One hundred years after diamonds were first discovered in southern Namibia, an agreement reached with De Beers at the end of last month will see local diamond production offered to local cutting plants for the first time.
According to the five-year agreement, 16% of sales will be offered to a dozen local cutting plants. But the jury is still out as to whether the 16% will be sufficient to allow the Namibian government, which has been in a 50-50 partnership with De Beers — known as Namdeb — since 1994, to establish a local cutting industry.
In terms of the agreement the Namibia Diamond Trading Company (NDTC) will be created to sell 16% of Namdeb’s ”cuttable” diamond production locally. Namdeb produces about two million carats a year, of which 48%, or 960 000 carats, are deemed of sufficiently high quality to be worth cutting and polishing.
Although Namibian Mines and Energy Minister Errki Nghimtina said that 320 000 carats, or the equivalent of $230-million worth of aggregate mixes, will be offered for sale locally, under the new deal only about 154 000 carats of this will be ”cuttables”.
This implies that the 12 companies, which have been holding cutting and polishing licences since the Namibian Diamond Act was passed in 1999, will have to fight it out for the estimated 13 000 carats that will be available every month.
Of these 12 licence holders, only three are operational, while four reportedly are awaiting clear signs of the NDTC’s intentions before commencing operations.
In a nod to concerns of overcrowding in the sector, the government has since imposed a moratorium on all new licence applications.
The balance of local production will continue to be sold to the De Beers-owned Diamond Trading Company (DTC), which is relocating its operations from London to Botswana, which owns 15% of the international diamond giant.
The sales agreement also specifically excludes ”specials”, namely gems larger than 10,8 carats. Excluded also are coloured stones, such as rare blue diamonds, that fetch an exponentially higher price than white diamonds.
The Namibian arrangement stands in stark contrast to the deal in South Africa, where De Beers South Africa is legally required to sell 50% of production by value to South African cutters.
De Beers is also required to offer all gems larger than 10 carats to South African cutters or pay a stiff export tax.
Industry sources say Namibia’s marine and alluvial diamonds are highly sought after for their quality and are used by the DTC to boost the aggregate quality of diamond parcels offered to their international sightholders.
The largest of the local diamond cutting firms, Lev Leviev Diamonds, has greeted the announcement with cautious optimism, but also raised concerns about how the rough diamonds will be shared out.
The MD of Lev Leview Diamonds, Kombadayedu Kapwanga, warned that if only 154 000 carats of ”cuttables” are to be sold locally, the industry will be stifled even before it can be established. Kapwanga also questioned whether the NDTC would sell rough diamonds at the same price as the DTC, as required by the Namibian Diamond Act.
Israeli tycoon Lev Leviev has warned repeatedly that his company will need some of Namdeb’s production to justify its investment in a plant that has a production capacity of 25 000 carats a month. Last year he threatened to close down the factory.
Critics of the deal have suggested that De Beers has safe-guarded its own interests by conceding only 16% of local production. Some have suggested that the government should have obtained 30% to 50% of local production — the equivalent of its share in the De Beers Marine (Namibia) and Namdeb joint ventures respectively.
But the same critics say that with the Namibian government heavily dependent on Namdeb for revenue — Namdeb diamonds account for more than 40% of Namibia’s export revenue, 7% of government revenue and 10% of GDP — its bargaining position vis-à-vis the international diamond giant was simply too weak to secure a better outcome.