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Ernie Blom: View From the Land of Diamonds

Apr 5, 1999 12:46 PM   By Martin Rapaport
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Ernie Blom serves as president of South Africa's Diamond Merchants Association which has recently been admitted as a member of the World Federation of Diamond Bourses (WFDB). Blom is the principal of Ernest Blom Diamonds Ltd., a firm specializing in rough diamond trading that receives a De Beers CSO rough sight.

MR: What's going on in South Africa?

EB: South Africa is basically no different than the rest of the world. We all agree that the trading conditions are difficult, so we're basically in the same boat as everyone else. We try to maintain a level of business so we can make a living and a profit at the end of the day, which is not easy.

Although South Africa has premium rough available, and the make of our polished is very good, we still have the same problems in selling as everybody else. So we are trying to maintain the status quo at the moment and carry on until the market turns.

MR: South Africa is the home of the rough. What benefits does the South African cutting industry derive from the fact that they are sitting in one of the primary production centers in the world?

EB: The benefit that the local rough dealers and diamond manufacturers have is the system of open-market buying. We can go into the buying areas on specified days and actually buy first hand South African rough on the market. I think that is a tremendous benefit –– first-hand rough that's available. A lot of the rough that you buy in Antwerp and Israel comes from second- and third-hand sources. We do have a regular supply of rough on the market, and the South African rough diamond is a good material that everybody really wants because there are no surprises. What you see is what you get. So there is benefit. There is a certain amount of rough exported, which the government is unhappy about, because they're looking for local benefits through local cutting.

MR: How can South Africa improve their cutting industry?

EB: We obviously have to become more cost-effective as a polishing center and bring down our cost per carat. The government has to level the playing fields in relation to what the other countries are doing. For instance, dollar accounts, which we don't have at the moment, and fluctuation of the volatile exchange rate. We also have to have zero rating on VAT (value added tax), which is a big problem for us because it's taking a lot of capital out of our business.

MR: Is Johannesburg a clearing center for rough from the rest of Africa?

EB: There is a fair amount of production coming from north of our borders, particularly Angola and Zaire. But the red tape involved in bringing goods from outside our borders is actually hampering the free flow of diamonds and the expansion of the sale of African goods. We need to address that problem and get the government to streamline the process of bringing in rough from outside of our borders.

MR: Is there any profit in manufacturing?

EB: At this point there's no profit in the manufacturing, or even the rough dealing process. Profit margins are very, very slim at the moment.

MR: I can understand that the manufacturing process might not be profitable because the rough prices are too high, but why not in rough dealing?

EB: Because of the high prices paid for the rough in SA, very small margins remain when you resell the goods, both locally and overseas.

MR: Are prices for rough higher in South Africa than, say, in Antwerp?

EB: I would say they are slightly higher. We have too many people chasing too few goods in South Africa, which ultimately tends to push the price out of relation to what the market pays at the moment.

MR: Are some firms importing rough to sell into the market?

EB: Yes, there are a certain amount of rough imports, and they are managing to sell. I, myself import rough from Antwerp and I manage to sell it in South Africa.

MR: So therefore there is efficiency in global markets. How are rough prices in general these days?

EB: Since the beginning of this year, rough prices have strengthened remarkably in all ranges except for lower colors. Higher prices have been made for South African rough due to their better quality.

MR: How about the bigger, better goods that De Beers is holding back so firmly. Do you feel a softening there as well?

EB: De Beers has created much better demand for all goods because they have held back supply. Prices have improved for outside goods due to De Beers tight allocation policies. There is very good demand for polished which is selling at reasonable prices. Medium ranges, from VS to good SI, are selling very easily at the moment up to fairly high colors. The low colors are fairly soft.

MR: How is credit here? Are people buying for cash? In all the major centers, people are worried about the credit situation. Is it the same in SA?

EB: I would say it is fifty-fifty. In the rough business we have no credit. We pay cash for our goods. It is very seldom that you get credit. If you do, the maximum is 30 days. As far as polished, certain of our bigger dealers do give credit –– 90-180-day credit –– and then a certain proportion is 30 days or cash.

MR: How many people are in the club?

EB: There are 250 members in both clubs –– 150 in my club.

MR: How much is South Africa producing?

EB: What we do know is that De Beers alone produces 10 million carats a year. The far greater portion of that is industrial. As far as the open market is concerned, it is also quite a substantial amount.

MR: How many cutters?

EB: Approximately 1,500 cutters.

MR: How about the future?

EB: I think all of us are depressed and a bit concerned at the moment because we do not know what the future will hold over the long term. We'd all like to think that the market is going to change. Profitability must increase and demand must be sustainable. When is it going to change? I think you need to be a genie to really foresee that. All we can really do is batten down the hatches, keep our costs low, try to make as much profit out of the goods as we can, and just hope that the market demand can be sustained. We've all come through previous crises and I know we're going to come through this.
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Tags: Angola, De Beers, Government, Israel, Manufacturing, Polishing, Production, South Africa, World Federation of Diamond Bourses (WFDB)
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