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Ernest Blom Transcript from Antwerp Diamond Conference
International partnerships with South Africa have mutual benefits
Oct 16, 2007 7:11 PM
By Ernest Blom
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RAPAPORT... I speak to you today, as the president of the World Federation of Diamond Bourses, where my mission is to serve the common interests of 26 diamond bourses in 17 different countries. I also am a proud South African and a proud African, and as such, I am acutely aware of the pressing needs that the countries in my region have had to address in order to achieve what has become to be called the economic miracle.
I personally believe that a mutually beneficial partnership between the producing countries in Africa and the international diamond trade is the most viable strategy for encouraging long lasting and sustainable economic growth. Are the interests of Africa and the international diamond industry divergent? There clearly are those who believe they are. They feel that in promoting a policy that provides a foot up to their local industries, the producing countries are burdening other centres-- and in so doing undermining the interests of the world diamond trade in general.
While I understand these concerns, my intention today is to present the thesis that the domestic interests of the African governments and those of the international trade are not necessarily divergent. Indeed, I would argue that the international trade should embrace the African producing countries, because they have a direct interest in their continued economic and social development, and, consequently, their stability.
At the same time, I have on frequent occasions stressed to government representatives in my part of the world that they must be sensitive to the concerns of the international trade, because in the modern business environment our success is dependent upon our plugging into the global business and becoming part of it. It is imperative that an enabling environment be created,--for the diamond pipeline is just that – a pipeline. If it becomes blocked or the flow-through is slowed at any stage, all other sectors of the pipeline suffer.
There is another grievance in government circles which is directed at Western countries, and in particular at their business communities, who it is felt practiced a quasi-colonial system, long after colonialism in the classic sense was dead and gone. By most accounts the total worth of the world jewellery market is currently in excess of $150 billion per annum. The African continent traditionally supplies the major portion of the raw material that goes into the jewellery sold worldwide. But, despite that, we see less than 10 percent of the revenue.
The overwhelming proportion of the added value is obtained further down the distribution pipeline. Our government considers that as an historical injustice, and feels that there is a wealth of untapped potential. As businesspeople, we always prefer to make decisions based purely upon commercial grounds, and we would prefer to operate in a world in which governmental intervention is not part of the equation. But a democratically elected government does not and cannot take that point of view, and thus it is imperative that we be sensitive to its point of view.
The strategy of beneficiation that has been developed mainly by the Southern African governments is essentially designed to provide local diamond producers with easier access to rough resources. It does not provide the local industries with a significant price advantage, but rather it affords them opportunities that we were not necessarily provided with under the previous distribution system. Investors will come if the business environment is conducive to them doing so. If rough supply is the only incentive, then their stay in Africa will almost invariably will be a temporary one. We should never forget that diamonds are not a renewable resource. Africa’s economic future depends not only on what lies beneath the ground, but also by what exists upon and above the surface.
Ladies and gentlemen, as I suggested at the start of my address, the interests of the African producing countries and the international trade are not divergent. True, they are not exactly the same, but both depend entirely on a robust and profitable diamond business. Ultimately, we all are part of the same pipeline – producers, dealers, and also beneficiators. If one part breaks down it ultimately leads to the breakdown of the others. The result is a fall in profitability that is felt by all.
Here, allow me to address the producers. Over the past several years, we in the diamond cutting and trading sections of the pipeline have seen our profits cut to a bare minimum, and sometimes even less than that. Not only have we had to cope with the price of rough that increased at a pace far greater than the increase in the price paid for polished goods, but we also have acted as financiers for the jewellery trade, providing terms of payment while our own suppliers demand that we pay cash. Ours is a business that is capital intensive. Finance is the oxygen that keeps our body moving. Paper thin profit margins dissuade manufacturers from injecting personal equity into their businesses, leading to a flight of capital from the industry. The consequent rise in the level of industry debt make our financiers, the banks, nervous.
This means that we are living on borrowed time and money, and this will impact on the African producing countries, who only now have begun to emerge from being producers exclusively, to adding value to the rough product. By its very charter, the World Federation of Diamond Bourses supports the development of diamond centres in as wide a variety of markets as possible.
Over the past several years, we have encouraged the establishment of bourses in countries like Russia, China and the United Arab Emirates. Applications are currently being processed from organisations in Canada, Australia, Panama and Mauritius. We would welcome the opportunity to work with the developing industries in Africa. South Africa is home to one of the veteran WFDB bourses, but it is the only bourse operating on our continent. We would happily assist in the expansion of our network in the region, because we believe that the development of an open, free and transparent diamond trade, operating according to strict industry standards, will benefit all of us. .
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Tags:
Australia, Banks, China, Government, Russia, South Africa
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