The introduction of a G7 Diamond Protocol will see the industry experience an unprecedented level of transparency that has never been witnessed before.
Diamond industry analyst Paul Zimnisky told Rough&Polished’s Mathew Nyaungwa that while opinions vary on the politics behind the sanctions on Russian diamonds, the end outcome will usher in a new age for the diamond industry worldwide.
He said the European Union, the World Diamond Council, the Gem and Jewellery Export Promotion Council of India, and the Union of French Jewelers (UFBJO) have all developed potential strategies that are now being considered by G7.
De Beers, a market leader in the diamond industry, has said it backs the World Diamond Council's proposal because it's a "realistic solution." Others, for instance, back the EU proposal because they believe it to be more technology-reliant and stringent than alternatives.
A clearly defined plan is expected to be in place by the first quarter of 2024, said Zimnisky.
NB: He publishes a professional monthly subscription-based industry report called “State of the Diamond Market” that includes all of his forecasts, data and analysis.
He also hosts a podcast where he discusses diamonds with special guests from industry. The podcast is called the "Paul Zimnisky Diamond Analytics Podcast” and it can be streamed on Apple Podcasts, Spotify or online.
Below are excerpts from the interview.
What is the G7 Diamond Protocol?
Leaders from G7 nations, including Canada, France, Germany, Italy, Japan, the UK, and the U.S., are currently coordinating to produce a framework to collectively build on the sanctions that the U.S. imposed on Russian diamonds in the first half of 2022. This is basically an effort to further restrict the flow of Russian diamonds from entering the larger Western consumer market in response to the war in Ukraine.
Why was the G7 Diamond Protocol established?
So just to be clear, the G7 has decided that they want to move forward with a collective sanctions plan, however the details of what the plan will look like and how it will be executed are still being worked out. It is expected that a plan will formally be in place by first quarter of 2024.
What extra actions is the G7 implementing against the Russian diamonds?
There are currently four primary plans in consideration that have been developed by the European Union (alongside Belgium and the AWDC), the World Diamond Council, India (alongside the GJEPC), and the French jewellery association UFBJO. Industry leader De Beers has expressed support for the World Diamond Council’s plan, which it sees as a ‘practical solution’. However, for example, others support the EU plan because it is considered to be more technology-dependent and stricter.
What impact will the Diamond Protocol of the G7 have on the diamond trade?
While globally there are mixed views on the political underpinnings of the sanctions, the technical result will be a brand-new era for the global diamond supply chain, as we are going to see a level of transparency with diamonds like we have never seen before. The industry was already headed this way, but this will be the catalyst that materially speeds everything up.
The African Diamond Producers Association (ADPA) said that the G7 Diamond Protocol not only bypasses and undermines but also serves as a substitute for the Kimberley Process Certification Scheme (KPCS). What is your reaction to this assessment?
The diamond industry is very global and demographically diverse. It spans many different nations, cultures, religions, levels of economic development, and political views. On a more micro level, there are large and small companies. So, coming up with a collective plan is, to say the least, challenging. However, this industry has a history of coming together and getting things done, which really sets it apart in my opinion.
It is my understanding that all industry stakeholders are being considered while this is being negotiated, which is why it is taking so long to reach a conclusion. That said, there are inevitably going to be costs associated with implementing such a plan. Hopefully, the solution will be one in which the costs are not prohibitive for certain segments of the supply chain, as, of course, that would not be fair. I believe that once a plan is formalised there will be enough lead time offered so that companies can adjust and digest the changes.
To what extent can the G7 Diamond Protocol hurt the revenues of diamond-producing countries outside Russia?
There are a few ways to look at this. There will likely be increased costs for producers to execute such a plan; however, it is also possible that the increased level of transparency will increase the demand for their goods. In general, I think a more transparent natural diamond supply chain will greatly benefit the industry in the longer-term. There will likely be some adjustment pain in the short term, though.
How will the Diamond Protocol of the G7 affect small-scale diamond miners in Africa?
Similar to the response above, this is likely a two-edged sword. Hopefully, the increased transparency will help smaller-scale miners in terms of receiving fair value for their goods, but of course, smaller companies do not have the same capacities as larger, more corporately integrated companies. I think the protocol chosen needs to take this into consideration.
Why is it important for the G7 to consult the diamond industry at large?
As large and diverse as this industry is, it has a history of coming together. I believe this is in part why this has historically been such a resilient industry. Unrelated to the sanctions, in just recent weeks, the upstream and midstream segments of the industry have come together in order to limit the supply of new goods into the market in an effort to rebalance inventory levels. Not too many industries can come together in such short order and execute such a strategy. This is truly a special industry.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
