The latest meeting between Vladimir Putin and Jacob Zuma, which took place in Sochi on May 16, 2013, caused a number of optimistic comments in Russian and African media on the prospects for bilateral relations. Some saw these contacts as an attempt of a new "discovery" of Africa, Russia’s attempt to recapture at least some of the positions that have been lost as a result of the collapse of the Soviet Union (see BDlive). Of course, in comparison with the United States and some European countries, not to mention the powerful Chinese expansion, the "new entry" of Russia in Africa still looks pretty timid, though the trend is clear: there are more frequent diplomatic contacts and growing trade turnover.
Access to African resources has long lost its ideological tinge and national governments are quite pragmatic about it, while the Chinese model used to open up Africa based on roughly equal investments in mining projects and infrastructure has proved its competitiveness. This way, though ignoring the ethical and often environmental problems, made it possible for China to enjoy triumphal penetration over the past decade into the economy of most African countries rich in mineral resources. For Russia, such practice is unacceptable for many reasons. But there might be a Russian asymmetrical response and it lies in the diamond industry.
During the time that has elapsed since the elimination of the single-channel system in the organization of the diamond market, there emerged clearly identified challenges to which today no one can give adequate answers:
- The absence of generic marketing, which is steadily leading to a decrease in the share of diamond production in the overall balance of luxury consumption;
- The volatility of prices for rough diamonds, which is difficult to forecast and control, provoking speculative bubbles, annihilating manufacturers’ margins and complicating bank crediting to the diamond industry;
- The ethical problems associated with the expansion of the "conflict diamonds" definition and the desire of some industry participants to "monetize" the issue.
Fruitless discussions of the above topics and many derivative problems have been going on for about ten years. They result in palliative solutions that are sometimes important, but always of a short-term value (as, for example, was the suspension of production by De Beers in Botswana in 2009) and unable to outline some perspective. The market is obviously suffering from the absence of a regulator able to take on generic marketing, eliminate or at least substantially reduce the volatility of rough prices putting them back to steady and smooth growth so inherent in the very concept of "diamond" and guarantee the purity of diamond goods from the most demanding ethical positions.
In this situation, there is no mining company able to perform such work. They operate in a competitive environment, and a cartel is excluded for obvious reasons, while the market share held by each company prevents them from playing the role of a regulator and the more so to control ethical problems.
But a union of major diamond producing countries - Russia, Botswana, South Africa and Angola - is quite able to handle the role of a regulator. These countries together have a "controlling interest" in the world diamond production by volume and value. Diamond production in these countries is to a large extent under state control and there are appropriate services and legal framework, which are developed and efficient. Legitimate state control over the industry ensures ethical purity of goods to the maximum extent, a priori exceeding any corporate control. Intergovernmental agreements will create a mechanism for the regulation of prices based on production quotas and joint management of diamond stocks permitting a sales system quenching volatility and being convincing for lenders to the industry. And, of course, such an alliance could bear the burden of generic marketing, providing a worthy role to the diamond among other luxury goods.
In its time, the oil market followed the same way: from the cartel of leading oil companies established in the early 1930s to the Organization of Petroleum Exporting Countries (OPEC, founded in 1960). Of course, diamonds and oil are very different products, but the analogy seems appropriate. Appealing to many years of positive experience of De Beers in a controlled and flexible pricing and nimbly supplementing and developing the ideas contained in the obviously stuck Kimberley Process appear to be a rewarding work, which may bring the market to a new turn of organizational spiral, where the accumulated contradictions can be painlessly solved.
Such a proposal extended by Russia to leading African diamond producing countries will obviously be more valued than any infrastructural project for it makes it possible to take part in price management in one of the most exciting global markets.
Sergei Goryainov, Rough & Polished
