Diamond Marketing Reform in South Africa by shuifanglj


									Presentation to Parliament
        October 2005
                                            List of contents

1.    Introduction.
2.    South African Mineral Resources.
3.    Perspective of Diamond Processing in Southern Africa.
4.    South African Diamond Market.
5.    Why we support the Diamond Amendment Bill.
6.    Common myths in diamond processing.
7.    Our proposal.
8.    Our guarantee for success.
9.    Critical factors.
10.   Conclusion.
                                                 1. Introduction

1.1 Khadima Mining (Pty) Ltd (Khadima Mining)

    Is a black company owned jointly by emerging local entrepreneurs and the
     Leviev Group.

    It has been established to pursue viable projects that beneficiate South
     African mineral resources, especially diamonds, in a manner that promotes
     employment, skills transfer, government revenue and development of peri-
     urban and urban communities.

    Is committed to transforming South Africa into a diamond-cutting,
     polishing and jewellery manufacturing hub of note within the continent
     and internationally.

    Is passionate about promoting the development and marketing of the
     “South Africa Brand” of diamonds to the international market.
                                   Introduction (continued)
1.2 Leviev Group

    Is the largest diamond manufacturer by value in the world with annual
     turnover from diamond trade in excess of US$2.5 bn.

    Manages and operates diamond-cutting factories worldwide including in
     countries where the local population had no previous experience in
     diamond cutting.

    Has been operating in South Africa for more than twenty years.

    Has experience in manufacturing and marketing of jewellery for its own
     account or in conjunction with such brand names as Bulgari and Vivid.

    Is the leading global player that has demonstrated commitment to
     establish diamond cutting factories in African countries (Namibia, Angola
     and South Africa).
            2. South African mineral resources

 South Africa is endowed with an abundance of mineral resources -Gold,
  Platinum (70% of world’s resources), Diamonds(4th largest by value) and
  Precious Stones.

 Yet the country experiences difficulties in developing significant downstream
  industries that add value through beneficiation e.g. polishing, cutting,
  jewellery manufacturing, branding and marketing.

 The jewellery industry in South Africa produces less than 1% of the world’s
  jewellery, yet South Africa produces 16% of global minerals (SA Diamond

 Industry has set a target to bring the local jewellery industry’s global share to
  3.5% in the next three years. (SA Diamond Board).

 Government intends to beneficiate, especially diamonds and precious metals,
  to enhance equitable access to previously denied sectors of its population.
3. Perspective on diamond processing in
                        Southern Africa
 Botswana, South Africa, Angola and Namibia are the world’s first, four, fifth and
  sixth largest diamond producers by value and supply more than half of the
  worlds requirements.

 Yet an insignificant number of people are employed in their local diamond
  processing industries.

 Most of the South African rough diamonds are sent to London where they are
  mixed with others goods.

 It is a disingenuous myth that it is not economically viable to polish diamonds
  in Africa. This myth has been proven wrong by the Leviev Group in Namibia and
  South Africa.

 As a consequence of this untruth South Africa has throughout history lost
  billions of Rands in revenue, jobs, skills transfer and unique branding

 Sales of rough diamonds from global miners worth $11.3bn last year equated to
  $16,7bn worth of retail sales. (Chaim Even-Zohar).
Worldwide diamond processing labour distribution

                                    South Africa

              4. South Africa’s Diamond Market

 South Africa, the homeland of diamond mining, and one of the world’s leading
  producers of rough, should be capable of forming a powerful local industry.

 Yet the country experiences difficulties in creating a significant local Diamond

 Only 2,000 workers are employed in the polishing industry.

 Other segments of the diamond pipeline and supplementary industries are
  affected as a result and not being developed to their full potential.
     South Africa’s Diamond Market (continued)

Why the imbalance ?

 Local manufacturing is dominated by sightholders who are monitored by a
  dominant player, guided by its interest to maintain control over the diamond

 Within the framework of rough control, polishing is performed by large
  international companies aiming to export their production.

 The established method of exporting the rough through Diamond Board’s bids
  leads to higher prices, which have adverse effect on the economical viability of
  local operations.

 In light of this situation, the government decided to take decisive steps to
  rehabilitate the local diamond market, which will lead to utilization of [based
  on] its existing potential.
                           5. Why we support the new
                                        Diamond Bill
 Increase in the added value of local manufacturing through:
     Increase in the processing and manufacturing volume of the industry.
     Turning South Africa into a leading player in all phases of the diamond
     Generation of growth in related fields (tourism, banking, insurance, etc.)
     Increase in employment.
     Increase in added financial value of local production [AB: as most of the
      value is added post polishing].
     Investment in training and skills transfer.

 Facilitating entry of emerging diamond polisher and jewellery manufacturers
  through the Black Economic Empowerment (BEE) policy.
                               Why we support the new
                                   Diamond Bill (continued)
 Fostering of investment into, and development of local industry.

 Release of the country from controlling and interested parties.

 Gaining of control over rough diamonds and their processing.

 Guarantee of equitable access to rough diamonds.

 Potential of local branding for South African Diamonds.

 Increasing the country’s revenues from concessions, export, corporate
  taxation, royalties etc.
                       6. Common myths regarding
                              diamond processing
 Diamond industry is the most empowered industry in South Africa.
 50% of production is being cut locally.
 It is not economically feasible to polish diamonds in producing countries
 Diamonds are, and always have been, highly expensive commodity; local
  industry can’t afford to pay the incredible prices.
 Manufacturers have no flexibility to sell diamonds they cannot cut.
 Reform will encourage smuggling and money laundering.
 Diamond cutting can be done cheaply in countries such as India and China.
 Diamond cutting skills transfer cannot be done in diamond producing
 State diamond trader would take away responsibility for beneficiation from
  industry and distort market pricing.
 State trader nationalising through the back door.
 Envisaged private investment in the state trader would lead to market
 No market for South African brand.
                                                  7. Our proposal
 Khadima Mining’s objective is to utilize LLD Diamonds professional expertise and
  technology to maximize value of rough diamonds in South Africa.
 The project envisages establishment of diamond cutting and jewellery
  manufacturing factories in both economically deprived rural areas and urban
 Total employment is estimated at just under 2000 jobs specifically targeted at
  the youth and women.
 Vocational training and transfer of skills will be undertaken by the best
  instructors in the industry.
 The Project will yield in excess of US$ 43 m added value per annum.
 Direct foreign investment is estimated at US$ 16m and a working capital
  revolving fund of over US$100m.
 The company will guarantee the marketing of finished products through LLD’s
  network of international marketing offices and those of its partners.
                                                8. Our guarantee
 Proven capability and experience throughout the diamond production chain
  including mining, rough marketing, polishing, polished marketing, jewelry
  manufacturing, branding, technological development and professional
 Vast experience in working with governmental authorities.
 An extensive background in developing activities in Africa.
 Independence from the dominant rough producer.
 Know-how and experience in operating profitable systems on various scales.
 Proven capacity to expand local manufacturing.
 Financial capability to support the implementation of the plan.
                               9. Critical success factors

 Establishment of an independent professional state trading authority.
 Immediate and effective control over rough.
 Development of a local diamond market.
 Establishment of an infrastructure and mechanisms for developing and securing
  the future of a successful local industry.
 Opening of the market for independent investors.
 Developing a long term plan for the development and management of the
  capacity of the local market.
 Speedy implementation of the Bill to guarantee sustainable supply for local
                                                    10. Conclusion
 The new Diamond Bill provides an opportunity for the transformation of the
  “unique” trading structure, evolved over more than 100 years of moving
  diamonds (and other minerals) from the poorest, yet naturally endowed
  African continent to the rich consumers on the other side of the globe.

 This structure robbed South Africa of its rightful place among the giants of
  the global industry and relegated its people to continual underdevelopment
  through carefully orchestrated myths and structures aimed to serve the
  privileged few.

 Mineral resources are a common right of all South Africans and collectively
  belong to all the people of the country.

 The Bill provides “Freedom at Last”.

 An immediate implementation of well structured reform on the basis of the
  Bill will be imperative to prove the viability of the Government policy and of
  the importance of the Bill as a cornerstone in the development of the local
  diamond industry.

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