Eli Izhakoff, President of the World Diamond Council, in his interview to Rough&Polished gave an overview of the situation in the diamond industry and shared his opinion on some of its current problems.
What is the main task of the World Diamond Council as you see it in the current situation in the diamond industry?
The World Diamond Council was established in 2000 to represent the international diamond and jewelry industries in their campaign to end the trade in conflict diamonds. WDC was a key participant in the establishment of the Kimberley Process Certification Scheme (KPCS) in 2003, which in the ensuing period helped bring about a fall in the incidence of conflict diamonds from an estimated high point of 4 percent of the goods coming into the market to less than two-tenths of 1 percent.
WDC, which was established during a period of crisis, successfully showed that it was able to tackle a problem, in cooperation with governments and civil society. Now that the immediate crisis is behind us, our role is to help maintain the integrity of the diamond distribution chain, and to intervene in situations before they reach a boiling point.
As the past year has shown, we still have our hands full. Zimbabwe has been an issue that has dominated headlines for almost two years already, and continuing civil strife in countries like Côte d'Ivoire mean that we have to remain on our guard.
There also is another element that should be considered. In many respects, the establishment of the WDC represented the first time that our industry collectively formulated an industry-wide strategy for Corporate Social Responsibility. This was recognized by a great many bodies outside of our industry, like the United Nations, government and leading civil society activists. The ongoing presence of WDC send a clear signal that we take the subjects of ethics and proper business practices very seriously.
Once the World Diamond Council lobbied the United Nations and governments to create a certification scheme eliminating conflict diamonds defined as “rough diamonds used to finance conflicts aimed at undermining legitimate governments.” The Zimbabwe case appears to expand this definition to violations of human rights. Moti Ganz, President of the Israel Diamond Manufacturers Association, says that is not good for the industry. What is your view of this problem?
To no small degree the debate about whether the definition of “conflict diamonds” should be expanded to include diamonds from areas where other human right violations are taking place is a direct result of KPCS’s success in halting the flow of diamonds used for financing civil war.
This is a noble sentiment, but it has to be approached very carefully. Any definition of a “human rights violation” would have to be very carefully defined so that we do not become entangled in political disputes between countries. If that happened, the entire Kimberley Process would be undermined.
I would note that the Kimberley Process has always been about human rights and it has concentrated specifically on those aspects in which we can be effective and make a difference. Many of the leading organizations and corporations in our business have codified the promotion of human rights into their Corporate Social Responsibility charters.
We have to set achievable goals. The Kimberley Process is not a court of law, and was never provided the capacity to identify nor investigate allegations of human right violations. But the WDC already has openly supported the incorporation of a statement pertaining to compliance with international human rights law into the KP’s Administrative Decision on Internal Controls, and we suggested that such a statement note that KP participants should ensure that all diamond sector activity is conducted in a manner consistent with international human rights law.
In the event that KP participants become aware of alleged violations of international human rights law, they should bring these to the attention of the appropriate internal law enforcement authorities and to international human rights institutions. They have the tool to practice enforcement with KP does not.
Does the Kimberley Process need a reform or any further changes in the decision-making process?
Ahead of the Plenary Session of the Kimberley Process in Jerusalem of last year, we proposed a number of reforms that we felt would improve both the efficiency and effectiveness of KP.
In brief, these were (1) that the administration of the KP be strengthened through the hiring of a professional staff to manage its day to day affairs; (2) the current decision-making process, which requires absolute consensus for a resolution to pass, should be changed so that resolutions can be passed by a super-majority; and (3) the rules on the publication of internal reports should be relaxed, with the goal being full transparency of all actions and conclusions.
While we did not get all that we asked for, particularly as regards a change in the consensus requirement, progress was made. The KP Plenary decided to form an Ad Hoc Committee that will prepare recommendations for the establishment of a Kimberley Process Administrative Support Office.
Another important development at the Jerusalem meeting was a decision to establish a Sub-Working Group on Trade, which will develop mechanisms and prepare recommendations to alleviate obstacles that occur from time to time, as a result of anomalies in Kimberley Process procedures.
Along with “conflict diamonds” we may as well speak of “conflict gold” or “conflict oil,” etc. Do you think the Kimberley Process may serve as a pattern for other industries?
I don’t think that we in the diamond industry have received enough credit for what we have done over the past 10 years, and I do believe that other business sectors can look at what we did when they establish benchmarks for their own industries.
At the same time, the diamond industry has very specific characteristics that demanded a system like KPCS, and the problems in areas like the gold and oil sectors do not always parallel ours. They, for example, have experienced far more serious environmental problems than the diamond industry ever did.
But the precedent, by which an industry voluntarily subjects itself to regulation in order to tackle a humanitarian problem, as we did with KP, is certainly something that should be considered by other business sectors. We are proud of our record and believe that it should be used as a case study.
On the backdrop of strong jewelry sales in the Christmas period in the United States the unemployment rate there is 9.4%, which is still roughly double the rate seen before the recession. What could this mean for the diamond market in this country in your view?
We need to be patient. This was not a regular recession that sometimes ends with a market surge. This was an economic downturn that the majority of economists agree was the most severe to hit the United States since the 1930s and recovery will be gradual.
On the other hand the fundamentals of the American market remain good, and as the economy improves consumers are returning the shopping malls. The industry just needs not to overextend itself.
In 2011, ALROSA is going to produce over 34 million carats of rough diamonds, while De Beers says its output may reach 40 million carats. Russia’s Gokhran has a diamond stock worth $1 billion which may be offered for sale. This is not to mention other diamond miners. If they will be tempted by positive year-end retail results to push their rough sales, do you think the 2008 price bubble may once again loom over the marketplace?
A great deal depends on the sales policies of the mining companies, but they themselves are very aware of the dangers involved in the creation of a price bubble.
I would caution the mining companies to carefully gauge the ability of the retail sector to absorb the rough being pumped into pipeline in order to maintain price equilibrium. With the very positive long-term fundamentals such as we have, it makes no sense to risk a price bubble in order to make a quick buck. The profitability will still be there next year, and in the years that follow.
We should remember, however, that the mining companies showed great restraint at the start of the recession, and that is a sign of a mature and responsible industry. With that record, we can be confident that they will continue to act responsibly as the recovery gathers steam.
What would you like to wish to the participants of the diamond industry in 2011?
I wish them the same as I have wished them in previous year – health, happiness and good business, carried out in a responsible, ethical and transparent manner.
Alex Shishlo, Editor of the Rough&Polished European Bureau in Brussels
