JUST NOT CUTTING IT
The process of making much-needed changes to legislation in the diamond sector has stalled, and this is being blamed for the woes of the local cutting and polishing industry
Four years after a previous mineral resources minister, Susan Shabangu, admitted that the Diamonds Amendment Act “had not yielded sufficient results” and promised it would be reviewed, nothing has happened.
A state-owned entity, the State Diamond Trader (SDT) was established in terms of the act in 2005. Its purpose is to buy up to 10% of run-of-mine diamonds mined in SA each year and sell them to black cutters and polishers to promote local beneficiation and empowerment.
The diamond industry regards it as a costly and irrelevant bureaucracy imposed on producers and beneficiators, and the SDT is looking at ways to improve its effectiveness.
The regulatory torpor in the diamond sector mirrors the lack of urgency in concluding the Mineral & Petroleum Resources Development Act (MPRDA) amendments, first proposed in 2013.
There is a separate office, the SA Diamond & Precious Metals Regulator, which facilitates the buying, selling, import and export of diamonds through the Diamond Exchange & Export Centre. It also aims to increase access to diamonds for local beneficiation and promote participation of historically disadvantaged South Africans in the industry.
Before the SDT was established, De Beers subsidiary Diamdel RSA supplied aggregated cuttable rough diamonds to 106 cutting and polishing businesses outside its sightholder network. It closed in 2007.
Ernest Blom, chairman of the Diamond Dealers Club of SA, says the number of cutters and polishers in SA has dropped to about 200-250 today, most of whom are black, from about 4,500 15 years ago.
SDT CEO Futhi Zikalala Mvelase says the numbers need to be interrogated. She is sceptical about the figure of 4,500. She says it was inevitable for SA’S cutting and polishing industry to have evolved over the past 15 years, just as it has in other countries. In Belgium, for example, the number of cutters and polishers has fallen from about 25,000 to 1,000.
In SA there are more one- or two-person businesses than there were before, and the SDT wants to help them to grow into larger entities, she says.
The SDT’S most recent annual report shows that of 47 companies to which it sold diamonds in 2015/2016, three were “growth and transformation” companies, 20 were small black-owned entities and 19, who accounted for 76% of sales by value, were larger beneficiating companies. Zikalala Mvelase says those larger companies had empowerment of 20%-30%, but were not wholly black owned.
Last year the SDT bought 3% of locally produced diamonds, well below the 10% envisaged in the legislation. It made a loss of R3.1m for the year, more than double the previous year’s.
Zikalala Mvelase says there was a severe downturn in the global diamond industry for the first three quarters of the 2015/2016 financial year, which affected the SDT’S customers and its income. Small cutters and polishers in SA, like those in other countries, found it hard to get funding, and offtake was weak.
John Bristow of the Global Diamond Network believes the SDT serves no function in its current form, since it is not managing to grow the number of historically disadvantaged cutters and polishers — in fact, the industry has largely been destroyed in the past few years. Another problem is the red tape associated with the functions of the SDT.
Bristow says there is a desperate need for a comprehensive review of all legislation relevant to the junior and small diamond sector, including all related facets, such as the SDT. “Unless this happens soon, and practical enabling policy is implemented, this industry, along with the broader junior mining sector, will end up on the scrapheap.”
Blom says there have been no discussions with the local diamond industry about amending the legislation. The model for the SDT is wrong, which is why it has not succeeded in growing the downstream industry, he says. It can only buy run-of-mine production, which includes a proportion of smaller and lower-quality stones that the local industry cannot beneficiate.
Zikalala Mvelase says the department of mineral resources is aware that legislative amendments are needed, specifically on the issue of buying run-of-mine production at fair market value. But the department has to complete the MPRDA amendments first.
Blom says abolishing the SDT would not necessarily help the industry, since there are other contributing factors, such as SA’S inability to compete.
Asked about merging the SDT with the regulator’s office, Zikalala Mvelase says it is one of the questions that has been raised in the discussions on how to improve mechanisms for growing the downstream industry.
What it means: The State Diamond Trader bought 3% of the locally produced diamonds in 2016, not 10% as envisaged in legislation