Beneficiation — the word is rough on the tongue and equally rough on diamond cutters. For Southern Africa, beneficiation represents the promise of jobs and a leveling of the playing field that is the legacy of apartheid, colonialism and economic exploitation. For New York cutters, beneficiation is a new cost of doing business.
Even before the South African government made beneficiation an official policy with its 2007 Diamond Export Levy Act, intuitive diamond firms in that country were bringing black Africans into the diamond-processing world. But the South African government wants more — much, much more — and it is looking to the diamond industry to deliver. Unfortunately, even in the best of economic times, the industry can provide only a small number of jobs. And, given the legacy of South Africa’s apartheid, with its racially segregated, two-tier Bantu education system, it has been very difficult to get South Africans up to the skill level needed for the demanding work in the diamond industry.
De Beers takes the challenge of beneficiation very seriously. Gareth Penny, De Beers managing director, says, “For the African diamond-producing countries, beneficiation is not optional, not a passing whim motivated by political correctness, but an imperative, an absolutely essential and critical part of their macroeconomic policy designed to uplift their economies to provide education, jobs and healthcare for their people, and to make poverty history.”
And yet, even with the best of intentions, the number of jobs in the “value-added” part of the diamond world — that is, beyond mining — are few. According to Tim Dabson, executive director of beneficiation for the Diamond Trading Company (DTC), “cutting and polishing employs about 2,500 to 2,600 people in Botswana, 1,200 in Namibia and about 800 in South Africa.” When asked why South Africa is on the low end of that chart, even though it had a head start in the hiring process, Dabson replies: “Cutting and polishing is a skill; it requires dexterity and a visual capability. But it also requires a base level of education.” It is widely agreed that that base educational level is available to a far greater extent in Botswana and Namibia than in South Africa.
Economic Uplift
Diamonds already have made a huge difference in the economies of Southern Africa. For Botswana, diamond mining contributes 30 percent of the gross domestic product (GDP) and 80 percent of export earnings. In Namibia, with far smaller production, diamond mining provides 8 percent of GDP and 40 percent of export earnings. In South Africa, while the diamond industry is a minor economic player — gold is the big income-earner there — it contributes just 1 percent of GDP but employs 14,500 people.
For the people of Southern Africa, the benefits of beneficiation are clear: skilled jobs, clean and secure work environments and decent salaries. In a region where one wage earner may support up to ten people, the payoff is huge. But, for the diamond-cutting firms, the up-front costs are considerable. Typically, training is done by “expats,” shorthand for expatriates, foreigners who bring their skills into a country to train local residents and who leave when the people they’re training can take their places.
“It takes six months before the local workers are sufficiently familiar with the process,” says Dabson. “They’re fully productive — technically and in terms of speed — in 18 to 24 months.” He foresees an eventual progression to an all-domestic work force, one with just a general manager from outside. “You can get to 90 percent quickly,” Dabson says. “Within two to three years, that should be your objective, with expats retained in key positions.”
The goal of having “citizens” — the new, preferred term to “natives” or “black Africans” — take over the entire cutting process bumps up against the reality of moving past basic mechanical skills to the art of mapping or marking the stones. Diamantaires are well aware that a good eye can get a much higher yield from rough. This is not so easily taught; it is more a sense that is acquired. “It is the last part of the process to be totally turned over to citizens,” says Dabson. “This stage is where the value is.”
Limitations
In an effort to encourage more downstream value-added employment, South Africa’s Diamond Export Levy Act of 2007 imposed a 5 percent tax on rough diamonds. Diamonds cut in South Africa are exported free of the levy. To South Africa, this must have seemed an easy road for increased income. For the New York diamond industry, it is a clear case of collateral damage. For the very large, very fine, very valuable diamonds, only the best, most experienced cutters will do. Resolving this dilemma means choosing the lesser of two evils. The exporter can pay the 5 percent levy, which can add tens of thousands of dollars to the upfront cost of a rough stone — or it can cut the stone in South Africa.
And that is the choice being forced on New York firms. On extremely large and valuable stones, the policy has turned some of New York’s most skilled cutters into frequent fliers who “commute” to work on stones in South Africa. Harvey Lieberman, head of rough buying and cutting for Louis Glick, says, “My cutters in New York have fewer stones to cut; we are doing more cutting in South Africa. A lot of the work that normally would come to the United States is staying there.”
These are stones that will never be cut by “citizens.” There are precious few cutters in the entire world who can tackle stones of 100 carats, 200 carats or more. Shanee Orbach, general manager for South African Diamond Corporation (SAFDICO) in Botswana, says, “The South African government’s expectations are not realistic. The industry works under very tight regulations; it’s very restrictive. As a result, you cannot optimize your profitability.” The unfortunate fact is that one of the long-term consequences of the Diamond Export Levy Act has been to reduce the profits of the very firms South Africa needs to create employment.
Article from the Rapaport Magazine - May 2010. To subscribe click here.