'African time!' Now here is concept that is complete anathema to any red blooded capitalist and fair enough too. What self-respecting entrepreneur could relate to this slow, rhythmic pace of living in the moment, and not worrying much about the future?
Finally, though, it seems that African leaders are waking up to the fact that operating on ‘African time’ may not be in the continent’s best interests.
The question now being asked by governments is this — how can companies mining in Africa get more local value from the current commodities boom? And the diamond industry, because it has the potential to add the most value, is being touted as a potential guinea pig.
Cut, polish, manufacture, sell... on the home front
The global production of rough diamonds is currently worth $13bn. And 60% of these sparklers are mined in Africa. But until recently the real value was realised much further up the chain.
Belgium used to be the world’s cutting and polishing centre followed by Israel. But most stone sprucing now takes place in India and China. This is driven by their appetite for jewellery and their booming economies.
Well fair play to them! The Asian Tigers have worked out that a bit of chipping and polishing raises the global value of those uncut stones to $19bn. Better still, if you manufacture jewellery suddenly that pile of stones is worth $3bn. Open a posh store and flog diamond jewellery to ‘Joe Public’ and WHAM BAM a five-fold increase to $63bn is realised!
It is not difficult to see why African governments believe more of this should happen on their home turf. What is more difficult to understand is why they haven’t done it sooner.
Westerners might blame ‘African time’, smugly implying stupidity or laziness. But the reality is not that simple. Until recently the industry was strictly regulated and controlled by the De Beers international diamond cartel. It selected about a hundred ’sight holders’, or polishers and dealers, who were offered diamonds in London on a take it or leave it basis. This effectively cut out the smaller players who couldn’t afford the price.
Enter diamond tycoon Lev Leviev — the world’s 210th richest man . He didn’t get there by being Mr Nice Guy . Once a De Beers ‘sight holder’, he saw that the position of supplier of uncut stones was everything.
So in the late 80s Mr Leviev saw an opportunity. Abandoning his ‘sight holder’ status he got in bed with some Russians, who helped him secure a foothold in Africa. Leviev was now much closer to the uncut stone.
Value lies in vertical integration
And the result? He is now the world’s biggest cutter and polisher of diamonds, which he mines in Angola, Namibia and Russia. In all three countries he rapidly set up facilities, creating jobs, growing local industry and as a consequence winning the hearts and minds of the government. His phenomenal success has been in vertically integrating his diamond empire and as a consequence forcing De Beers to change tack.
In Botswana and Namibia, markets that De Beers still control, the diamond giant had no choice but to spinout two separate joint ventures — Namdeb and Debswana — with the respective governments to promote local cutting and polishing.
Now many of Africa’s diamond producing nations are recognising the potential local value-add. Six of the continent’s biggest diamond producers — Angola, Botswana, DRC, Namibia, South Africa and Zambia — have joined forces to establish the African Diamond Producers’ Association. The objective is to snaffle up a greater share of global cutting and polishing activities. This will add value to production on the home turf.
In some countries, like South Africa, this is already happening. But there is still more to be done. The Association hopes to agree a common policy. ‘African time’, however, means that the process is already running into difficulty as people come to the party at their own pace.
Good for marketing... good for the bottom line too?
So what does all this mean for African miners and their investors? Well, aside from the uncertainty, companies could soon be legally obliged to offer all rough stones mined in their territory for local processing... is that a collective groan we hear?
Let’s be fair. Why shouldn’t African economies benefit from the high margins realised further up the chain? It can’t all be bad. A company which holds some diamond prospecting licences, RandGold Resources, has recognised the benefits of manufacturing jewellery where the gold is discovered. It funded a gold jewellery manufacturing outfit in Mali, to "give something back to the community". That is the marketing line, but we’d call it enlightened self-interest. Clearly RandGold can see some potential upside.
The lesson in all of this is a simple one. Like many other resources, diamond demand is outstripping supply. Africa is as good a place as any to find them. More money can be made by vertical integration. So the junior miners willing to do this will be the ones to watch — but they will have to forge partnerships with stable governments. Then there may be some rich pickings.
So keep polishing.
Erin and Isabel
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