Spreading the diamond wealth
New York Times, June 9, 2006
LAS VEGAS — When Warner Brothers releases "The Blood Diamond" this autumn, starring Leonardo DiCaprio as a diamond smuggler in Sierra Leone - the West African nation torn asunder in the late 1990s by diamond-financed rebel armies - De Beers will be ready.
The mining house, which controls roughly half the world trade in diamonds, unveiled a public relations campaign in Las Vegas on Monday during the jewelry industry's largest buying fair to position the stones as a source of hope, not conflict.
"We want to tell the story of how important diamonds are to Africa," Allan Mayer, managing director of Sitrick & Co., a Los Angeles-based crisis management firm hired by De Beers, said at the conference.
For almost its entire 118-year history, De Beers has relied on Africa as a source of rough stones and on London as mission control. An unmistakable sign that this is no longer the case is the miner's decision to move its global sorting operation in 2008 from its current location on Charterhouse Street in London to a site under construction in Gaborone, capital of the largest diamond producer, Botswana.
The transfer to Africa of the so- called London mix - a blending of De Beers's global mine intake into 16,000 categories of size, shape, color and quality - would end a system, in place since the days of the company's founder, Cecil Rhodes, that sees billions of dollars of raw diamonds exported from southern Africa every year to be cut, polished and set into jewelry elsewhere. And it underscores the continuing change in the global diamond industry toward shifting control of the fate of diamond resources to the countries that mine them.
The market for uncut stones is valued at $13.4 billion a year, of which the marketing arm of De Beers, called Diamond Trading, controls about half, according to WWW International Diamond Consultants, a mining and exploration consulting firm in London. By comparison, retail diamond jewelry sales in 2005 were valued at $70 billion.
Diamond-producing countries in southern Africa are looking to bridge that gap by promoting local beneficiation - the processing of the rough stones into cut and polished gems - to bring themselves a bigger share of the downstream profit.
Such is the rush of competing diamond dealers to set up shop in southern Africa that governments in the region "are having to put up a traffic light," said Elliot Tannenbaum, a principal of Leo Schachter Diamonds, a Diamond Trading client - known in the trade as a sightholder - that opened a factory in Botswana in 1998.
Like similar movements in neighboring Namibia and South Africa, which are also pressing for value-added industries to help profits stay close to home, Botswana's push for beneficiation is indicative of the newfound leverage of African producers over the diamond distribution chain.
Because skilled labor is in relatively short supply, the estimated cost of cutting and polishing diamonds in southern Africa is $40 to $60 a carat, compared with $10 a carat in India and $17 a carat in China.
Conventional wisdom holds that anything less than 50 points, or half a carat, is best left to countries like India, where a trained labor force of more than 900,000 is adept at handling small, poorer-quality stones. African cutters, the argument goes, should focus on bigger and better-quality diamonds, with a value high enough to absorb the higher cost of labor.
But critics of local processing - some neutral, some with obvious vested interests to protect - warn that in addition to raising costs, nurturing a cutting industry in southern Africa could jeopardize businesses in New York, Antwerp and Tel Aviv, the traditional centers for cutting carat-plus stones, that may be unable or unwilling to operate in the region. Critics also contend that beneficiation could do more harm than good locally by forcing governments to subsidize industries that may not be economically sustainable.
"The 'Africanization' of the diamond industry is a rational trend," said Martin Rapaport, chairman of Rapaport Research, which provides analysis of the international diamond industry. "But is it good for the economy? Would these people be better off trained as computer workers?"