Demands by African diamond producers are changing the more than a century-old way the diamond industry has operated.
Their insistence that they secure a greater portion of the diamond value chain is driving the dramatic restructuring of worldwide rough-diamond supply channels, industry watchdog the World Diamond Centre said on Wednesday.
”The producers will no longer accept that African countries operate exclusively as suppliers of rough diamonds whilst higher-value operations of the distribution pipeline occur elsewhere,” centre chief executive Freddy Hanard said.
For more than 100 years, the international diamond business has operated within a carefully regulated environment anchored by De Beers.
In less than a decade, this single-channel supply system, which handled 90% of the world’s rough diamonds, has become a multi-channel system, with De Beers’s share cut by half.
”Inevitably this is changing the rules of the game,” Hanard said.
Ensuing legislation to give untried local cutters and polishers ”first pickings” of diamond output and impose levies on exports of rough, as well as moves to relocate the sorting and distribution functions of De Beers’s Southern African diamond production from London to Botswana, are raising questions about the degree of change and the effects this will have on the diamond market.
”With the opening in 2008 of the giant joint De Beers and Botswana Diamond Trading Company in Gaborone, one of the most significant shifts in the history of the diamond-distribution pipeline will be under way,” Hanard said.
”This massive facility, which reportedly will become responsible for sorting and distributing all of De Beers’s Southern African production, will reduce the traditional role played by the Diamond Trading Company in London.”
He said members of the industry are now questioning how and where they will obtain rough diamonds in the future, and where they will process their diamonds.
The need to secure a greater portion of the diamond value chain has been made an issue of critical economic and political importance in Angola, Botswana, Namibia and South Africa, which together supply more than 50% of the world’s rough diamonds — and on Tuesday Zimbabwe announced it is to follow suit.
Hanard questioned the viability of the new cutting operations.
”There has been a dramatic increase in the number of large diamond companies that have set up cutting plants in the region. Questions have been raised about the viability of this fledgling industry, which faces stiff competition from India and China, and currently lacks the physical and financial infrastructures that are available elsewhere,” Hanard said.
The South African government recently announced the establishment of the State Diamond Trader, which will supply local cutters with 10% of the nation’s diamond production. — Sapa