South Africa’s diamond industry at an inflection point of descent

As any diamond mine nears its end of life, it has a profound impact on the local industry. South Africa is an example of this change. The country’s diamond industry is looking at an enormous troubled times ahead. Ilan Kaplan, Chairman of South Africa Diamond Manufacturers Association (SADMA), in a recent interview, outlined the current challenges faced by South Africa’s diamond industry.

De Beers’ sightholder model ensured that the local manufacturers get a steady supply of diamonds, helping them plan their growth. However, De Beers sold many of its South African mines to Petra Diamonds who has a distinct sales model from De Beers. They identify buyers for roughs via a tendering process, which leads to no guarantee for the manufacturers that they will win a contract. Since manufacturers face supply inconsistencies, they find it difficult to make significant infrastructure investment. Besides, De Beers’ divestment has led to decline in number of sightholders from 25 around three years ago to only 8 now.

A substantial amount of roughs mined in South Africa is being sold to overseas buyers and the local processing industry is suffering as a result. Over last three years the number of people employed in cutting and polishing sector has reduced from 1,200 to 900.

South Africa being a highly regulated environment for businesses, many international players have stopped their investments in diamond industry. Coupled with the reduced investments, manufacturing costs have escalated making the business non-viable for many existing players.

SADMA currently has 35 members, of which five are small businesses. These young manufacturers face stiff entry barriers in terms of financing, technical know-how, sales and distribution knowledge and access to high quality roughs. Though, SADMA, De Beers and State Diamond Trader organization are trying to bridge these gaps via mentoring, setup of new facilities and training.

South African diamond industry is at an inflection point of mining lifecycle where the future road is only a descending slope. The finite nature of mined diamond supply means that this will happen to each region, and in coming years each of the diamond producing countries will face these challenges sooner or later.

 

1 COMMENT

  1. Apart from South Africa, there are many other diamond producing countries/ regions who will be at such inflection point soon unless they radically change their business model

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