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Power to the People

Mar 31, 2005 4:03 PM   By Martin Rapaport
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In an exclusive interview, Martin Rapaport discusses reform and beneficiation with Phumzile Mlambo-Ngcuka, South Africa’s minister of minerals and energy.

Martin Rapaport: How important is the diamond industry to the people of South Africa?

Phumzile Mlambo-Ngcuka: The diamond industry provides important employments and revenue as well as support for mining-related industries. Diamonds are also extremely vital to us because they provide jobs in remote areas that are unlikely to attract other forms of economic activity for these communities and vital for their continued existence.

MR: How would you like to change the diamond industry in South Africa?

PMN: Our goal is to ensure that the people of South Africa obtain a fair share of economic benefit from our country’s natural diamond resources. We want to give our people an opportunity to add value to our diamonds and gain the economic benefit of developing our resources. We wish to extend the economic benefit of diamonds downstream into diamond and jewelry manufacturing by enabling improved local access to our rough diamonds. The SADC [Southern African Development Community] region must realize greater benefits from diamonds.

MR: Will there be restrictions on the export of rough diamonds from South Africa?

PMN: Yes. If diamonds can be cut in South Africa, they will be cut in South Africa. Rough diamonds that are not suitable for cutting in South Africa will be available for export. The cutters — not the producers — will determine what is cuttable.

MR: How will the government decide which diamonds will be cut in South Africa?

PMN: We are developing a decision-making process that will ensure that local cutters have a fair say about the types of diamonds they can cut. A body of experts will assist government in deciding the types of diamonds suitable for cutting locally.

MR: Is there any intention to subsidize the diamond industry?

PMN: No. We will require the diamond industry to stand on its own two feet. If it cannot stand on its own feet, let’s not have it. We will, however, provide incentives to help the industry.

MR: What kind of incentives?

PMN: We will provide an enabling environment and infrastructure. They may include assistance in training and relocation of factories and workers.

MR: Will there be any changes to the Diamond Board?

PMN: Yes. It will take on a more regulatory role. It will no longer have members that represent their own economic interests. We will bring in people from government who represent the public interest and individuals from the private and professional sectors that bring the expertise and competence required by the regulators.

MR: Will De Beers be applying Supplier of Choice (SOC) criteria to South African sightholders?

PMN: We are waiting for De Beers to make a presentation on this. We want to be fair to De Beers and hear them out. After their presentation we will engage them — like never before — on the issues that are important to us. However, the objectives of the act are not negotiable.

MR: How will the government ensure that the Black Economic Empowerment (BEE) initiative applies to South African sightholders?

PMN: Everyone operating in the diamond sector must be licensed and the licensing procedures ensure BEE requirements. We also need their BEE partners to be hands on.

MR: What role will Diamdel play in the future?

PMN: There will not be Diamdel in the future. The government will own an equivalent to Diamdel. We are looking at acquiring Diamdel from De Beers, but the method of acquiring it is still a subject of negotiation.

MR: What should be done about the unprofitable mines of De Beers?

PMN: That is an economic decision for them. We are not forcing anyone to sustain mines that are unproductive. De Beers must make a commercial decision, but it must be humane. If a mine has to be closed after everything that could be done to save the mine has been done, then the law prescribes a social plan where they slow production and phase people out. They must follow that rule.

MR: How important is De Beers to South Africa?

PMN: They are very important. De Beers is a brand for South Africa. Obviously, their first priority is to make money and like all other companies they have their strengths and weaknesses. From the government’s perspective, we are trying to maximize on their strengths and to eliminate whatever weaknesses we can.

MR: If companies want to cut diamonds in South Africa and they have BEE partners, can they get rough diamonds?

PMN: Yes, provided enough rough is available. Shortages of rough diamonds are a great concern to us. We want to give local companies secure supplies of rough and are therefore working very hard to try and attract more rough diamonds, including from sources outside South Africa, into a government-owned supplier entity that will increase the availability of rough diamonds to the local market.

MR: Should foreign companies consider the establishment of cutting factories in South Africa at this time?

PMN: Yes, this is a good time to start talking to us so that when the law is adopted you are well positioned. We think that there will always be greater demand for rough than the market can provide. So it will pay to be among the first.

MR: Why is there a need for new regulations?

PMN: Current regulations have discouraged people from investing in downstream activities. They are literally barriers stopping people from beneficiation. Companies are in the habit of exporting rough without seriously considering the local added-value possibilities. The new regulations will remove the barriers and encourage firms to develop local downstream beneficiation.

MR: Will the new government regulations ensure sustainable beneficiation?

PMN: It is not just regulations that will sustain beneficiation. Regulation creates an environment that encourages people to take the first steps. Success depends on aggressive efforts by the private commercial sector to develop viable and sustainable commercial activity. That is the real test for us.

MR: So you seek to create an enabling environment?

PMN: Yes, South Africa can and should compete with other diamond-cutting centers. While we may not yet compete with India or China as much as we would like, Indians and others will come here because South Africa has rough diamonds and they do not. We feel we can compete on costs with Antwerp and Israel.

MR: How will development in southern Africa and your new regulations affect what will happen to other countries in the region?

PMN: We all want the same things for our people — jobs, security, economic development and greater local beneficiation. What is happening in South Africa is encouraging other countries in the region to adopt laws that promote their economic development. We will work together to harmonize our policies so that we may move forward together in a mutually beneficial manner. We believe that there is no point in trying to out-maneuver one another. South Africa wants to work together with other countries to create economies of scale that give us economic advantage. Between South Africa, Botswana, Angola, Namibia and the DRC [Democratic Republic of Congo], we produce about 50 percent of the world’s diamonds. If we take a stand on how we want to deal with our rough diamonds, we can make quite an impact on the world. Obviously, this must be done in ways that are positive for the global diamond industry because we want to maintain our positive contribution to the global industry. But we also want charity to begin at home — our home, Africa, the home of the world’s diamonds. We also want to close the chapter on blood diamonds and open a chapter on developing diamonds.

MR: What message do you have for the diamond community and jewelers of the world?

PMN: South Africa and southern Africa are open for business. Come here to the source of the world’s diamonds. Work with us to get the secure supply of rough diamonds that you need. Work with our people, provide jobs and utilize our infrastructure. Come to South Africa and work with us to build a better South Africa and a better diamond industry.
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Tags: Angola, Blood Diamonds, China, De Beers, Diamdel, Government, India, Israel, Jewelry, Manufacturing, Namibia, Production, Regulation, Sightholders, South Africa
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