Assessing economic losses from poor traceability in Kenya’s gemstone value chain

Abstract

Weak traceability in Kenya’s gemstone artisanal and small-scale mining sector continues to undermine the goals of formalized artisanal and small-scale mining (ASM) by creating persistent economic inefficiencies that affect miner incomes and national revenue mobilization. This study quantifies these losses by integrating primary field data from Taita Taveta with national export statistics and a probabilistic economic model. Using probabilistic distributions to reflect uncertainty in informality levels, price gaps, and value addition margins, a 10,000 iteration Monte Carlo simulation estimates three categories of economic leakage: royalty revenue loss, miner level undervaluation, and foregone value addition from exporting raw stones. The results show structurally embedded leakage, with an expected annual loss of USD 12.2 million within a 90% probability range of USD 10.5–14.0 million. Undervaluation accounts for most of the loss, reflecting weak grading capacity and limited miner bargaining power, while missed value addition contributes a further 40%. These findings demonstrate that Kenya’s gemstone economy forfeits substantial fiscal and livelihood benefits due to incomplete formalization, particularly gaps in traceability, valuation, and compliance systems. The analysis shows that stronger traceability architecture, expanded grading and valuation services, and incentives for domestic beneficiation are essential components of an effective formalization pathway.