SA DIAMOND INDUSTRY IN A GLOBAL CONTEXT

1
SA DIAMOND INDUSTRY IN A GLOBAL CONTEXT

• SA, Australia, Canada and Russia have activity in
  all aspects of the diamond pipeline (value
  chain).
• SA produced 14,4 Mct in 2004 but its importance
  as a diamond mining country has declined
• SAs cutting a polishing industry is estimated to
  be the 5th largest by value after India, Israel,
  the US and China (4.1 of total value)
• - Most of the global cutting and polishing
  industry has shifted to lower cost cutting
  centres such as India China (66.1 of total
  value)
• - China and Indias capabilities have now
  extended to larger stones as skills have improved

2
CURRENT SITUATION

• 92 of local diamond production by volume and 49
  by value is not economically cuttable in SA
• Section 59 agreements allow for duty free export
  of diamonds
• De Beers uses an aggregation system and
  re-imports 162 of Category 1 and 152 of high
  grade Category 2
• Transhex and other producers sell their product
  on local bourses

3
FACTORS THAT DETERMINE SUCCESS IN

• Trading hubs
• Included in established diamond demand networks
• Low duty or duty free import and export of
  diamonds
• Highly incentivised (incl. tax concessions or
  exemptions and limited or no exchange controls)
• Specialised financial services
• Jewellery manufacturing
• The SA Jewellery Industry is small in scale when
  compared to Europe, India and the US and has a
  small domestic market
• Competitiveness is highly dependent on
  productivity, cost competitiveness, scale,
  quality, design and brand names
• SAs distance from major consuming markets is a
  major inhibitor

4
FACTORS THAT PREVENT SA FROM SIGNIFICANTLY
EXPANDING DOWNSTREAM INDUSTRY

• Due to SAs
• Distance from major diamond jewellery consuming
  markets
• Limited current scale, cost and quality
  competitiveness
• It will be very difficult for SA to significantly
  expand its share of any individual stage of the
  diamond pipeline given the highly competitive and
  globalised nature of the diamond pipeline

5
FEASIBILITY OF DEVELOPING THE SA INDUSTRY INTO A
MAJOR PLAYER

• When assessed against the relative opportunity
  and cost of intervention in other priority
  sectors, intervention in the downstream diamond
  industry presents a much smaller opportunity and
  at a very high cost. This is because of
• - Capital intensity
• - Barriers to entry
• - Risks
• - Global industry competition
• Therefore it is unlikely to radically grow the
  industry without significant financial resources,
  even with such resources, success can not be
  guaranteed because of the rapid progress being
  made in emerging competitor hubs e.g China and
  Vietnam
• One of the salient points of the study is
  therefore that great care should be taken when
  expending constituency resources on intervening
  in the sector, as the returns (social, financial
  and economic) may be limited.