SA Parliament Considers State Diamond Trader

October 13, 2005

SA Parliament Considers State Diamond Trader

The South African Parliament has been holding public hearings in Cape Town all week on a bill that would require diamond producers to offer an undefined percentage of their production to a new state diamond trader. It would also establish a 15% export duty, and require producers to offer rough stones destined for export to a central diamond exchange.

Supporters of the bill appeared before the Parliamentary Portfolio Committee on Minerals and Energy urging quick passage. "We wish to have this bill implemented urgently, as our members have been experiencing extreme difficulties over the past few years in obtaining sufficient quantities of rough diamonds," said the United Diamond Association of South Africa, which is also supported by the Congress of South African Trade Unions.

But some opponents of the bill say allowing the state to deal in any commodity is a mistake. "I don't believe any government body that deals in any commodity is qualified to do so, and unless checks and balances are put in place it ultimately leads to corruption," said Brian Gutkin, chief executive of Krochmal & Cohen Diamond Cutting Works, speaking to local South African media.

At the Oct. 12 hearing, De Beers weighed in with its views. It urged the committee to consider its suggested amendments to ensure that the legislation achieves the governmentıs stated objectives for a successful, sustainable and transformed downstream diamond industry.

"De Beers shares government's goals of a transformed industry and is fully supportive of the objectives of the Diamonds Amendment Bill. [It] has, however, concerns over some of the particular measures proposed and believes that deliberation and modification are necessary to ensure that the stated objectives are met. We plan to work constructively with government to address these issues," said Gareth Penny, managing director of the Diamond Trading Co. and managing director-designate for De Beers.

SA President Thabo Mbeki's government has championed the bill as part of a broader push to process more minerals locally. Black dealers, cutters and polishers also support the bill because they believe it would improve their access to a sector dominated by minority whites.

In a nod to government wishes, De Beers said at the hearings that it had offered the state a 50% share in its Diamdel sales unit, which supports and supplies small and mid-sized South African manufacturers, according to the Financial Times of London. De Beers also pledged to make southern Africa a "diamond hub" by bringing to it one of DTC's core activities, aggregation.

But, De Beers said the bill in its current form would lead to lower profitability and large-scale job losses in the industry. It claimed the proposed bill would result in fewer suitable rough stones being made available for cutting and polishing in South Africa.

De Beers sends stones mined in South Africa and elsewhere to the DTC, which returns a "global mix" of varying stones for local cutting and polishing. The practice predates black majority rule in South Africa, when white governments were also keen to promote local industry.

Over the past five years, De Beers says it has sent back an average of 13% more stones than it mined locally. South Africa already cuts and polishes more diamonds locally than any other producing country, the company said.

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