South Africa’s State Diamond Trader (SDT), which is mandated to buy and sell rough diamonds as well as promote beneficiation and equitable access to the country’s diamonds, is targeting having 20 cutting and polishing factories in the country by 2027, up from the current 13.
The SDT’s chief executive, Nosiphiwo Mzamo, who is a trained geologist, told Rough & Polished’s Mathew Nyaungwa in an exclusive interview on the side-lines of the African Mining Indaba in Cape Town, South Africa, that the country used to have 60 diamond factories.
She said this would be achieved if funding was available.
South Africa’s diamond cutting and polishing sector had 2000 jobs in 2003, but this has dropped by more than 50% as factories closed shop.
Meanwhile, Mzamo said SDT, which is mandated to buy up to 10% of the run-of-mine production from all producers in South Africa, purchased 492,118 carats in the 2022–2023 financial year ending March 31, 2023.
It then sold 488,718 carats at a value of R1.3 billion ($68.3 million).
She said SDT is targeting to buy 500,000 carats during the 2023–2024 financial year.
Below are excerpts from the interview.
What is the primary role of the State Diamond Trader?
The primary goal of the State Diamond Trader as mandated by legislation is to provide equitable access to rough diamonds, with a particular focus on historically disadvantaged South Africans in possession of valid diamond beneficiation licenses. To also facilitate platforms where clients can exhibit and showcase their products.
What is your annual allocation of rough from the producers?
By legislation, we are mandated to buy up to 10% of the run-of-mine production from all producers in South Africa. Looking at the last three years, the State Diamond Trader inspected around 9 million carats each year from which it has purchased around 5% - 8% of by value depending on the market and other economic factors that influence the prices of rough diamonds.
How many carats did you buy and distribute last year?
In the 2022–23 financial year, the State Diamond Trader was able to purchase 492,118 carats and sell 488,718 carats to registered clients on its database.
What is your projection for the 2023–2024 financial year?
We are looking at least 500, 000 carats this year, but you know the diamond industry has been on the decline. The year 2023 was a difficult year for the global diamond industry owing to the geopolitical climate, subsequent sanctions on one of the major producers of rough diamonds, and a general lacklustre market mostly affected by lab-grown diamonds. We are hoping that the inventory of polished diamonds in the market will decrease in turn, creating an increased demand for rough diamonds. We are also hoping for a more coordinated approach to the marketing of rough diamonds to regain consumer confidence.
How is the current economic downturn affecting your operations and that of your clients?
The State Diamond Trader has not been able to purchase and sell at the levels it did in the previous two financial years, as clients were cautious about the type of rough diamonds they purchased. They did not want to sit with excessive inventory as the Rapaport price list was decreasing almost every four weeks from March to August 2023. There was also the disparity between the reserve prices sought in the different layers of the diamond pipeline, which affected our ability to trade at high levels.
Who are your biggest suppliers of rough?
In the 2022–23 financial year, the largest suppliers of rough diamonds to the State Diamond Trader were De Beers and Petra. This has been the case in the South African context since these qualify as two of the major producers locally.
How are you assisting and encouraging the participation of historically disadvantaged South Africans in the diamond sector?
Currently, the State Diamond Trader has an Enterprise Development Programme running where five young South African women are being trained and groomed into the diamond sector. They are gaining knowledge of diamond cutting, polishing, and rough valuation and are being introduced to the latest technology the diamond sector uses. owners, The aim at the end of this programme is to have them, as registered business owners participating in the diamond industry.
What is the level of demand for rough diamonds in South Africa?
State Diamond Trader cannot speak for the rest of South Africa but for those clients who are registered with the State Diamond Trader. As per their requirements, our clients require 33,905.00 carats to keep their factories per cycle. Given that 85% of the South African production cannot be economically manufactured in the country, only 15% is suitable for beneficiation. This becomes a major challenge because everyone is demanding this 15%, which is not enough to allocate to all clients.
In general, the level of demand in South Africa may not be on par with other global trading centres due to affordability, the category of diamonds required for beneficiation and the general access to markets and finance which impact the appetite of local clients. All these factors hamper the growth which was envisioned by the drafters of legislation. The Department of Mineral Resources and Energy (DMRE) is in consultation with industry and relevant state-owned enterprises (SOEs) to turn a tide in all the aforementioned areas to drive beneficiation and interrelated industries.
How does the State Diamond Trader contribute to the growth of the diamond industry?
In 2015 the State Diamond Trader embarked on an Enterprise Development Programme, where the entity equipped 27 young South Africans with vast knowledge of the diamond industry. To date, four diamond manufacturing businesses stemmed from this programme.
What is the state of diamond beneficiation in South Africa?
It has been on a decline and one of my duties is to make sure that we resuscitate the sector. There used to be over 60 factories and currently, we have only 13 factories. The State Diamond Trader has been around for about 17 years and it will reach 20 in [2027]. So it is important for me that we have at least 20 factories when the State Diamond Trader turns 20. That means we will have to facilitate funding, which is the biggest issue.
More can be done from a legislative, trading, and general business environment to encourage more participation. That will however require the collaborative structure of financial institutions, policy makers, regulators, revenue collector and the industry to build a sustainable and growing beneficiation industry. A lot can be learnt from thriving centres like Dubai and Antwerp in creating a competitive diamond beneficiation industry that is fair and makes business sense to all the stakeholders involved.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
