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The global diamond industry must fundamentally overhaul its opaque and inefficient sales systems to survive a severe price slump and compete with lab-grown stones, according to Dr M'zée Fula Ngenge, Chairman of the African Diamond Council (ADC).
His comments, made in an exclusive interview with Rough & Polished’s Mathew Nyaungwa, follow and expand upon recent criticisms from within the industry.
Recently, Oded Mansori, co-founder of Belgian gem trader HB Antwerp, stated that the sale of diamonds through tenders and auctions is "opaque” and should be revamped for producers to earn more, describing the systems as resembling a "casino".
Echoing and elaborating on this sentiment, Dr Ngenge argued that this traditional model has left producers dangerously exposed to market volatility.
The ADC chairperson highlighted the HB-Lucara partnership as a paradigmatic shift. This model, based on an Estimated Polished Value (EPV), provides producers with a more predictable revenue stream by tying compensation to the final sales price of the polished gem, often yielding revenue increases of up to 40% compared to auction outcomes.
However, Dr Ngenge was clear that this is not a universal solution.
He said the profit-sharing model appears most viable for premium diamond producers, adding that for producers of smaller, lower-value stones, the traditional auction system likely remains more practical despite its flaws due to the administrative complexity and working capital constraints of the EPV model.
He warned that a move away from tenders would significantly impact smaller traders and cutters who rely on winning individual parcels at auction, potentially excluding them from supply.
Their survival, Dr Ngenge suggested, would depend on their ability to adapt and specialise.
Ultimately, he concluded that the current crisis is a result of both internal inefficiencies and external threats.
Dr Ngenge called for a multifaceted strategy that includes aggressive marketing of Africa's ethical provenance, domestic beneficiation, and economic diversification to ensure the survival of producer nations.
Below are excerpts from the interview.
Do you believe shifting from auctions to a profit-sharing model based on polished value is a viable solution for the entire diamond industry, or only for certain types of mines/producers?
If examined carefully, it will be obvious that there are several strategic implications for the global diamond industry. The shift from auctions to profit-sharing models based on polished value represents both a significant opportunity and a substantial challenge for the diamond industry. Based on the current evidence and implementation experience of the African Diamond Council (ADC), this approach offers compelling benefits for certain types of producers, particularly those with high-value stones and an established quality reputation. However, I believe that it is not a panacea for the industry's structural challenges and may not be suitable for all market segments.
The profit-sharing model appears most viable for premium diamond producers who can leverage the transparency and value-maximisation potential to differentiate their products in an increasingly competitive market. For these producers, the potential revenue increases of up to 40% justify the additional complexity and delayed payment timing. However, for producers of smaller, lower-value stones, the traditional auction system likely remains more practical despite its flaws. The diamond industry's current crisis demands comprehensive reforms, rather than isolated changes. While profit-sharing arrangements can address some of the pricing and transparency issues, they must be part of a broader transformation that includes increased marketing investment, product differentiation, and adaptation to changing consumer preferences. The industry must also address its structural challenges, including inventory management practices and manufacturing overcapacity, to achieve sustainable profitability.
As the industry continues to evolve, hybrid approaches that combine elements of both auction and profit-sharing models may emerge, allowing producers to optimise their sales strategies based on diamond characteristics and market conditions. Whatever path individual companies choose, the African Diamond Council (ADC) will ensure that the direction of travel is certainly toward greater transparency, better value alignment across the chain, and enhanced traceability. These are all trends that respond to evolving consumer expectations and competitive dynamics in the global diamond market.
How does the "estimated polished value" model supposedly create more stability for producers compared to the traditional bidding system?
The Estimated Polished Value (EPV) model aims to create greater stability for diamond producers by fundamentally decoupling their revenue from the volatile and often speculative rough diamond auction market. Instead of being subject to the fluctuating bids of a single sale, a producer's income is based primarily on a forward-looking appraisal of what a diamond will be worth after it is cut, polished and sold to a wholesaler, retailer or collector. This value is determined through advanced scanning and planning technology, which provides a data-driven, objective estimate of a stone's potential. By establishing a price based on this final consumer-market value, the model insulates producers from the extreme short-term price swings that characterise rough auctions, which can be heavily influenced by trader sentiment and immediate liquidity concerns rather than fundamental gem value. This provides a more predictable and transparent revenue stream, allowing for better long-term mine planning and financial forecasting.
This stability is particularly evident during market downturns, reminiscent of what we have been experiencing in the last couple of years. In the traditional system, a drop in rough diamond demand causes auction prices to collapse, directly and immediately slashing producer revenues. However, the polished market, especially for higher-quality goods, often demonstrates more resilience. Since the EPV model ties compensation to this more stable end-market value, it acts as a buffer, preventing producer income from falling as precipitously as rough prices might. Furthermore, the collaborative nature of these partnerships, such as the one between Lucara Diamond Corporation and HB Antwerp, aligns incentives for value maximisation. The manufacturing partner is motivated to achieve the highest possible polished value, because their own profit share depends on it, leading to more careful planning and execution than might occur in a traditional buyer-seller transaction. This results in producers consistently capturing a larger share of the ultimate value of their goods, with some reporting revenue increases of up to 40% compared to the auction model.
However, this stability does come with a few mixed trade-offs. The model introduces a delay in payments, as producers must wait for the stone to be manufactured and sold rather than receiving immediate payment at an auction. This dynamic can precipitate a working capital shortfall, characterised by inefficiencies in receivables and payables cycles, poor inventory optimisation, inadequate cash flow projection, and a constrained ability to obtain debt or equity financing. It also requires a high degree of communal trust and transparency, as the producer relies on the manufacturing partner's accurate accounting of costs and final sale prices. Consequently, the EPV model is not a universal solution and is currently most viable for larger, high-value diamonds where the potential revenue upside justifies the complexity and delayed payment cycle. For smaller, lower-value stones, the administrative overhead and working capital constraints make the traditional auction system, for all its flaws, a more practical option.
How does the partnership model between HB Antwerp and Lucara Diamond Corporation differ from a traditional auction?
Earlier, I mentioned the partnership between HB Antwerp and Lucara constitutes a paradigmatic shift in diamond valuation and commercialisation, moving decisively away from the speculative and transient nature of traditional auctions toward a model predicated on long-term value optimisation and shared economic destiny. This collaboration is architecturally distinct in its foundational principles, operational mechanics, and philosophical orientation toward value creation.
Fundamentally, it replaces the opaque and often volatile auction mechanism, wherein rough diamonds are subject to the whims of speculative bidding and market sentiment, with a meticulously engineered framework based on the Estimated Polished Value (EPV). This value is not arbitrarily assigned but is derived through advanced proprietary technology, including high-resolution scanning and digital planning, which simulates optimal cutting strategies to maximise yield and end-value. The result is a pre-established, data-intensive valuation that serves as the economic bedrock of each transaction. Lucara, rather than receiving a one-time auction-determined price, is compensated through a two-tiered structure. Beginning with an initial payment that is aligned with the EPV, followed by a subsequent distribution linked to the final achieved sales price of the polished gem, net of a pre-agreed margin for HB Antwerp. This structure ensures the producer participates directly in the downstream value realisation, often yielding revenue enhancements reportedly up to 40% above traditional auction outcomes.
A further critical differentiator lies in the model’s embedded architecture of radical transparency and traceability. HB Antwerp employs a closed-loop ecosystem wherein each diamond is assigned a digital twin and its physical trajectory is rigorously documented via a secure container that collects thousands of data points and a blockchain-based system. This system renders the entire chain of custody immutable and auditable, effectively replacing the need for interpersonal trust with verifiable cryptographic assurance. Such presumed transparency stands in stark opposition to the conventional auction system, which often obscures provenance and intermediate mark-ups, thereby alienating an increasingly ethically-conscious consumer base.
Moreover, the partnership is structurally designed to align incentives over an extended horizon, exemplified by its decade-long tenure. This protracted timeframe transforms a typically transactional relationship into a strategic alliance, mitigating the cyclical volatility that plagues the industry and providing Lucara with the financial predictability necessary to underwrite major capital projects, such as the subterranean expansion of the Karowe Mine. Risk is symmetrically distributed, which means that Lucara gains exposure to the polished market's upside, while HB Antwerp operates on a fixed-margin basis, incentivising both parties to collaborate in maximising the ultimate value of each asset rather than engaging in zero-sum negotiation.
Nevertheless, the model is not without its limitations and contingencies. Its economic viability appears intrinsically linked to the calibre of the stones involved. In other words, it is presently optimised for high-value, large, +10.8 carat, gem-quality diamonds from Lucara's Karowe Mine, where the potential value uplift justifies the administrative complexity. Its applicability to smaller or lower-quality goods remains uncertain for many. Furthermore, the partnership's resilience was tested in 2023 by a temporary rupture that was due to a material financial breach, underscoring that such innovative structures remain vulnerable to counterparty risk and require robust contractual governance.
The HB-Lucara model is distinguished not merely by its commercial strategy but by its ideological departure from the sector's prevailing cynicism. This cynicism is frequently engendered by foreign advisory influences and, problematically, adopted by African public officials who, despite being stewards of the national treasury, may enact policies contrary to their nations' developmental interests. It is a sophisticated value-creation partnership that integrates cutting-edge technology, financial engineering, and ethical provenance to forge a more stable, transparent, and equitable diamond value chain. It represents not merely an alternative sales mechanism but a profound re-imagination of how natural resources can be commercialised in the 21st century.
Beyond changing the sales model, what other strategies could diamond producers use to survive the price slump and compete with lab-grown stones?
Beyond altering their existing sales models, African diamond producers in particular must pursue a multifaceted strategic pivot to navigate the current price depression and competitive pressure from lab-grown alternatives. This necessitates a fundamental reimagining of their value proposition, moving far beyond their traditional role as mere extractors of a raw commodity, to become architects of a distinctive, ethically-grounded luxury product that we can all be proud of.
A paramount strategy involves the aggressive marketing of provenance and ethical superiority. This transcends simple "conflict-free" claims to encompass a compelling narrative of positive socio-economic impact, highlighting how natural diamond revenues directly support healthcare, education, and infrastructure in producing nations like Botswana and Namibia as excellent examples. This story of responsible sourcing and community benefit is a powerful differentiator that lab-grown diamonds, produced in factories, simply cannot replicate. Every diamond-producing nation should leverage advanced traceability solutions to provide consumers with immutable, verifiable proof of this journey from mine to market, thereby building trust and justifying a premium. Implementing this recommendation would constitute a demonstrative act, furnishing the Kimberley Process with an exemplary framework to adopt.
Concurrently, accelerating domestic beneficiation is also critical. Rather than exporting rough stones, producers must work harder to capture more value within their own economies by expanding local cutting, polishing, and jewellery manufacturing capabilities. This strategy, actively being pursued by Botswana, serves a dual purpose. It basically creates higher-skilled employment, insulating the economy from rough price volatility, and allows the country to brand the final product as "Made in Botswana," further reinforcing its narrative of ethical and economic benefit. Angola is also cultivating a strategic focus on domestic beneficiation, positing it as an essential industrial policy for catalysing endogenous growth and improving holistic human development indices.
Moreover, it is incumbent upon the global diamond industry to undertake a concerted and capital-intensive campaign to revitalise the allure of natural diamonds, an obligation that must not be abdicated and disproportionately shifted to producer nations in Africa. The entire pipeline, from miners to retailers, must become custodians of the so-called "diamond dream," which emphasises the eternal rarity, romantic symbolism, and generational legacy of natural stones in contrast to the mass-produced, depreciating nature of their lab-grown counterparts. Mitigating the marketing dominance of synthetic diamond producers requires a budgetary outlay far surpassing existing provisions. Funding mechanisms like a 1% levy on African producers' revenue are ill-advised, except under the specific circumstance of a coordinated and unrestrained purchase of the De Beers Group by Botswana and Angola, which would fundamentally alter the strategic calculus.
Finally, economic diversification is an existential imperative to reduce vulnerability. Botswana’s launch of a sovereign wealth fund is a prudent step toward building a foundation for a future beyond diamonds, exploring avenues like luxury tourism, renewable energy, and medicinal cannabis. This model is engineered to raise capital and bolster domestic economic benefits prior to a diamond's departure from its country of origin. This long-term structural shift, though challenging, is necessary to ensure national economic stability as the diamond market undergoes a permanent transformation.
A multifaceted strategy is essential to cultivate diamond tourism and secure capital retention before mineral export. This approach would be significantly advanced through several key initiatives. First, the deliberate curation of African cinema to project intentional narratives of the continent's diamond heritage. Secondly, the formal appointment of First Ladies from African diamond-producing nations as global diamond ambassadors, leveraging their platform for diplomatic and cultural advocacy. Thirdly, the establishment of an African diamond museum to serve as a custodian and exhibitor of significant natural rough specimens before their market release and lastly, the implementation of structured diamond safaris that offer immersive, educational experiences. Collectively, these measures would forge a robust value-added industry, enhancing the prestige of African diamonds and ensuring greater domestic benefit from their extraction.
Is the crisis in the diamond industry solely due to inefficient sales systems, or are the external factors (economic uncertainty, lab-grown diamonds) a greater threat?
The current crisis in the diamond industry cannot be attributed to a single cause, but rather represents a confluence of profound structural weaknesses within the traditional market system and formidable external pressures that collectively challenge its very foundation. While the antiquated auction model, which is often criticised for its opacity and speculative nature, has undoubtedly exacerbated volatility and inefficiency, it is the external factors that constitute the more existential and transformative threat to the industry's long-term viability.
The rise of synthetic, man-made and lab-grown diamonds (LGDs) represents a paradigmatic shift that fundamentally undermines the core economic principle of natural diamond valuation, which is "scarcity". With LGDs now accounting for a significant portion of the market, particularly in entry-level and fashion jewellery categories, and selling at approximately 80-90% discounts compared to their mined counterparts, they have effectively decoupled the concept of "diamond" from its traditional luxury positioning. This technological disruption is compounded by macroeconomic pressures, including inflationary constraints on discretionary spending, geopolitical tensions affecting key markets, and a notable generational shift in consumer values toward sustainability and ethical provenance, which are areas where natural diamonds face intense scrutiny despite advancements in traceability.
Nevertheless, to characterise the sales system as merely inefficient would be an understatement in my viewpoint. Its structural flaws have critically hampered the industry's capacity to respond to these external threats. The traditional rough diamond auction mechanism, described by industry insiders as resembling "a gambling house or casino," creates information asymmetry and price volatility that leaves producers disproportionately vulnerable during market downturns. This model's inability to adequately capture and communicate the unique narrative value of natural diamonds has left the industry poorly positioned to differentiate its products in an increasingly crowded and value-conscious market.
Thus, the crisis is dialectical in nature, and while external factors present the immediate and visible challenge, the industry's internal institutional inertia and operational shortcomings have magnified their impact and hindered the development of an effective strategic response. What the African Diamond Council (ADC) believes is the path forward necessitates not merely defensive measures, but a fundamental reimagining of the industry's value proposition, leveraging technology for transparency, emphasising the irreplaceable geological history and positive socioeconomic impact of natural stones, and creating more efficient, equitable market mechanisms that can restore stability and consumer confidence.
How might the transparency and efficiency of the diamond sales process impact the final consumer price of a diamond jewellery piece?
The transparency and efficiency of the diamond sales process exert profound and multifaceted influences on the final consumer price of diamond jewellery, operating through mechanisms that range from supply chain economics to consumer psychology. Enhanced transparency, particularly through technologies like blockchain-based traceability systems, significantly impacts pricing by verifying provenance and ethical sourcing. These systems, led by the industry's most unexcelled traceability solution, create an immutable record from mine to market, assuring consumers of a diamond's legitimacy and ethical origins. A quadripartite offering has been formulated to address this challenge, with its cornerstone being a robust system for the certification of origin. The U.S.-based system is designed to provide irrefutable documentation of a diamond's journey from extraction to market, thereby enhancing accountability and consumer confidence. It also features certificates of origin and a public blockchain architecture engineered with native interoperability for inefficient private blockchain networks, patented nano-marking technology and diamonds accompanied by formalised provenance and authenticated titles of ownership. Several private verification platforms often command a price premium, as ethically-minded buyers, especially younger generations, increasingly demand proof of responsible practices, with nearly 75% of younger consumers preferring brands that demonstrate clear sustainability commitment. However, the costs of implementing peremptory systems, such as De Beers' supply chain orchestration platform, which has encountered unforeseen operational headwinds in Africa, constrain its intended performance and return on investment. Similar to the implementation of De Beers' offering, the procurement of certifications from entities like the Responsible Jewellery Council (RJC) imposes incremental operational costs. However, these expenditures can be partially mitigated by their integration into the firm's value proposition, thereby justifying some of the initial financial outlay.
Efficiency gains, particularly from digital marketplaces and automated grading technologies, streamline the traditionally fragmented diamond pipeline, reducing intermediary margins and transaction costs. Online platforms enable sellers to access global buyers directly, often yielding competitive pricing that benefits consumers. Automated grading systems, such as those employing Artificial Intelligence (AI), enhance precision and reduce human error, leading to more accurate and consistent pricing based on the cut, colour, clarity, and carat, which are referred to as the 4C’s. This reduces arbitrage opportunities and price distortions, translating to fairer consumer prices. However, these efficiencies also exert downward pressure on prices by increasing market competition and reducing information asymmetry, as consumers can more readily compare stones and prices globally.
Conversely, inefficiencies and opacity in the traditional sales process, such as opaque auctions and tenders, contribute to price volatility and higher consumer costs. The confidential bidding and information asymmetry in these systems often disadvantage producers and inflate intermediate margins, which are ultimately passed to consumers. For instance, the traditional model, as I previously mentioned, has been criticised for resembling a "casino" where rough diamonds are undervalued or overvalued based on speculative bidding, rather than intrinsic worth, creating cost layers that accumulate along the value chain. Additionally, geopolitical disruptions, such as European Union (EU) sanctions on diamonds originating in the Russian Federation, and supply chain bottlenecks, which are exacerbated by inefficiencies, can restrict supply and artificially inflate prices, particularly for natural diamonds.
The rise of lab-grown diamonds (LGDs) further complicates this dynamic. LGDs, produced with greater transparency and efficiency via controlled processes, typically cost 60–81% less than natural diamonds of similar quality, forcing natural diamond retailers to justify their premiums through enhanced storytelling and traceability. This competition has driven down prices across both segments, with natural diamond prices falling around 26% and LGD prices dropping at least by 76% since 2022, which is partly due to increased efficiency in LGD production and retailing. Nevertheless, African natural diamonds retain their value much better in the long term, due to their inherent rarity, with high-quality stones serving as inflation-resistant assets.
Ultimately, transparency and efficiency democratize pricing information and reduce unnecessary margins, leading to more competitive and fair consumer prices. However, the associated costs of verification and private blockchain technology adoption, coupled with the enduring consumer perception of value tied to authenticity and ethics, ensure that diamonds with verified provenance and superior craftsmanship will continue to command premiums, reflecting a market increasingly segmented by values as much as quality.
In what ways could the rise of lab-grown diamonds be influencing the push for reform in how natural diamonds are sold?
It is important to highlight that the ascent of synthetic or lab-grown diamonds (LGDs) represents a profound market disruption that is actively catalysing structural and philosophical reforms within the natural diamond industry's traditional sales mechanisms. This influence manifests not as a singular pressure, but as a multifaceted force compelling a re-evaluation of long-established practices centred on opacity, speculative pricing, and controlled supply.
Primarily, the LGD phenomenon has shattered the perceived inviolability of natural diamond scarcity, a cornerstone of the existing sales model. Both the African Diamond Council (ADC) and the African Diamond Manufacturers Association (ADMA) cautioned the industry that by offering a chemically identical product at an 80-90% discount, LGDs would expose the artificiality of price structures maintained by traditional auctions and tenders, where value is disconnected from fundamental gemological worth. This transparency has empowered a new generation of consumers, particularly those within the Millennials and Gen Z demographic, who prioritise ethical provenance and value-driven purchases, thereby forcing natural diamond entities to justify their premium through verifiable claims of sustainability and ethical sourcing, rather than relying solely on inherited mystique. Consequently, there is a growing push for sales models that embody this current state of transparency, such as profit-sharing agreements that are based on a diamond's estimated polished value, which aim to create a more equitable and predictable revenue stream for producers by aligning incentives across the value chain and tying returns to the final consumer market rather than speculative rough pricing.
Furthermore, the brutal price challenge from synthetics and LGDs has exacerbated the financial instability of diamond miners, making the volatility of the auction system untenable. With natural diamond prices falling approximately 26% from their post-pandemic highs and major producers reporting significant revenue declines, the industry can no longer afford a system that amplifies market downturns. This economic distress is a powerful impetus for reform, driving producers toward more stable, partnership-oriented sales models that offer revenue predictability and shared risk, such as the long-term agreement between Lucara Diamond Corporation and HB Antwerp, which tends to insulate the miner from the full brunt of price collapses in the rough market.
Finally, the need for product differentiation is compelling a rather strategic shift in how Africa's natural diamonds are marketed and sold. As LGDs are heading in a direction to dominate the accessible luxury and fashion segments, the natural diamond industry is being pushed to reposition itself as the custodian of rare, high-value, and emotionally significant assets. This necessitates a sales and marketing evolution that emphasises the unique geological history, craftsmanship, and enduring value retention of natural stones, moving beyond mere transactions to cultivate a narrative of legacy and authenticity that lab-grown alternatives cannot replicate. If we examine closely, we will see that this bifurcation of the market is forcing a reform in sales tactics, pushing the natural sector toward greater traceability, certified provenance, and storytelling that justifies its premium in an increasingly crowded and value-conscious market. Africa must be the priority, the focus and the major beneficiary of this irreversible trend.
If the tender system is replaced, how might this affect the many smaller gem traders and cutters who rely on winning individual parcels at auction?
The potential replacement of the traditional tender and auction system for rough diamonds with more transparent, value-based models would represent a profound shift in the industry's existing structure, posing both existential threats and potential opportunities for smaller gem traders and cutters. These entities, which have long relied on winning individual parcels at auctions, would face a radically altered competitive landscape.
On one hand, the displacement of the current system could severely undermine their business models in a way that should provoke an intellectual insurrection within the global diamond industry. The traditional auction mechanism, while criticised for its opacity, has provided a platform where smaller players can access rough supply through competitive bidding on discrete parcels. If replaced by long-term partnership models or direct sales arrangements between major producers and large manufacturers, smaller traders might find themselves excluded from accessing quality rough altogether. This consolidation of supply would particularly disadvantage those lacking the capital or scale to enter into such arrangements, potentially forcing them into secondary markets or lower-quality goods with thinner margins. The inherent information asymmetry that currently characterises auctions, while problematic for producers, has conversely allowed astute smaller traders to occasionally secure undervalued parcels, which can be concluded as an opportunity that would vanish in a transparent, polished-value-based system.
A reformed system might also create new opportunities for specialisation and collaboration. Smaller cutters and traders could potentially thrive by positioning themselves as artisans focusing on unique or specialised stones that require particular expertise, thereby justifying premium pricing. The increased transparency and traceability demanded by new models like the African International Diamond Exchange (AIDEX) would benefit those who can verifiably demonstrate ethical sourcing and superior craftsmanship, which are attributes that are increasingly valued by consumers. By the same token, technological advancements that facilitate smaller transactions or aggregate demand among smaller players could emerge, allowing them to participate collectively in new sales mechanisms. The industry's historical shift toward tenders and auctions itself opened the market beyond De Beers' once-dominant sight system, suggesting that market evolution can sometimes benefit smaller participants. Ultimately, the survival of smaller traders and cutters would hinge on their ability to adapt, differentiate, and potentially form alliances or cooperatives to navigate a more consolidated, transparent, and efficiency-driven diamond value chain.
Mathew Nyaungwa, Editor-In-Chief, Rough & Polished
