S Africa's cap on diamond exports may hurt local cutting industry

South Africa's proposal to amend its Diamond Act and cap exports of rough diamonds may have serious repercussions for India. India, the world's largest diamond cutting centre, currently imports 60 per cent of rough diamonds from South Africa, valued at around $1.6 billion.

Around 11 out of every 12 diamonds are polished in India, stated De Beers, the global diamond company with operations in five continents. Annual gross rough imports into India account for about 170 million carat and $6.1 billion in value terms.

At present, India cuts and polishes diamonds at $25-45 per carat. However, polishing rate in South Africa is $75 a carat.

"We need to find a model whereby it is possible for South Africa to polish low end diamonds," said senior officials at South Africa Diamond Board. Instead of exporting 90 per cent of the production, there is a need to keep another 10 per cent for South Africa's own growth, they added.

Thus, the proposed amendment to the Diamond Act is with a view to empower the people of South Africa and offer them opportunity to add value to the rough diamonds mined in the country.

This will help extend the economic benefit of diamonds downstream into polished diamonds and diamond jewellery manufacturing, stated the South Africa's minister of minerals and energy, Phumzile Mlambo-Ngcuka in an interview to Rapaport, a diamond report magazine.

"The government is encouraging global mining groups to come to South Africa to the source of diamonds. As we are a developing country, we desperately need to create more jobs," senior officials of South Africa Diamond Board told Business Standard in Pretoria, SA.

De Beers' new business and strategy head, Richard Napier, however, pointed out that it would be difficult for producing countries to compete in pricing with India.

Against average cutting costs of $6-8 in India, the cost is as high as $35-40 in South Africa. "The cutting cost should be 10 per cent of the total price of rough diamonds," he added.

Sanjay Kothari, convenor, promotions, marketing and business development, Gem and Jewellery Export Promotion Council (GJEPC), also believes that the cap on exports of rough diamonds from South Africa to India is not likely to have any immediate effect on the Indian operations.

India already sources diamonds from mines in Australia and Russia and is actively scouting in other African countries as well.