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Politics and diamonds: Africa catches strays as G7, EU sanction Russia

01 july 2024

The Group of Seven (G7), an intergovernmental organisation, which consists of the world’s largest developed economies (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States), worked together with the leaders of the European Union (EU) to impose sanctions on Russian diamonds.

The idea is to cut the revenue emanating from the diamond trade that the Kremlin needs to finance its war against Ukraine, which started in February 2022.

G7 and EU Sanctions were imposed on direct imports of Russian diamonds in January.

From March 1, the ban covered direct imports of Russian stones above 1 carat, and the same was set to begin from September 1 on diamonds over 0.5 carats.

However, the EU recently extended the so-called sunrise period for the mandatory traceability scheme by six months to March 1, 2025.

Diamonds destined for the EU now pass through Antwerp, a global diamond hub in Belgium, for purposes of traceability certification using blockchain.

This has led to some challenges despite guarantees that clearance of shipments would be done in just under 24 hours.

Complains

As Rapaport reported on March 14, at least 146 companies wrote a letter to the Antwerp World Diamond Centre (AWDC) complaining that although they supported the sanctions, the move had unintended consequences such as additional costs and slowing down shipments.

"The intention was to prevent the flow of diamonds from sanctioned states, but the reality we face is the severe disruption of our supply chains and alienation from the rest of global trade," reads part of the letter.

"This is resulting in [a] significant increase in expenses and [an] irreplaceable loss of business. We are failing to meet our customer orders and having to fund excess blocked inventory, and [we] are being demanded paperwork that was not asked for pre-emptively."

The letter further stated that some of the blocked goods included rough from African diamond-producing nations.

No wonder why Botswana President Mokgweetsi Masisi told France24 on the sidelines of a global summit in Paris recently that it was a "wrong decision" that all diamonds sold in G7 or EU countries should be certified in Antwerp.

He said that's "taking away our capacity to be in control."

"We are the producer countries. Why would we not be trusted?" he asked.

Windhoek Observer also cited Namibia's mines minister, Tom Alweendo as saying that subjecting all diamonds entering the G7 and EU to verification through a single node in Antwerp was a cause for concern because it would add additional regulatory layers, which could result in blockages, delays, and an increase in costs.

"This would mean that the certification issued in Antwerp could effectively nullify our ability to authenticate our diamonds as non-Russian in origin," he said while arguing that the Kimberley Process Certification Scheme had been rendered useless.

The Luanda-based African Diamond Producers Association (ADPA) executive director Ellah Muchemwa agreed that G7 was usurping the role of the Kimberley Process.

She warned in a letter addressed to KPCS chairperson Ahmed Bin Sulayem in March that the move would have a detrimental impact on the whole diamond industry.

"The expedited restrictions by the G7 and the European Union (EU) threaten to have negative direct and indirect economic consequences to the diamond industry throughout the supply chain from mine to finger, resulting in a 'lose-lose situation' for all," said Muchemwa.

"This is happening against the backdrop of a global macroeconomic downturn exerting pressure on the sales of diamonds that have already resulted in an inventory build-up and up to a double-digit price reduction for key sizes across the board since 2023."

Listening to concerns

Despite being a member of the G7, the United States is said to be reconsidering the severest elements of a ban on Russian diamonds from the grouping, after opposition from African countries, Indian gem polishers and New York jewellers.

Reuters reported on May 20, citing unnamed sources, saying that "Americans had disconnected from G7 working groups on the stringent controls".

"We will want to make sure that we strike the right balance between hurting Russia and making sure that everything is implementable," a senior Biden administration official said on condition of anonymity.

It is alleged that the G7 leaders had agreed that Antwerp would be the reasonable first hub, with others to be added later.

However, Reuters' sources said Washington had "cooled on enforcing traceability and that discussions on implementing tracing had stalled," while a Biden administration official said the commitment to implementing a traceability mechanism by September 1 applied to the EU, not the United States.

Some diamond analysts, like Edahn Golan, believe that an African node is in the offing and that the industry should "expect Belgium 'remote offices' in Botswana".

His comments on May 24 came after AWDC had said in a statement that it had pleaded for possibilities for one or more verification points outside the G7 and EU.

"We believe this is a necessary step in the further development towards a control system that meets the interests of all stakeholders involved, particularly those of African-producing countries," said AWDC.

The council said traceability was now a "new reality" and they are confident of political support in this vision of "optimal collaboration, transparency and efficiency".

In as much as a new node would be likely introduced in Gaborone, the concerns raised by the industry remain the same.

Verification in Botswana of all African goods will still cause delays and increase operational costs for the diamond producers.

The decision to sidestep KP in this certification process shows how the G7 and EU don't trust the diamond watchdog, which is credited for significantly reducing the trading of conflict diamonds.

It remains to be seen whether the full mandatory traceability scheme will be implemented from March 1, 2025, and if there will be a continuity once the war is over or if this will be a new reality as AWDC said.

For most African diamond producers, they should be thinking of an African proverb: "When elephants fight, it is the grass that suffers."

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished