Government considered breaking the diamond=20 cartel to boost black economic empowerment,=20 writes Mungo Soggot
The Ministry of Minerals and Energy has=20 investigated using apartheid-era=20 legislation, which gave local diamond=20 cutters a special deal, to promote black=20 empowerment in the cutting industry. The=20 strategy, which would have involved=20 restricting De Beers’s exports, reveals the=20 ministry’s antagonism towards the diamond=20 giant and its failure to accept the highly=20 unusual cartel-like workings of the diamond=20 industry.
Documents from the ministry show it=20 considered using the 1986 Diamond Act to=20 make South African producers sell their=20 diamonds to local cutters, in a bid to=20 stimulate black empowerment. It even=20 dispatched a lawyer to international=20 diamond centres to see how the industry=20 works.=20
But the ministry’s lawyer, Advocate Nazir=20 Cassim, SC, not only vetoed the plan but=20 also recommended deregulating the=20 agreements that give South Africa’s cutters=20 a choice of the world’s best diamonds.=20 Cassim, who sits on the Diamond Board, says=20 the Act “does not serve the purpose which=20 the minister and the new board [the Diamond=20 Board] would like to achieve. However, the=20 object can be achieved by co-operation in=20 promoting a sound industry. De Beers is a=20 South African company and our loyalty must=20 lie with De Beers in this context.”
The ministry’s initiative is understood to=20 have been led by Linda Makatini, special=20 adviser on mineral policy to Minister=20 Penuell Maduna. Makatini, who has had a=20 stint as acting chief of the Diamond Board,=20 was unavailable for comment.=20
The legal opinion drawn up for Maduna’s=20 office states that the minister insists the=20 board create opportunities to promote=20 employment and “redistribute the country’s=20 resources to benefit the populace”.=20
The document explains to the ministry=20 exactly how the diamond market works -=20 namely that the Central Selling=20 Organisation (CSO), which controls about=20 80% of the world’s rough diamonds,=20 restricts the supply of gems to buoy=20 prices. It notes there are very few black=20 operations in the cutting industry, which=20 employs only 2000 people. But it suggests=20 De Beers should continue supporting the=20 training schemes.
What makes the ministry’s strategy=20 intriguing is that under the Diamond Act,=20 South African diamond cutters already enjoy=20 an arrangement with the CSO – De Beers’s=20 London-based marketing arm which regulates=20 the world diamond market – that is more=20 favourable than anywhere else in the world.=20 All diamonds that are cuttable in South=20 Africa are cut here. These agreements are=20 monitored by the Diamond Board.
It has also emerged that South African=20 cutters have been selling on millions of=20 dollars worth of the rough diamonds they=20 receive under this special agreement.=20 Diamond International reported in its=20 latest edition that of the $400-million in=20 rough diamonds South African cutters =20 bought last year – $331-million of which=20 came from De Beers – they had polished only=20 $316-million worth of their own. The rest=20 of the top quality rough diamonds were=20 sold. =20
When the Diamond Act was drafted in 1986 it=20 said South African diamond producers – De=20 Beers and other smaller producers such as=20 state-owned Alexkor and Rembrandt’s=20 Transhex – should offer economically=20 cuttable diamonds to local cutters or face=20 a 15% export duty. But as South African=20 mines are no longer key producers of the=20 top quality gems that local cutters demand,=20 the Act was rejigged in 1993. An amendment=20 to Section 59 stated that South African=20 producers could have access to the CSO’s=20 full range of diamonds in London.=20
The Section 59 agreement says all South=20 African stones weighing over 10,8 carats=20 are reserved exclusively for South African=20 cutters, as are rare stones, known as=20 “fancies”.
Jack Jollis, managing director of Transhex,=20 warned in 1995 of the dangers of diamond=20 producers being forced into creating=20 employment and “adding value”. He said the=20 drive to set up cutting operations can stem=20 from “political pressures to create=20 employment and add value. This political=20 pressure is often fanned by ill-informed=20 pronouncements by parliamentarians and the=20 media who are almost certainly ignorant of=20 the unique nature of the diamond business.”