" ... ministry's antagonism towards the diamond giant."
Narrow escape for De Beers
August 29, 1997
Weekly Mail & Guardian
Government considered breaking the diamond cartel to boost black
economic empowerment, writes Mungo Soggot.
The Ministry of Minerals and Energy has investigated using
apartheid-era legislation, which gave local diamond cutters a
special deal, to promote black empowerment in the cutting industry.
The strategy, which would have involved restricting De Beers's
exports, reveals the ministry's antagonism towards the diamond
giant and its failure to accept the highly unusual cartel-like
workings of the diamond industry.
Documents from the ministry show it considered using the 1986 Diamond
Act to make South African producers sell their diamonds to local
cutters, in a bid to stimulate black empowerment. It even
dispatched a lawyer to international diamond centres to see how the
industry works.
But the ministry's lawyer, Advocate Nazir Cassim, SC, not only vetoed
the plan but also recommended deregulating the agreements that
give South Africa's cutters a choice of the world's best diamonds.
Cassim, who sits on the Diamond Board, says the Act "does not serve
the purpose which the minister and the new board [the Diamond
Board] would like to achieve. However, the object can be achieved by
co-operation in promoting a sound industry. De Beers is a South
African company and our loyalty must lie with De Beers in this
context."
The ministry's initiative is understood to have been led by Linda
Makatini, special adviser on mineral policy to Minister Penuell
Maduna. Makatini, who has had stint as acting chief of the Diamond
Board, was unavailable for comment.
The legal opinion drawn up for Maduna's office states that the
minister insists the board create opportunities to promote
employment and "redistribute the country's resources to benefit the
populace".
The document explains to the ministry exactly how the diamond market
works - namely that the Central Selling Organisation (CSO), which
controls about 80% of the world's rough diamonds, restricts the
supply of gems to buoy prices. It notes there are very few black
operations in the cutting industry, which employs only 2000 people.
But it suggests De Beers should continue supporting the training
schemes.
What makes the ministry's strategy intriguing is that under the
Diamond Act, South African diamond cutters already enjoy an
arrangement with the CSO - De Beers's London-based marketing arm
which regulates the world diamond market - that is more favourable
than anywhere else in the world. diamond cutters already enjoy an
arrangement with the CSO - De Beers's London-based marketing arm
which regulates=
It has also emerged that South African cutters have been selling on
millions of dollars worth of the rough diamonds they receive under
this special agreement. Diamond International reported in its
latest edition that of the $400-million in rough diamonds South
African cutters bought last year - $331-million of which came
from De Beers - they had polished only $316-million worth of their
own. The rest of the top quality rough diamonds were sold.
When the Diamond Act was drafted in 1986 it said South African
diamond producers - De Beers and other smaller producers such as
state-owned Alexkor and Rembrandt's Transhex - should offer
economically cuttable diamonds to local cutters or face a 15%
export duty. But as South African mines are no longer key producers
of the top quality gems that local cutters demand, the Act was
rejigged in 1993. An amendment to Section 59 stated that South
African producers could have access to the CSO's full range of
diamonds in London.
The Section 59 agreement says all South African stones weighing over
10,8 carats are reserved exclusively for South African cutters, as
are rare stones, known as "fancies".
Jack Jollis, managing director of Transhex, warned in 1995 of the
dangers of diamond producers being forced into creating employment
and "adding value". He said the drive to set up cutting operations
can stem from "political pressures to create employment and add
value. This political pressure is often fanned by ill-informed
pronouncements by parliamentarians and the media who are almost
certainly ignorant of the unique nature of the diamond business." |
