[miningmx.com] — GOVERNMENT is looking to sidestep the hold of South Africa’s major polished diamond wholesalers on the local beneficiator industry by exploiting foreign legislation.
Delivering the department of mineral resources’ budget vote to parliament on Wednesday, Deputy Minister Godfrey Oliphant said government was looking for ways to leverage the African Growth and Opportunity Act (AGOA) and a free trade agreement with the European Union to offer small-scale diamond beneficiators access to new markets.
There are currently five major polished diamond wholesalers in the country.
“Since most of the beneficiators in this country do not have access to overseas markets, they have to sell their polished diamonds to these wholesalers,’ said Oliphant.
“The wholesalers, however, are alleged to have the propensity to drive down the prices of polished diamonds, thereby squeezing the margins of the diamond beneficiators. This has a negative impact on the profit margins of beneficiators, thus rendering their businesses unsustainable.’
AGOA provides access to markets in the USA, which consumes more than 50% of all diamond jewellery in the world. Also, a free trade area exists with the EU which provides for duty free access.
“Together with local diamond beneficiators, we will be exploring means to leverage on these instruments in order to facilitate access of local beneficiators’ goods into these lucrative markets,’ said Oliphant.
In his state of the nation address delivered in February, President Jacob Zuma specifically earmarked the diamond industry within the context of government’s beneficiation strategy, saying the sector could significantly assist in meeting the state’s twin imperatives of job creation and economic growth.
Said Oliphant: “South Africa is one of the few countries in the world who are involved in the entire spectrum of the diamond value chain, which includes exploration, mining, rough and polished trading, cutting and polishing, jewellery manufacturing and ultimately retail.
“It is however worrying that we remain a small player in the downstream sector of the diamond value chain with a disproportionately small and underdeveloped beneficiation strategy.’
Oliphant also singled out the lack of security of supply as another issue which added to diamond beneficiators’ woes, as most – apart from sight holders – do not have access to a constant supply of rough diamonds.
This has had a significant effect on beneficiators as it precluded them from long-term planning and led to secondary challenges, such as difficulty in accessing finance.
“Limited access to rough diamonds is often cited as one of the main reasons why the local downstream beneficiation industry has not really taken off,’ said Oliphant.
“We now have a fairly good sense of how much rough diamond supply is required to enable firms that had closed or scaled down their operations, due to lack of access to rough diamonds, to resume full-scale production.
“We are working with the State Diamond Trader and producers to ensure that there is constant supply of rough diamonds. In particular, we are engaging Alexkor and other producers in which the state has a stake with a view to developing a long-term solution to the challenge of the supply of rough diamonds for the downstream beneficiation strategy.’
