonies became, therefore, the norm for all future trading patterns. Some controls were established by colonial powers, but throughout World War II, the situation became a paradise for traffickers and contrabandiers.

During the unsettled post-colonial period of the Congolese Revolution (1960 to 1965), it has been acknowledged that diamonds were being smuggled northward out of the newly-independent Congo along the entirety of the Congo River, at points as far-flung as Mbandaka and Kisangani. Appendix D provides a basic map of the localities mentioned for easy reference. (Downloadable at a link further on in this report)

As President Mobutu Sese-Seko's grip on power tightened, he established the Minière de Bakwanga (MIBA) which during much of his regime controlled, on an ostensibly exclusive basis, the diamond output and trading patterns of Zaïre. However, illicit trading continued throughout his regime, originating at the source in Mbuji-Mayi, in the Army, or at the level of courageous private explorers and prospectors, some from other African nations such as a well-known, but elusive trafficker from the West African nation of Mali.

Turning momentarily to major firms, however, brief mention of the roles of British Diamond, Debeers Consolidated Mines, Ltd. and Sibeka of Belgium must be made with specific reference to the Mobutu reign which was just last year toppled by President Kabila. Until the final months of the Mobutu government, MIBA enjoyed an 80% share of all diamond revenue, while the remaining 20% was allocated to Sibeka. The exclusive purchaser of Zaïrian diamonds was Debeers, until April of 1997.

The role of British Diamond was significant during certain years of the Mobutu reign (largely in the early 1980s), when fluctuations occurred in the degree to which Debeers purchased the output of the nation. The influence of Mr. Lawrence Devlin, former U.S. CIA Station Chief in Kinshasa during the Congolese Revolution, was later instrumental in solidifying Debeers' hold on exclusive rights to the country's production of industrial and near-gem quality stones. In fact, he became, in the 1980s, the Debeers Representative in Kinshasa and enjoyed privileged contact with President Mobutu. Devlin was recently removed from authority by President Kabila, who canceled DeBeers' exclusive contract.

To afford a glimpse of the magnitude of funds generated it is useful to note that MIBA, in 1996, for example, generated 70 Million U.S. Dollars in near-gem quality stones, purchased by Debeers. This is the official figure. Far more is thought to be produced through peripheral operators and less visible entrepreneurs who have financed small-scale extraction sites at undisclosed locations.

II. Circumventing the Government Circuit

The preceding historical survey places into proper context the "seeming legitimacy" of extra-legal operations in Congo-Kinshasa, both historically and currently. The present prospectus in no way proposes that venture capital be used to fund illegal operations, but rather that it be used to establish a platform from which to observe transactions, some legitimate, others clearly peripheral, which may prove of interest by virtue of potential profits to be reaped. The proposed on-going surface-enterprise (see Section entitled: "The Visible Presence") would participate in such transactions if risk-analysis demonstrated that physical or fiscal uncertainty was minimal to moderate.

Certain assumptions as to the availability of non-government stones can be made on the basis of prior experience. Although President Kabila has announced restrictive measures with respect to the diamond trade, there is certainty among seasoned observers that much production will continue to by-pass the government circuit.

The proposed surface-enterprise would intercept these quasi-legal stones, or gather intelligence concerning their availability, and would do so in Kinshasa, well removed from the initial transactions described below. This strategy would ensure safety of our personnel, and yet afford the opportunity for significant profit at an intermediate level.

Keeping this in mind, there are at least three standard routes for near-gem quality stones falling outside of the government monopoly:

(1) Stones at the source within government concessions are often available illicitly through mid-ranked or higher-echelon military personnel, tempted by financial gain;

(2) Villagers either working for the government concession, or prospecting independently within a 10 to 20 kilometer radius of known alluvial deposits, also have been known to sell diamonds at bargain prices, geared to their primitive village economies; and

(3) Minor operators, sometimes funded from European sources, make available high quality stones through clandestine channels.

The surface-enterprise, therefore, would provide the springboard from which a profitable transaction could be made. It would obviously afford the opportunity to gather intelligence concerning the availability of non-government stones, and enable the enterprise to devise a plan for channeling information, or the merchandise itself, at a premium price, in appropriate directions. Under these circumstances, actual evaluation of the value of the stones would be made by third parties, with an independent gemologist providing confirmation for the surface-enterprise when absolutely required to establish the approximate value of the shipment. The enterprise would not be in the business of assessing the value of stones, but rather of ensuring timely and reliable channeling of shipments when requested. Normal surface business, as outlined herein under, would continue unperturbed.

III. Strategic Considerations and Risk Assessment

The principal owner-operator of the surface-enterprise, and his primary associate, are professionally experienced in Third World operations. Their combined expertise totals over eleven years in developing nations, and includes four academic degrees in related disciplines, plus French-language linguistic competency and familiarity with the Congolese business environment.

Preliminary risk-assessment criteria which the owner and his associates have developed, deemed indispensable for evaluating all contingencies and variables when contemplating a non-government authorized transaction , would include, but not be limited to, the following:

1. Assess the proven reliability and integrity of all contacts.

2. Evaluate logistical capabilities of the surface-enterprise.

3. Consider the political ambiance and degree of constraint imposed.

4. Review the likelihood of successful completion of the specific assignment.

5. Assess prior success-failure ratio of similar operations.

The judgment of both senior members of the enterprise will be weighed equally and a consensus reached as to the feasibility of the operation considered, account being taken of the degree and nature of profitability. There is no reason to risk the entire surface-enterprise in order to accept a dangerous or marginally profitable operation involving the transfer of information or diamonds. However, if a major source of profit is envisaged, on the order of 50,000 U.S. Dollars or greater, then it may prove feasible to perform the operation, and dismantle the surface-enterprise, perhaps resurfacing elsewhere, as considered prudent.

IV. Potential Contacts in Kinshasa

As envisaged, the enterprise will initially consist of three expatriate associated-partners and two to three "trustworthy" Congolese employees. These individuals would be responsible for interfacing, at a variety of socio-economic levels, with local informants in Kinshasa and outlying districts, extending perhaps as far east as Bandundu and as far south as Mbanza-Ngungu. The objectives of their information-gathering would range from the "purely casual" to the "intensely focused and documented."

It is reasonable to state that, over a period of several months, a number of valuable contacts, whether in diplomatic, commercial, military or underground circles could be generated to the ultimate advantage of the enterprise. Among them might prove to be individuals, with direct or indirect access to mining or agro-economic regions, from the following strata of Congolese and Expatriate society:

* Ministerial Functionaries

* Agricultural Specialists

* Expatriate Engineers

* Foreign Diplomatic Personnel

* Corporate Geologists or Technical Staff

* Congolese Consultants or Entrepreneurs

* Foreign Church Missionary Personnel

* Airline Employees, Mechanics, Travel Agents

This list is, understandably, only a brief summary of the types of individuals from whom valuable information can be derived. The role of the surface-enterprise will be to interface with these sources for the purpose of conducting business on a regular basis, with an eye toward a potential (unlicensed) diamond or precious metal transport-contract, within the capabilities of the enterprise, i.e. meeting the risk-assessment criteria outlined above.

V. The Visible Presence: The Surface-Enterprise

In the preceding sections of the present Prospectus, allusion has been frequently made to the surface-enterprise which will provide the visible vehicle justifying the presence in Congo-Kinshasa of three highly specialized expatriate entrepreneurs. The funds solicited under this Prospectus will be utilized to establish the physical presence in Kinshasa of a small office-type operation.

Foreign investors placing capital at the disposal of this enterprise, in response to this Prospectus, may make suggestions as to the nature of the products to be marketed in Kinshasa by the surface-enterprise. The co-founders have already identified certain product-needs in Kinshasa which may reasonably be expected, ultimately, to produce revenue for on-going office operations.

Figure I below portrays the approximate amount of expatriate time which will be allocated to various duties and functions associated with the surface enterprise. Note that the Intelligence Gathering function is actually a euphemism for the sub-rosa gem-transport operation which is envisioned.

Estimated Allocation of Expatriate Time
(in Percent of Hours Available)

Retail Trade Activity.................. 30%

Import-Export Consultancy........ 20%

Product Marketing ......................15%

Intelligence Gathering ................35%

FIGURE I

Although serious attention will be devoted to day-to-day organization and operation of this business, which should prove in a brief period of time to be self-sustaining, the major focus of the two senior co-founders will be to unearth viable contractual arrangements for far more massive transactions in diamonds. The funds thus generated will essentially repay investors and provide them with handsome profits, as outlined in "Profit Potential" below. Sufficient funds in Congolese currency may be generated by the surface-enterprise to cover all local expenses, with supplemental amounts to be converted into hard-currency to bolster reserves or reimburse, in part, initial investments extended to the enterprise.

At this early juncture, some thought is being given to serving as concessionaire for a given line of products in Kinshasa, in addition to importing from the Far East certain goods likely to be purchased by the local population.

Below is a listing of employees anticipated to constitute the organizational structure of the surface-enterprise:

1. Manager-Director

2. Marketing Director

3. Logistics Specialist

4. Congolese Cadre

5. Congolese Aide-de-Camp

6. Congolese Clerical Assistant

In a subsequent section of this Prospectus, capitalization requirements outline the anticipated expenses to maintain the surface-enterprise support group portrayed in Figure II. Essentially, the three expatriate employees would not receive standard salaries until such time as the enterprise began to generate funds in local currency. They would draw a token amount from hard currency reserves during the first two to three months of operation. The Congolese employees would be remunerated in accordance with standard Labor Legislation in force throughout the Republic, calling probably for an on-going outlay of $140.00 per month for the Administrative Cadre, $65.00 per month for each of the remaining two employees.

To these base salaries should be added a percentage for "social charges", i.e. fringe benefits, provided for under Congolese Law. With a 20% surcharge to the above-noted Congolese salaries, the monthly payroll for three local employees should amount to $324.00. With miscellaneous gratuities, $400 should be budgeted. These funds can be converted from hard currency reserves at favorable rates for perhaps two months prior to Government inspection of payroll records. Thereafter, the business will hopefully produce sufficient funds to cover Congolese payroll, rent and utilities, representing perhaps a total of $750.00, exclusive of vehicle expenses and expatriate salaries. Preliminary expatriate eating and personal expenses should amount to approximately $333 per month each, or $1000 for all three. On-going vehicle costs, for one small pick-up truck, should not exceed $200 per month.

Total Anticipated Costs per Month for the Surface-Enterprise amount, inclusive of a modest contingency fund, to: $2000.

In the initial stages of operation, the three expatriate employees can be housed in rooms adjoining the business office. This will produce significant operational economies. A five or six room building, perhaps located in Limete, a modest, but commercially active section of Kinshasa, should prove adequate for all required facilities: a kitchen, three small sleeping rooms, the managerial office and a fairly spacious reception area, housing the two or three Congolese employees during the business day.

Further details concerning the nature of products being considered and the operational strategy of the surface-enterprise are available upon request.

VI. Profit Potential: Up To 8.34% Return on Investment Per Month

With the proper mix of products to be marketed locally within the framework of the surface-enterprise, this business should be self-sufficient. Approximately 65% of the co-founders' efforts will be devoted to the marketing or importing of products to be sold for a reasonable profit locally. The remainder of expatriate time, approximately 42 man / hours per week, plus recreational socializing, will understandably focus on the sub-rosa expectations outlined in the first sections of this Prospectus. Conversely, all Congolese time will be spent in legitimate surface activity, including government interface, sales, promotion and clerical functions such as bookkeeping, banking, and on-going correspondence.

It is highly realistic to assert that at least one diamond transaction will materialize every 4 to 6 months under these circumstances. Each transaction could generate sums in the five or six digit range depending on the quality of the stones, the circumstances of the transaction requested and other variables. See Appendix A. If two such transactions materialize per year, original investor capital can be doubled within 12 to 18 months, assuming that the surface-enterprise is generating marginally sufficient funds with minimal drain on hard-currency reserves. This represents a healthy return on investment of between 5.56 and 8.34% per month. In light of the proven resourcefulness of all three co-founders, and their understanding of Third World dynamics, even higher profit ratios can be anticipated. In the absence of diamond transactions, a "diversification strategy" will be launched, ensuring repayment of initial investment with substantial profit.

Appendix A graphically indicates the mechanism whereby gem-transport services could be charged to a potential customer. Appendix B summarizes the approximate market value of uncut diamonds and provides additional insight into the amounts potentially involved in these transactions. Appendix C provides an overview of anticipated draw-downs against funds during the initial four months of operation. Thereafter, the dynamics should swing in favor of profit on merchandise marketed locally.

IMPORTANT NOTE: The non-displayed charts and appendices referred to in the preceding paragraph can be downloaded in DOC format at:

Although it is expected that the surface-enterprise and the sub-rosa gem-transport aspect of the proposed venture will generate capital as described in this Prospectus, there is a possibility that diversification strategies and attempts to promote products at the retail level in Kinshasa may not succeed as envisioned. It is important to reassure investors that they will be kept abreast of developments and that they may provide input into many aspects of vital strategic decisions. Initial capital invested should be considered risk-capital; however, in the event of problematic situations arising, every effort will be made to redirect efforts in Kinshasa in such a way as to protect the interests of investors. Modification of the first "game-plan" could well result in the generation of profit to everyone's benefit.

Indeed, as the enterprise prospers, investors will be invited to continue sharing in the proceeds generated.

More information will be provided to interested investors on repayment and/or profit-shariing related to venture capital made available.

VII. Projected Capitalization Requirements

The estimates presented below represent projected costs for establishment of the surface-enterprise, and for maintenance of same for an initial period of 12 months. Ideally, twice the capital base required for the first year should be on hand, to ensure continuity of contacts:

Anticipated Capital Requirements for One Year

Figures are Quoted in U.S. Dollars

Preparatory Relocation Costs (for 3 Expatriates) ...............$1500.00
Airfare (RT, One Year Ticket) x 3 .........................................4500.00
Surface Enterprise x 12 Months........................................... 24000.00
Purchase of Small Used Utility Truck .....................................2500.00
Operating Capital (Product Inventory) ...................................7500.00
Expatriate Emergency Reserve (x 3)..................................... 6000.00
7.7% Contingency Reserve ....................................................3850.00

TOTAL FOR TWELVE MONTHS ...................................$49850.00

Nota Bene: It is anticipated that the surface-enterprise will become entirely self-sufficient at perhaps the sixth month, reducing the required capitalization to approximately $37850.00.

FIGURE III

This Prospectus is being circulated to no more than five potential investors at this time, located in Shanghai, California, Arizona, Florida and New Mexico. Two have expressed considerable interest in the project, and the others are currently analyzing this presentation, or are awaiting receipt of additional data requested.

VIII. Concluding Observations

Such a business would provide a viable, legitimate platform from which to work toward highly rewarding sub-rosa contractual arrangements with other expatriates whose goals are similar, and who have forged channels such as those described in this Prospectus. Joining them, as local political conditions permit, with discretion and due caution, can result in amazingly lucrative profits for all parties in the diamond "extraction-transport-sale-marketing" chain.

The present Prospectus, calling for Venture Capital to fund a surface enterprise in Kinshasa, recognizes that funds invested can realistically be expected to, at least, double within a 12 to 18 month period.

Last autumn's news dispatches from Kinshasa indicated that President Kabila intends to turn toward the "China-Model" for organization of the new Congo's socio-economic system. Because one of the co-founders is from Shanghai, and because distribution of wealth will shift more and more heavily toward the previously disenfranchised population, the surface-enterprise should be in an excellent position to "break-even", in the early stages of development, and ultimately prosper. This would be scenario A.

Scenario B involves the possible downfall of the Kabila Government:

Latest reports (March 1999) indicate that fighting between government forces and rebels from the DRC's Northeastern Border Sector has intensified in the SOUTHEASTERN region of the country. Rebel forces are advancing on the Diamond Mines in Mbuji Mayi and Tshikapa. If disruption of mining activity occurs, although the Kabila Government will be weakened by suspension of revenue, the actual flow of "illicit" or "hors-circuit" diamonds will increase, creating near-bonanza conditions for the diamond transport and export market. With events in a state of flux, there are tremendous opportunities for successful accomplishment of the concepts presented in this prospectus.

[Official Kinshasa News Releases speak of uninterrupted diamond production, however, as late as February 27, 1999, with the Kabila Government assessing some 1.1 million carats or US$ 18.4 Million in January alone : "Au total, le CNE a expertisé 1.125.512,06 carats de diamants pour une valeur de 18.378.325,00 dollars américains."]

Under these dynamic and promising circumstances, whether Scenario A plays itself out, or Scenario B evolves, three to five astute investors are required to fund the present proposal which, given the combined expertise within the proposed enterprise, is highly likely to succeed -- to the considerable advantage of all participating investors. Two, and possibly a third, have stepped forward as of March 1999.

NOTA BENE: This PROSPECTUS contains certain information that constitutes "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Specifically, statements relating to the management’s plans, projections, operating schedules, expectations and future performance constitute forward-looking statements involving unknown risks, uncertainties and other factors which may cause the actual results or achievements of the proposed venture to be materially different from any future results or achievements expressed or implied by such forward-looking statements.