Gov’t, De Beers team up to battle G7 plan
Government and De Beers have joined forces to fight off a proposal by the world’s richest countries that Minerals and Energy minister, Lefoko Moagi describes as “market swallowing”.
The Group of Seven (G7), which comprises the United States, the United Kingdom, the European Union and other industrialised states, has proposed tough new rules to stop Russian stones from entering the global diamond industry. Russia is the world’s largest producer of rough diamonds by volume and while the United States long imposed sanctions due to the invasion of Ukraine, Moscow’s diamonds continue to freely trade in the market and into the US.
The loophole, according to Belgian research firm, IPIS, is that Russian diamonds are cut and polished in India, whose firms handle 90% of the global diamond supply.
“Under the US sanction regime they are from that moment considered as Indian diamonds and can freely enter their market,” IPIS researchers said in a note.
Amongst its various elements, the G7’s proposal involves essentially directing global rough diamond production to a single node for certification that the stones are not of Russian origin. While the proposal is still preliminary, the G7 is understood to be pushing hard to finalise it and has selected Antwerp as the single node.
This week, De Beers and government representatives hit out at the proposal, publicly forming a united front against the planned move.
“As Botswana it goes against our vision about where we want to go to in terms of diamonds and value chain development,” Moagi told a press conference at the Natural Diamonds Summit on Monday.
“You see, what will happen when this single node commences, is that we produce rough here, then the ask is to take this rough to Antwerp and make sure it is certified.
“You get a little certificate, you come back to Botswana.
“You want to cut and polish it here – Antwerp to get a little certificate again. You want to make jewellery?
“Who’s paying all these costs and the time constraints that you have to go through?”
Outside Russia, the majority of the world’s diamond production is concentrated in Africa. Botswana, the world’s top diamond producer by value, has also built a global reputation for ethical mining. The country championed the establishment of the anti-conflict diamonds watchdog, the Kimberley Process Certification Scheme, 20 years ago and is most emblematic of the ‘diamond for development’ campaign.
Belgium, meanwhile, was reportedly initially hesitant to sanction Russian stones as Antwerp is a major diamond centre and Moscow’s production accounted for a quarter of imports in 2021.
IPIS researchers say it is still difficult to estimate how many Russian diamonds still pass through Belgium indirectly, via other centres such as Dubai or Mumbai.
Botswana, meanwhile, says it has not wavered on ethics in diamonds.
“We know where our diamonds come from and we know how they have developed our countries and therefore we protect them with the integrity that they deserve,” Moagi told Mmegi at the briefing.
“We are, therefore, so opposed to this single node identification process that some countries seek to impose on us.
“We believe that for over 20 years, we have managed that process well for our diamonds here, especially African producing countries and we believe that if anything, it should just be an enhancement to whatever we do in terms of the provenance journey that we want to continue using for our diamonds.”
The choice of Antwerp and the G7’s unilateral process to come up with a proposal has perturbed ethical producers such as Botswana.
“We believe that other than just putting up your position like that, we ought to have been involved from around the table where we say as producing countries, this is our concern,” Moagi said.
“Let’s sit around a table and talk about this because apart from the cost and the timing implications for the producer countries, it could actually just swallow the market for these natural diamonds, especially from the African producing countries.”
The latest developments confirm fears De Beers has had since at least April when the G7 began discussing how to strangle the flow of Russian diamonds into the global market. According to IPIS, while small compared to its oil and gas sector, revenues from Russia’s diamond mining have become increasingly important – both effectively and symbolically – as the sector remains one of the few industries unaffected by sanctions.
IPIS researchers said despite sanctions imposed by the US, which is the main consumer market for diamonds globally, Russia’s rough diamond exports fell by only a few percentage points in 2022, from a total value of €3.78 billion in 2021 to €3. 63 billion in 2022.
Earlier this year, De Beers’ executives engaged with top US State Department officials and others in an attempt to guide the tougher sanctions planned against Russia and avoid unintended consequences.
At the time, De Beers’ executive vice president for diamond trading, Paul Rowley, told local journalists the diamond giant was hopeful its concerns would be heard.
“The ‘how’ is really important to us due to the unintended consequences on ourselves and the countries where diamonds are very important to the economies there, like Botswana. “They are aware of the importance of diamonds to Botswana, to Namibia, and to the people, the lives that could be impacted unintentionally,” Rowley said.
On Monday, standing next to Moagi, De Beers’ CEO, Al Cook, described the G7’s proposals as “deeply concerning”. Last month, the CEO published an open letter to the G7 calling for a ‘collaborative, coherent, and collective’ approach and proposing several alternatives.
“We believe that countries like Botswana are able themselves to judge whether a diamond is from Botswana or not; it’s not a difficult thing when you are there at the mines in Jwaneng and Orapa,” Cook said this week.
“What we are worried about is that some elements of the G7 proposals could involve all the diamonds in the world having to go to a single node, a single place outside Africa for certification that they are not Russian.
“And we see that as a deeply concerning.” Cook told journalists countries like Botswana should have the freedom not to be forced to send their natural resources to a single other country in order to be certified.
De Beers and the World Diamond Council (WDC), a grouping of diamond industry players, have produced a counter-proposal to the G7’s plans. This plan would involve adding onto the WDC’s system of warranties – which ensures Kimberley Process compliance – a declaration that the diamonds being imported are not from Russia.
The system would complement De Beers’ blockchain traceability system, Tracr, which it made available to the broader industry earlier this year.
IPIS researchers have said the WDC proposal’s main weakness is that its chain of custody is trust-based.
“Its solidity depends on the weakest link because it only takes one negligent player to deceive all others further down the chain,” the researchers said.
With retail demand and prices for diamonds down by double digits this year, the standoff with the world’s richest nations – who represent the global market for diamonds – worsens an already difficult period for diamond-producing nations.