South Africa’s diamond story began in the 1860s when the 21.25-carat ‘Eureka Diamond’ was discovered on the banks of the Orange River in the Kimberley region. According to Cape Town Diamond Museum, over the next few years, the country yielded more diamonds than India had in over 2,000 years. The following diamond prospecting rush and mining company establishments, including De Beers, had a crucial impact on building the country’s reputation for diamonds and transforming the industry as a whole.
Today, South Africa still ranks among the top 10 diamond producers globally, producing 10 percent of the world’s diamonds. In 2016, around 8.5 million carats of diamonds were mined locally, based on the statistics from Chamber of Mines of South Africa. Despite the significant status of the country’s upstream operations, its diamond manufacturing industry has been unsatisfactory after the booming period 20 years ago.
Started in 1928, South Africa’s diamond manufacturing industry used to play a pivotal role in the globe. The country rose to be the fifth largest manufacturing centre around the world with numerous foreign manufacturers setting up factories there. As Ehud Arye Laniado, diamond expert and principal of the diamond pricing consultancy Mercury Diamond revealed, at its peak prior to the 2008 economic crisis, around 3,000 diamond polishers were recorded, processing estimated 140,000 carats annually. However, things changed after the economic crisis had broken out. The local industry was not cost-competitive enough to compete with other manufacturing centres. Thus, many companies left the market or ceased business completely.
Beneficiation projects
In a move to boost growth of the midstream trade and provide equitable access to and beneficiation of South Africa’s diamond resources, the state-owned State Diamond Trader (SDT) initiated ‘diamond beneficiation’ programme to purchase up to 10 percent of the run-of-mine diamond production by value from all local producers. By securing the ongoing rough sources for local manufacturers, SDT aims to attract new entrants to the industry so as to ease the declining workforce over the last decade.
For years, the main channel to acquire rough diamonds is through the tendering systems of producers with fierce competition. “The programme facilitates participation of historically disadvantaged South Africans by giving them access to rough within their wallet share,” said Mervyn Carstens, chairperson of SDT. He stated that among the overall 200-300 local diamond manufacturers currently, a total of 76 have registered in the programme to buy roughs.
Thoko’s Diamonds is one of the buyers in the programme. Established in 2004, the black-owned diamond manufacturer cuts and polishes diamonds in size ranging from 0.5 to five carats with main products at 70 points, 90 points, one carat and 1.5 carats. Company managing director Zipho Dlamini told Hong Kong Jewellery: “The most important thing of the industry is sustainability. With the support of SDT, we have secured goods every two months and can carry on manufacturing.”
Emphasising that South African manufacturers need to showcase the world their ability of processing diamonds in high quality, Erez Sasoonker, director of Rez Diamonds (Pty) Ltd said the ‘diamond beneficiation’ programme works well with strong support from local diamantaires as it brings first-hand rough sources. The company employs 15 highly-skilled local workers and primarily manufacturers polished stones of one carat above. Recognised labour shortage of the industry, they also joined the government’s training programme to help infusing new blood into the industry.
Besides the government, key stakeholders of the diamond industry share the same objective of facilitating the transformation and growth of the diamond cutting and polishing sector in South Africa. Among them is De Beers who took the initiative to launch the enterprise development project for diamond beneficiators in Johannesburg in June 2016. Five black South African-owned diamond manufacturers have been selected to participate in the developmental project. De Beers provides bespoke rough diamond supply to the participants, whilst they are part of the development programme and, on completion, they can apply as accredited buyers of De Beers before they are ultimately in a position to apply for sightholder status.
Bruce Cleaver, CEO of the diamond guru commented: “For De Beers, beneficiation is the right thing commercially and strategically to be involved with, for our benefit, that of the industry and South Africa.”
Polished market sees slow recovery
According to Rapaport’s RapNet Diamond Index (RAPI) in January 2018, the RAPI for one-carat diamonds softened 0.8 percent in the fourth quarter of 2017 and fell 5.3 percent for the full year, which is the sixth consecutive year of decline for the category. Although the tough conditions of the midstream trade continue, the market sentiment has improved in December mainly due to holiday jewellery sales in the United States.
In South Africa, manufacturers still keep their stock for months for a better price. Production activities continue as factories need to remain active, though volumes tend to drop, noted SDT chairperson Mervyn Carstens. He believes that the local industry is with hope as rough prices will stabilise to strike a balance between the mid- and up-stream segments, together with the favourable policies and programmes the government offers.
As a member of SDT’s beneficiation programme and De Beers’ enterprise development project, Kwame Diamonds is a women-owned company specialised in polished diamonds weighing from 70 points to 10 carats. Managing director and co-founder Jo Mathole said the industry has been a bit slow recently, but it will definitely pick up with government support. With the funds from the government, the company uses the latest technology and devices to maximise their production and trains workers. “South Africa is a diamond producing country, thus there is no reason we shouldn’t use our own sources to create jobs, and no doubt we have the expertise to process diamonds,” she emphasised.
“It’s challenging especially at this point. Compared to three to five years ago when we got five- to 20-percent margin, we almost get no margin from the rough prices we get nowadays. The polished prices are really down,” expressed Zipho Dlamini of Thoko’s Diamonds. He also said that they are in dire need of signing contracts with jewellers to supply stones on a regular basis, which will sustain the company’s turnover.
Rez Diamonds’ Erez Sasoonker felt the same regarding the imbalanced polished prices. “We get the same prices as Indian companies buying from the tender, but costs in India are much lower than us. So they already beat us. We need to have the edge, which is why we specialise in the large-stone segment where we can compete,” he said.
Building long-term partnerships and setting suitable product positioning are effective development strategies for South African manufacturers to differentiate themselves. For the whole midstream industry, as Olya Linde suggested in the Global Diamond Industry 2017 report, the future will depend on the interplay of rough and polished prices, and the segment’s ability to make continued operational improvements.
Future plans
Aimed at promoting the beneficiation industry of South Africa, SDT organises local diamantaires to exhibit at overseas trade fairs for years. Mervyn Carstens says that the government will also offer additional benefits including reduced taxes and export infrastructure to local manufacturers in the new special economic zone.
The manufacturers Hong Kong Jewellery talked with also reveal their plans in 2018. Jo Mathole says that Kwame Diamonds will move to the government’s tax-free zone and empower more women to go into the diamond industry. Erez Sasoonker of Rez Diamonds plans to build a larger factory, hire more employees, and increase production this year, while exhibiting only at the September Hong Kong Jewellery & Gem Fair which, as he said, is an effective way to engage with a wide range of customers. According to Zipho Dlamini, Thoko’s Diamonds has signed a contract with a US-based jewellery wholesaler who focuses on diamond origin assurance, to start sourcing them this year.
Although the future of South African diamond manufacturing industry is unforeseeable, one common aim among the practitioners has emerged: to recapture the country’s diamond legacy.
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