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If there was a title for under-performer in the diamond producing sector, the perennial winner would almost undoubtedly have been Angola. With abundant alluvial deposits and literally hundreds of kimberlite formations dotting a fault line that runs from the from Huila and Benguela provinces in the southwest, to the Huambo and Bie provinces, to the Luanda Sul and Lunda Norte provinces in the northeast, the country should have long been an African powerhouse, alongside Botswana, South Africa and Namibia.

For decades, Angola was a country mired in civil conflict, first as a result of a long insurgency against the former Portuguese colonial government, which ended with the country’s achieving independence in November 1975, and then with a 27-year civil war, during which time there practically zero investment in the country's diamond mines and other natural resources. Diamonds were being mined illegally, however, and Angola had the distinction of being one of the nations that sparked the conflict diamond crisis in the late 1990s.

With the end of the civil war in 2002 the situation took a turn for the better. Indeed, Angola has become something of an economic powerhouse in Africa, posting double-digit growth thanks mostly to the expansion of its oil industry. It is sub-Sahara's second-biggest oil producer after Nigeria and has ambitious plans to grow its energy sector. Its economy is expected to grow by a modest 3.7 percent this year, but by around 12 percent next year, boosted by higher oil prices, President Jose Eduardo dos Santos said last month.

After oil, diamonds are Angola's most lucrative assets. The country produced 8.4 million carats of diamonds worth $976.3 million in 2010, according to data from the Kimberley Process, making it the fifth-largest producer in volume terms. About 70 percent of the country's diamonds are considered to be gem quality, while 20 percent are near gem quality, and 10 percent are for industrial use.

Headquartered in Luanda, the most powerful force in the Angolan diamond industry is state-owned and run Endiama (Empresa Nacional de Diamantes). It was established in 1981 to serve as the national concessionary of mining rights in the diamond industry. It typically does this in partnership with other companies, many of them foreign.

According to Angolan law, Endiama is automatically entitled to a minimum of 51 percent of all exploration projects carried out by foreign firms. In addition, the miners must commit to carrying out and financing prospecting according to tough deadlines since the Angolan government is keen to increase its diamond production rapidly. This contrasts with neighbouring producer states Botswana and South Africa where miners fully own the operations and pay royalties to the government.

The main diamond mining operation in Angola is the Catoca mine, which is one of the largest in the world. The mine is owned by a consortium including Endiama and Russia's Alrosa with 32.8 percent each and Odebrecht of Brazil with 16.4 percent. The remaining share was held by the Diamond Finance CY BV Group, controlled by Lev Leviev, who earlier this year was reported have sold his stake to China’s Sonangol International for $400 million.

In terms of companies involved in the country, De Beers invested in the past in a concession in the country's northeastern region, while BHP Billiton was also involved until it sold its interests in the Alto Cuilo and Luangue exploration projects to Petra Diamonds.

A range of other mines are operating as well, and the news on that front is often encouraging. Australia-headquartered Lonrho Mining reported this month the discovery of a 53.25-carat diamond from its Lulo Project in Lunda Norte province, which it owns together with Endiama. The stone is more than twice the weight of the next biggest diamond recovered at Lulo, a 22.25-carat stone uncovered last November. Lonrho has recovered 102 diamonds weighing 173.85 carats at an average grade of 51.2 carats per 100 cubic metres from its current sample.

In addition, South African miner Trans Hex recently reported that output from its Somiluana mine in Angola more than tripled in the first half of the year to 20,473 carats with the average value per carat soaring 38 percent to $434.

And just last week Endiama announced that an Angolan businessman will be investing in the diamond sector with the aim of re-launching the Lucapa Mining Society Project which has been inactive since 2008 due to the global financial crisis.

In many respects, Angola is regarded as one of the last greatly untapped diamond resources. "Angola is a huge country with a vast mineral wealth," said RBC Capital Markets analyst Des Kilalea. "The aim for the government should be to carry out a geological survey so that it can be accurately known which minerals exist. This has been mentioned in the past, but I don't believe it has been carried out yet."

Among the companies involved in searching for diamonds is De Beers, which after a long absence from Angola has invested $150 million in exploration work over the last six years. In 2010, eight kimberlites were added to the company’s Angolan portfolio bringing the total number to 158 discoveries. The Lunda Norte concession yielded the most prospective portfolio at both an early and advanced stage of exploration, with 114 kimberlite discoveries. 

But for foreign operators, Angola remains a tough country in which to do business. Securing mining licenses in Angola can be difficult process with bureaucracy blocking progress. The relatively high level of uncertainty for investors can mean that even after obtaining prospecting rights and producing a feasibility study, they cannot be certain of the final agreement with the government.

Angola reportedly is working on a new law for the mining sector that will regulate the way diamond companies distribute their revenues from projects, a senior Endiama official said last year. The legislation will call for diamond companies to use 50 percent of their revenues to pay for operational costs, while the rest would be used to pay taxes, investors and to help develop the local community, said Sebastiao Panzo.

The current law stipulates that mining companies in Angola pay 35 percent of their profits in taxes to Endiama but it does not stipulate how firms should distribute their revenues. "The goal is to make the mining sector more attractive for investors and also contribute to the development of local communities," Panzo said.

Securing diamond concessions from illegal miners is an ongoing concern for the companies involved in the Angolan diamond sector. The regional governor of the diamond-rich northeastern province of Lunda Norte in Angola said in August that officials are moving ahead with work to strengthen its border security. Border fences and other security measures are being put in place along the 770-kilometer land frontier and 120-kilometer river border with the Democratic Republic of Congo (DRC) to prevent the entry of illegal diamond miners, said governor Ernesto Muangala.

“The government has prioritized an increase in the number of border police and is acquiring and installing modern equipment for border control,” Muangala said. The Angolan government to expelled around 70,000 immigrants in 2009, according to the country's Foreign Service.

Locally, the government is trying to regulate artisanal mining. In June, the first of 120 mining certificates attributed to artisanal producers in Cuango by Joaquim David, the country’s minister of Geology, Mining and Industry. License holders are obliged to sell their diamonds to Sodiam, which is an Endiama subsidiary. The artisanal miners will also have to maintain records of their operations and sales results, as well as pay taxes and cooperate with government officials.

Angola does have a rudimentary beneficiation programme, modelled on those that have been introduced in South Africa, Botswana and South Africa. The jewel in the crown in the state-owned Angola Polishing Diamonds, Angola Polishing Diamonds, which was inaugurated in 2005 with an initial investment of about $10 million. But, according to its managing director Miguel Bondo Júnior, the company is currently only processing diamonds worth $4 million per month, which is about 20 percent of its capacity.