Red Tape Is Strangling the South African Diamond IndustryOctober 23, 08
At the South African Diamond and Precious Metals Regulator’s (SADPMR) Indaba held in Johannesburg last week, it was unanimously agreed that the Mining Charter is not aligned with the growth and sustainability of the local diamond, precious metals and jewelry industry.
“Over-regulated,” “duplicitous” and “scary” were some of the descriptions used to describe the regulations that most companies – apart from the larger mining operations – don’t have the infrastructure with which to comply.
“The restrictive aspects of the regulations are having a negative impact,” said Roger Baxter, chief economist of the Chamber of Mines. “Today is a defining moment for our industry in how we are going to address the problems in order to see significant change and new growth.”
Baxter was one of the speakers at the Indaba, called to discuss the impact the implementation of the 2005 Amendments to the Diamonds Act, 1986, and the Precious Metals Act, 2005 have had on the local industry, as well as to express the dissatisfaction of the establishment of the SADPRM and the problems surrounding the troubled State Diamond Trader (SDT).
The SDT was set up to facilitate the beneficiation process within the diamond industry; SA, traditionally a producer and exporter of rough diamonds, is trying to enhance the value of its trade by further developing the cutting and polishing industry within the bounds of the country’s black economic empowerment (BEE) policies.
Members from all sectors of the industry – mining, producers, dealers, skills development, unions, councils and so forth – looked at the snakes and ladders of the industry which is facing a period of crisis.
Amongst the snakes were:
· Short supply of rough to the local community
· Price of rough increased by 10 percent to-date
· Loss of skills to Botswana and other neighboring countries
· Delayed agreement with producers on the price of diamonds
· Significant increase of export of rough diamonds
· Lack of competitive advantage issues such as VAT free, duty free, special economic zones, etc.
· The global economic slowdown and SA’s unresolved electricity supply problems
· Gold production down more than 17 percent
· Platinum production down
· The negative environment generated by the SADPMR and SDT
· The problematic Mining Charter requirements for small to medium size enterprises
· The Governmental disinterest over consultation with the various stakeholders
· Unreachable access to funding
· The growing numbers of retrenchments
· Lack of metals financing
· An estimated reduction of over 50 percent of new business entering the market
· Reduction in precious metal consumption in the jewelry industry by of 29 percent+ in the last two years
· Reduction of import duties
· Constant need to duplicate applications to Government
The list goes on…
“The current situation is untenable,” said Baxter. “Urgent leadership intervention is required.”
“The regulations,” said Ernie Blom, chairman of the Diamond and Jewellery Federation of SA and a board member of the SADPMR, “whilst noble are certainly not practical. On the diamond side, we have been aggravated by the intervention of the SDT, which is now supplying the local industry with up to 85 percent of undesirable rough diamonds. The model is just not working.
He emphasized that, over the next five years, the local diamond industry’s top six challenges included:
· Supply shortage
· Pricing/lowering profit margins
· Synthetic diamonds
· Reputation risk (SA is now seen as one of the least popular investment opportunities)
· Supply chain transparency
· Conflict diamonds
Blom also commented on problems facing the jewelry sector, of which SA contributes less than 1 percent of the global jewelry demand. “Our entire manufacturing industry could fit into one factory in China,” he claimed.
Four breakaway sessions were held for attendees to propose practical solutions to the challenges. These included: a) precious metal producers; b) diamond producers; c) precious metal beneficiators; and d) the diamond trade.
Many of the attendees were members of the board of the SADPMR and re-iterated their commitment to facing the challenges head-on and to seek for solutions.
“We have a responsibility to ensure that we do not lose the momentum,” said Baxter, also a board member. “Damage will be extensive if we don’t do something immediately.”
A strategic planning session is planned for the 15 November to review the proposed solutions.