South Africa?s diamond industry no longer sparkling

JOHANNESBURG (miningweekly.com) ? The South African diamond industry faces serious challenges upstream and downstream, where job creation, wealth creation and the beneficiation of raw diamonds are not concerns for regulatory authorities, says diamond polishing company African Romance CEO Mohseen Moosa.

?In my opinion, the State Diamond Trader has failed in its objectives to buy up to 10% of the run-of-mine from all diamond producers in South Africa for sale to local polishing houses,? he says.

?It is also the responsibility of the State-owned entity to promote equitable access to and beneficiation of diamond resources, but the state of the diamond industry proves otherwise.?

African Romance claims that it does not buy diamonds from the State Diamond Trader, as it does not supply diamonds suitable for polishing.

?The State Diamond Trader is too expensive and forces companies to buy diamonds blind,? says Moosa.

Diamonds cannot be viewed before buying; therefore, the quality and suitability of the diamonds for polishing cannot be evaluated and companies stand the risk of losing profits.

?The State Diamond Trader is buying diamonds from the industry but is not selling it according to the mandate that Parliament has given it, which is to only sell diamonds to South African companies for the purpose of South African economic growth.

?African Romance is committed to this issue and has tried to raise it with government but there has been no response,? the company states.

Six years ago, South Africa employed 3 000 diamond polishers in the downstream diamond sector and today the industry employs only 900 polishers.

This means that the South African downstream diamond industry has shrunk by about 300%, says Moosa.

In comparison, neighbouring countries? diamond industries seem to be growing. Botswana is now employing 500% to 600% more polishers than South Africa, which was once the largest diamond-producing country in the world. Today, South Africa is number five.

African Romance has been polishing diamonds in South Africa since 2007 and, while the company possesses the required technologies and skills for polishing, it struggles to find rough diamonds in the country.

?We have never had a consistent supply of rough diamonds in South Africa, even though the country mines 11-million to 12-million carats of rough diamonds a year,? says Moosa.

That is because the system used to sell rough diamonds does not provide sufficient opportunity for local buyers. Local companies have to compete with international buyers in open markets at auctions and tenders, with many of them being speculators that do not contribute to job creation in South Africa.

Moosa states that the diamond industry in South Africa has not been managed well from a regulatory point of view and that it seems that the country does not want to build the diamond industry as a commodity and that it is comfortable with the fact that Botswana has become the largest producer of rough diamonds in the world.

?There doesn?t seem to be any kind of urgency or critical analysis coming through from the Department of Mineral Resources (DMR), the State Diamond Trader or the Diamond Regulator to rectify this situation,? he states.

In addition, Moosa says the diamond industry does not have sufficient support to compete in international markets.

African Romance has attempted to acquire raw materials and to create jobs and develop skills, but says it is not being sufficiently engaged by government.

?There is a small amount of support, but without engagement from government, we won?t be able to tread new waters and chart new courses.?

Revival of the Diamond Industry

The South African diamond industry is in crisis, states Moosa, who says the challenge lies in how South Africa deals with this crisis and what it does to rectify the situation.

South Africa needs to revive the diamond industry by implementing a total overhaul of its regulatory authority.

?Government needs to ask itself what is being done upstream and downstream, from a regulatory point of view, to ensure the development of diamonds as a lucrative commodity in South Africa,? says Moosa.

In addition, government needs to make the industry more attractive by offering incentives to companies, thereby extracting investment in diamond beneficiation in South Africa.

Botswana currently provides incentives for top diamond-polishing companies to polish diamonds in Gaborone, where about 20 international diamond houses have now established factories.

In return, the government of Botswana offers tax incentives to these companies and guarantees the provision of rough diamonds in exchange for production.

?African Romance has also been approached to polish diamonds in Botswana and is tempted to move its polishing business from South Africa to Botswana, which understands that a diamond polishing business cannot run successfully without a consistent supply of rough diamonds,? the company stresses.

?South Africa should become more humble about the fact that it has lost its diamond industry, that it is weak and that it is no longer the sparkle of the world when it comes to diamonds.
?The industry needs to sit down with government and see what can be done to fix this.?

Stop Blaming Labour

Moosa adds that it has become convenient for South Africa to blame the recession, as well as other general economic conditions, such as the cost of labour, for the state of the diamond industry, but it is much more than that.

?The current state of South Africa?s diamond industry is not a labour issue. We should stop blaming labour and the fact that it costs more to produce diamonds in South Africa, compared with other countries such as India,? states Moosa.

Diamonds sell for a high value and the cost of polishing plays a small part, he explains.

?South Africa needs to start looking intro- spectively at what it is doing to prevent the development of its diamond industry and how this can be fixed.?

Further, Moosa says, South Africa can have a bright future in the diamond sector. Roughly 40-million to 50-million carats of rough diamonds a year is mined in Southern Africa and the Democratic Republic of Congo, which provides many opportunities for development in South Africa.

The country can become the trading hub for the diamonds mined in Southern Africa and the technology provider to the region. Business models and mechanisms can also be developed for downstream polishing, job creation and industry building.

However, Moosa stresses that the desire and the will to succeed from the Department of Economic Development and the DMR are needed to support and encourage companies to pursue the development of the South African diamond industry.

Moosa points out that the diamond resources in South Africa are not currently being exploited and developed to the benefit of the South African people.

?Ninety per cent of South Africa?s diamonds are being sold to foreign companies. Therefore, jobs are not being created locally and communities are not sharing in the wealth created by the diamond industry,? he concludes.
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Edited by: Tracy Hancock

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