Introduction
South Africa is a mining country with an industry of precious metals and gems structurally similar to that of the Russian Federation. In particular, South Africa has a powerful sector producing gem-quality diamonds, as well as gold and platinum group metals. No less than 90% of its precious products are exported to the international market. This country’s processing industry consumes less than 10% of its own precious metals and diamonds and is mainly oriented to the domestic market.
From the legislative point of view, South Africa is very much like Russia. After the black majority led by the procommunist African National Congress headed by legendary Nelson Mandela won the first democratic elections in 1994, the country’s legislative activity was set on the front burner. South Africa is clearly eager to digest every best thing from the Western legislative practice, take into account the experience of communist countries (that of the USSR and China) and at the same time not to ignore the historic traditions of peoples inhabiting the country.
General description of South African legislation
South Africa’s legislative system is based on the traditions of the British law (due to its colonial heritage), which is significantly different from the so called Continental System serving the basis for the Russian legislation. Acts (belonging to parliamentary legislation) and court precedents happen to be the main thing there.
The major South African laws on mining and processing precious metals and gems are the following:
Mining Titles Registration Act 1967;
Mining Titles Registration Amendment Act 2003;
Mineral and Energy Laws Rationalization Act 1994;
Mineral and Petroleum Resources Development Act 2002; and
Diamond Act 1986 (with minor amendments of 1988, 1989, 1991, 1996 and 2005).
It is evident that South African mining legislation differs from that of the Russian Federation. Instead of the voluminous Subsoil Law and the secondary Law on Precious Metals and Gems there is a package of minor and concrete laws.
Besides the laws, an important role in South Africa is played by the government agencies: it is these agencies that interpret and delineate the government policy in mining, processing and trade of precious metals and gems.
Thus, the problems related to minerals mining are covered by the Ministry of Mines and Energy, or to be more exact by the Department of Minerals and Energy (DME; www.dme.gov.za). The South African Diamond Board is associated with this department. The policy in the field of subsoil use is worked out by a special center (the Mineral and Energy Policy Center; www.mepc.org.za). Trade is regulated by the Department of Trade and Industry (www.dti.pwv.gov.za) and the National Treasury (http://www.treasury.gov.za/).
Diamond Act 1986
This is a basic document for the diamond industry of South Africa.
The law contains 99 articles. It deals with the powers of the Diamond Council; control over possessing, purchasing and selling rough diamonds; cutting; export; as and intermediate problems.
The law consists of nine chapters:
Terms and their interpretation (1-2);
Diamond Council (3-17);
Illegal transactions (18-25);
Licenses and permits (26-43);
Trade regulations (44-59);
Export (60-73);
Control measures (77-81);
Crimes and punishments (82-92);
Other, as for instance monetary abuse (93-99).
The basic content of the law is as follows:
The Diamond Council reports to the profile ministry. Being elected by way of a complicated procedure from among government officials and business representatives, it has the right to give its recommendations to the minister, draw up reports and give permits for diamond transactions.
It is forbidden to possess rough diamonds to anyone, except lawful miners and lawful buyers.
Trade practice is permitted to lawful dealers and to owners of special permits.
Cutting is permitted to a) cutters, toolmakers and researchers; b) their subcontractors; c) under written permissions of the Diamond Council.
Export of rough is forbidden to anyone, except a) miners; b) dealers; and c) those having special permits.
Diamonds crimes are split into four groups. The punishments are as follows: 1) fine up to 250,000 rands or up to 10 years of imprisonment; 2) fine up to 100,000 rands or up to four years of imprisonment; 3) fine up to 50,000 rands or up to two years of imprisonment; 4) fine up to 25,000 rands or up to 12 months of imprisonment.
Amendments to Diamond Act 2005
The law departs from the fact that South Africa accounts for about 10 percent of rough diamonds, but manufactures less than 0.5% of finished diamond jewelry. This law was passed in the first place to provide for deep processing of domestic rough on the home territory, to create new jobs, to attract foreign investments and in the long run to raise the GNP. Its main essentials are as follows:
The role of government agencies is greatly elevated. In particular, Article 61 is amended to read, “the person, who has decided to export rough diamonds, shall register them accordingly with the Export Center and inform the export officer.”
The existing private organizations – the Diamond Council and Diamond Exchange – are replaced with a state body. It is named the State Diamond Trader (SDT).
The government will define the terms and conditions under which diamond miners will be obliged to offer rough diamonds to domestic cutters. The state will receive the right to convene the State Diamond Trader, which has an opportunity to purchase a certain percent of the output and then to distribute rough among domestic cutters. So far, the amount is set at 10% in terms of carats and this will be profit-bringing rough designated for local cutting.
The State Export Center is being set up to collect export dues.
Direct export of rough will be forbidden to private companies.
Profitable rough will be separated from “unprofitable rough for export purposes.”
The state body will receive the right to free unprofitable rough from export dues.
Five-year licenses for diamond processing will be replaced with one-year licenses.
The police will receive new powers to check, examine and perform expert evaluations.
Violations will be punished more severely.
Rough export dues will be fractional, about 5%.
State Diamond Trader is starting its operations
According to reports from South Africa, the State Diamond Trader is running into budget limitations. The company announced it had a diamond stock worth only $2-3 million, which was accessible for its first bidding in January 2008 (of which De Beers accounted for 90%). It is scheduled to raise this indicator up to $5-6 million or possibly up to $12-14 million in the course of 2008.
The SDT budget in the first year of its operation will amount to approximately $63 million with a possibility to bring it up in case of market success.
Remember that South Africa is annually extracting $1.4 billion worth of rough diamonds and consequently the SDT has the right to obtain $140 million worth of rough every year. This makes about $12-14 million per sight.
Presently, the SDT is not allowed to attract foreign funds, but spokesmen for Industrial Development Corporation, an investor company, said the restriction may be lifted when this business will prove to be self-sufficient.
The point is that any external financing must be preliminary allowed by the Ministry of Minerals and Energy of South Africa.
It should be noted that not everyone is happy with the SDT institute. From the end of 2007, the South African Diamond Producers Organization (SADPO) representing independent diamond miners in South Africa is trying to sue Buyelwa Sonjica, the Minister of Minerals and Energy of this country. SADPO’s Chairman Mattie Lotter informed, “The court action is to set aside the coming into operation of the first and second Diamond Amendment Act, specifically because they take away the international value of our products.” SADPO consists of 200 independent miners involved into minor production of alluvial diamonds in the Northern Cape, North West and Free State provinces. Their joint output in the 2006/07 financial year reached 360,000 carats of diamonds.
The government officials do not give any comments on this point. There have been no announcements as to the date of the would-be hearings.
Rejected concepts
During 14 years of the black majority rule, the government authorities got acquainted with all the concepts related to the regulation of the diamond and precious metals market, including the Russian ones.
Firstly, it was proposed to set up a South African Diamond and Precious Metal Regulator (SMDPMR) instead of the South African Diamond Board. However, the legislators have not so far transformed the circulating ideas in relation to this problem into laws. Secondly, in 2004 the Parliament discussed amendments to the basic Diamond Act with a view to complement it with gold and platinum group metals and possibly with silver (PRECIOUS METALS AND DIAMONDS GENERAL AMENDMENT BILL). However, this bill was deferred. This is confirmed, in particular, by the absence of any discussions of the subject at http://www.treasury.gov.za/, the site run by the government agencies. Thirdly, it is clear by default that concepts related to full-scale or partial state hallmarking of household goods made of precious metals have not found any understanding in South Africa. Such concepts were evidently discussed by experts. But these concepts were not brought up to become bills.
Conclusions
1. Special state regulation in South Africa covers only domestic transactions involving rough diamonds and rough diamonds export.
2. There is no special regulation governing export and import of gold and gold containing materials. There are also no special rules in terms of silver and platinum group metals.
3. There is no obligatory state hallmarking of household items made of precious metals, including jewelry.
Vladimir Teslenko, special report for R&P
