IT is late evening, and Johannesburg is a city under siege. Forty-four Main Street, headquarters of the Oppenheimer mining and industrial empire – on some measures the greatest commercial concern on earth – was once the juiciest target on the nationalisation hit-list of Nelson Mandela’s liberationists.
Now its top brass have the uncomfortable feeling that they may have beaten off nationalisation only to face a different threat – criminalisation. Thirty percent of all goods landed at Durban’s port are disappearing; modern South Africa’s economy is being nationalised de facto by gangsters.
Hundreds of miles to the north-west, De Beers, the world’s biggest diamond mining company and the jewel in the Oppenheimer crown, faces troubles of a different sort in Angola, the world’s fourth (or possibly third) biggest diamond producer.
While United States peacemakers try to persuade once-warring factions to break bread, every chancer in the world seems to have descended on the country to make his fortune. Diamond claims are grabbed by those who have “established stability” in the local area; millions of dollars of diamonds are salted out of the country and end up on world markets without passing through De Beers’s worldwide marketing cartel. Every unauthorised diamond sale weakens the price of gemstones everywhere.
Meanwhile 7 680km away, it is midnight in Moscow, capital of the world’s second- biggest diamond producer, and a team from De Beers is unwinding after another gruelling day of negotiations with Almazy Rossii- Sakha, the Russian gemstone monolith. A deal was supposed to have been signed at the start of the year to keep Russia’s gems inside the De Beers marketing cartel, but the devil is proving to reside in the detail.
Smuggling and leakages out of Russia undermine the cartel from below, while gung- ho nationalist politicians, their grasp of economics shaky to say the least, toy with the idea of rejecting the irksome disciplines of the De Beers monopoly and going it alone. Life, veterans will sigh, was so much easier when Soviet statesmen could be relied upon publicly to denounce De Beers as capitalist lackeys of the racist Boer hyenas, while privately ensuring the closest co-operation between the USSR’s diamond industry and the chaps from Johannesburg.
In Britain, it is 10pm, and millions have just watched the latest episode of a BBC costume-drama spectacular in which Martin Shaw plays De Beers’s founding father, Cecil John Rhodes. The more avid viewers will have included personnel from the Central Selling Organisation (CSO) in Hatton Garden, the hub of the diamond cartel. With problems crowding in on De Beers from all corners of the world, the guilty thought may occur: where is he now we really need him?
To which the reply may well be that Rhodes, or at least his spirit, is now working for the other side. The Angolan garimpeiros dodging the law to dig diamonds, the brash Australians who this year declared independence and walked out of the cartel, even (or perhaps, especially) the Russian nationalists with their slightly-cracked dreams of a special Russian destiny – all could be seen as more Rhodes-ian than the super-respectable global giant that is the modern De Beers.
In Angola, for example, De Beers recently found itself hopelessly out-Rhodesed by a Brazilian outfit: De Beers wanted to talk about long-term investment, while the boys from Brazil promptly offered the president’s wife a seat on the board. Cecil would have been proud – of the Brazilians.
But Rhodes would have deplored the anarchy now threatening the world diamond industry. He knew better than anyone that diamonds are worth nothing without the artificial rarity only a cartel can provide. Or, as CSO chairman Nicky Oppenheimer has put it: “Diamonds do not make engines run faster or planes fly further or higher. Unique among major raw materials, the gem diamond has no material use to material man.”
Take away the strict discipline of the cartel, flood the market with diamonds and within a very short space of time these “gems” will be worth no more than any other coloured stone. And De Beers, through its own mines the world’s top producer, has long been willing to run the cartel on behalf of its fellow miners.
Indeed, Rhodes, during the great African diamond rush of the 19th century, was among the first to understand that the mechanised mining of diamonds, which he had pioneered, was pulling stones out of the ground at a rate incompatible with “rarity” status. Central control of supply was essential to the manipulation of demand. No wonder Rhodes’s heirs were to find it so congenial to do business in Moscow with the ideological descendants of Marx and Lenin.
But the vision of a global diamond syndicate was finally realised not by the freebooting Rhodes, but by a German-born Jewish Londoner sometime of South Africa via Maidenhead, Sir Ernest Oppenheimer. A legendary figure of astonishing determination, Oppenheimer practically stopped the post-Great War diamond crash single-handed. Rhodes’s rudimentary cartel broke down during the savage inter-war depression and gem prices collapsed. Oppenheimer, chairman and managing director of De Beers, more or less offered to buy all the diamonds in the world in order to support the price, an extraordinary gamble that paid off.
In 1934, he put together the modern cartel; his diamond syndicate, with its 10 “sights”, or sales, a year in the CSO’s Hatton Garden building, today markets perhaps 80% of all the world’s diamonds. Nearly $5-billion- worth of stones are traded through the CSO every year, all of them to approved diamond brokers vetted by De Beers. The first hint of a broker going off-side – dealing with smugglers or (the really heinous crime) attempting to build up his own stock of diamonds – and he will find himself unwelcome at the CSO’s Charterhouse Street complex. For unwelcome, read out in the cold.
This blend of ruthlessness and paternalism has kept the diamond business surviving and thriving through a world war, a cold war, the long boom and the recessionary crises of the past 15 years. But the chaos of the new world “order” faces De Beers with challenges of a greater magnitude.
Bucking the cartel seems flavour of the decade, from Australia – where Argyle, the world’s largest diamond mine in volume if not in quality – walked out of the CSO this year, to frozen north-west Canada, whence diamonds are due to come on stream at the turn of the century and will probably by- pass the syndicate. In both cases, Britain’s RTZ mining group – a company as grand in its way as De Beers – is involved.
Rumour suggests RTZ may be planning an alternative to the CSO to market Australian, Canadian and Russian stones, although how two “monopolies” would work is anyone’s guess.
Meanwhile, where RTZ leads, smaller fry are following. Recently, just yards from the CSO building, Hatton Garden dealers have been offered diamonds from Brazil, diamonds originating almost certainly in Angola – supposedly a CSO member. The Brazilians, exploiting their common language with ex- Portuguese Angola, are becoming formidable players in south-west Africa. Black-market “pavement” deals such as this mock the mighty CSO cartel.
Far more serious is the flood of diamonds out of Russia to Antwerp and Tel Aviv; smuggling and other “leakages” peaked at about o41-million a month during 1993 and 1994, but dropped to about o8-million earlier this year after the outline deal with De Beers was signed. By mid-year, however, unauthorised sales surged again to about o33-million, not a good augury for the detailed talks under way in Moscow.
The smuggling routes – Angola through Zaire to Europe or Israel, Moscow through Antwerp and Tel Aviv – are well-marked, and it is hardly surprising that Russian gangsters have been diving into bed with the long- established Antwerp diamond mafia.
Smuggling on this scale will, if it continues, eventually break the cartel. De Beers is pledged to mop up surplus stones on the open market to support the price, and use these stocks to smooth prices in the future. This was the system devised by Sir Ernest Oppenheimer. But the point would have to come when even the Oppenheimer coffers would be exhausted. And at that point, the entire diamond industry – will collapse.
Other price cartels can fall apart without taking the commodity down with them. Motorists still need petrol and factories still need oil. But diamonds are not a commodity; they are worth what they are worth because the CSO says that is what they are worth. And that applies not only to new stones, but to all diamonds everywhere.
Paradoxically, it may be this prospect of mutually assured destruction that will bring the worldwide industry to heel. Given that there has to be a cartel, it may as well be run by the people who invented it. And at Stockdale Street, in Kimberley, where it all began, older hands at De Beers’s office will recall seeing and hearing it all before: when Sierra Leone went “rogue” 40 years ago, when opals threatened diamonds’ prominence before the World War I, when the world quarantined white South Africa in the 1980s.
And, should it not prove all right on the night, De Beers executives can always cheer themselves with a glass of Boschendal 1992, a splendid red wine produced at a company- owned vineyard, part of Rhodes Fruit Farms.
Cecil John, whatever his faults, provided for every eventuality.