Africa's diamantaires in the rough
The wages of diamond cutters in Botswana and India are not dissimilar, yet in India there are 800 000 cutters and in Botswana only 3 750. The difference between the two countries stems largely from the productivity of workers.
De Beers, in its 2014 Diamond Insight Report, has said that the cost of cutting in 2013 ranged from $60 to $120 a carat in Botswana whereas in India the range varies from $10 to $50 a carat.
In working the smaller diamonds, Botswana is six times more expensive than India and for the larger more expensive stones Botswana is almost three times as expensive as India.
The reasons for these cost differences are: low productivity, low cost of ancillary services, and the difference in the number of working days in a year – 232 in Botswana as opposed to more than 280 days in India.
As a result, Botswana is limited to cutting stones of one carat rough and above.
The only bit of good news is that at the top end Botswana is becoming a slightly cheaper place to produce than was the case five years ago.
But Namibia and South Africa, the other two Southern African diamond-producing countries trying to beneficiate diamonds, are more expensive locations than Botswana.
It is for that reason (along with the supply of rough and what the industry considers draconian beneficiation requirements) that diamond-cutting employment in South Africa has almost halved in the past five years from 1 800 workers in 2008 to 1 000 in 2013.
In Namibia employment has fallen from 1 500 in 2008 to 970 in 2013.
The costs of cutting in Namibia ($60 to $140 a carat) and South Africa ($130 to $150 a carat) are higher, and tend to be rising faster, than in Botswana.
If the world’s “diamantaires” had their way, no cutting or polishing would occur in Southern Africa.
The answer to why cutting occurs in Africa is, as De Beers politely puts it in its publication, because of “government policy”. In other words, if you are a De Beers sightholder and you want Botswana or Namibian or South African rough diamonds, then you have to process some of them here.
How much? So far the answer is not very much at all. Last year about 23-million carats of rough were produced in Botswana and, if the Statistics Botswana figures are to be believed, the total volume of polished exports was a mere 273 000 carats.
Although the value of cut diamond exports from Botswana has been rising, the volume of diamond production has been more or less stagnant over the past five years.
Because of the low productivity in Botswana and because 80% of diamonds coming out of the ground are small (less than 0.2 carat), most diamonds have to be processed in low-cost centres such as Mumbai and Surat in India.
Jewellery and cut diamonds are India’s biggest manufacturing sector and it exists because the Indians have been able to produce cut diamonds cheaply and because they have access to Africa’s diamonds.
The employment numbers, costs and the general direction of beneficiation are not encouraging in Namibia and South Africa. In Botswana the results are better.
Zimbabwe and Angola also have serious aspirations to cut and polish diamonds.
But governments in Southern Africa require a real reassessment of what is being done in the region.
It is necessary to negotiate with workers and trade unions on the productivity issue. If agreements are not reached, and solutions are not found, the potential benefits of diamond beneficiation will be permanently lost to India.
Industrial policy in Africa has helped to create infant industries but has rarely, if ever, had sufficient focus on the boring, expensive and “unsexy” issue of nurturing the industry to become globally competitive.
The unfortunate response of some policymakers to low productivity and stunted development in this industry is to look for more value-added activities, such as jewellery-making, rather than doing the hard graft of addressing productivity issues in the cutting and polishing industry.
There are no simple answers to raising productivity and becoming internationally competitive, but, if successful, it is an activity that could create employment for tens of thousands of workers in Southern Africa.
These are the views of Roman Grynberg, and not necessarily of any institution to which he may be affiliated.