South Africa Faces Limited Growth in Diamond Industry

September 16, 2005

South Africa Faces Limited Growth in Diamond Industry

Intervention in the downstream diamond industry presents limited opportunities for growth, concludes a research study commissioned by South Africa's National Economic and Labour Council, according to Business Day. The study, by Kaiser Associates, concluded it would be difficult for South Africa to expand its share of any individual stage of the highly competitive and globalized diamond pipeline.

South Africa is far from major diamond jewelry-consuming markets and is not able to compete on scale, cost and quality, the study found. Other obstacles are the capital intensity involved, barriers to entry, and global competition from cutting and polishing countries such as India, Israel, the U.S. and China.

The South African government is currently planning to develop local diamond businesses and is proposing fundamental changes to the control of the industry and to the way diamonds are exported. Kaiser Associates' findings were presented to the South African Parliament's minerals and energy portfolio committee yesterday, ahead of public hearings next month on the Diamonds Amendment Bill.

The researchers found that promoting more work for South Africans in the diamond industry would be achieved at a relatively higher cost than intervention in other sectors. They recommended that "great care" should be taken in "expending resources on intervening in the sector, as returns may be limited."

The National Economic and Labour Council, with its labor and business constituencies, had agreed on some of the findings, but was still developing its position on others, executives told the committee.

The researchers said there were divergent views among the constituencies on the most appropriate way to develop South Africa's diamond pipeline and improve competitiveness. The study found that even if the industry changed, success could not be guaranteed due to the rapid progress being made in emerging competitor hubs such as China and Vietnam.

Most of the diamond cutting and polishing industry has shifted to cheap centers such as India and China, which represent 66% of the industry in value; 92% of local production by volume. The study found that 49% of diamonds by value are not economically cutable in SA.

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