The energy ministry proposes to stop exports to boost local employment, writes Mungo Soggot
The Minister of Minerals and Energy, Penuell Maduna, wants to cut or stop altogether the export of diamonds from South Africa – a strategy that would severely threaten the survival of the De Beers diamond cartel.
The minister’s special adviser on mineral policy, Linda Makatini, said this week the ministry was anxious to stimulate the local cutting industry, which, according to De Beers, handles about half of the value of locally mined diamonds.
“The goal should therefore be to reduce if not eliminate the export of diamonds and this will go a long way towards addressing the unemployment problem, the growth of our economy, as well as skills transference to all South Africans. Only then will we be able to truly say that the mineral wealth of the country belongs to all South Africans,” Makatini said in a statement to the Mail & Guardian.
She was responding to an M&G report last week which said the ministry had tried to use the Diamond Act to restrict diamond exports to promote black empowerment. The report quoted a legal opinion given to the ministry rejecting the Diamond Act plan.
But although the legal opinion acknowledged plans to boost black empowerment in the cutting industry, it did not say the ministry would consider the extraordinary step of stopping all diamond exports.
Most locally cut diamonds are large, prized stones which account for only 3,5% of the weight of South African-mined diamonds, says De Beers. South African cutters enjoy a special arrangement with De Beers in terms of which all diamonds that are cuttable in South Africa are handled here. Since 1993 local cutters have also been offered a pick of the best diamonds sold by the Central Selling Organisation (CSO), De Beers’s London-based marketing arm.
The remaining, less valuable, South African stones are cut abroad in centres such as India, where labour costs are a fraction of those here. South Africa is the fourth most expensive diamond cutting centre in the world after the United States, Belgium and Israel.
Analysts said this week South Africa could not hope to compete against cutting centres in China and India. De Beers was equally sceptical of the minister’s plans, but reiterated that it fully supported promoting the local cutting industry.
“Realistically, it is going to be almost impossible to get to a position where 100% of South Africa’s diamonds are cut locally. This is quite simply because South Africa is competing directly with India and other centres such as China, where cutters work for the going rate of less than 50c an hour. The approximate equivalent cost in South Africa is nearer to $4 an hour, an order of magnitude of hundreds of percent difference!” the company’s communications department said.
“Put another way, if there were qualified and experienced South African-based workers willing and able to work for wages of R400, or less, a month for a 50-hour week [India’s cutting industry norm], and if it were possible to add value by polishing the diamonds locally, then De Beers would be first in the queue to sell diamonds to those cutters.”
One analyst said the ministry’s plan would be an “inelegant way of stimulating the industry. Instead they could try training grants and tax breaks,” he said.
But Makatini said Maduna hoped that the De Beers diamonds currently not deemed cuttable in South Africa would “in the near future remain in the country”.
She said that a “vast number” of diamonds were exported by independent South African producers – all of which, however, are part of the CSO. “To promote this, the minister advocates the training of newcomers into the industry to do what was in the past considered impossible for South Africans.” There are very few black enterprises in the local cutting industry, which employs about 2 000 people.
De Beers said it would continue funding local training programmes.