Wednesday, November 02, 2005

South Africa Lawmakers Pass Diamond Law Changes

By Gordon Bell
Reuters South Africa
November 1. 2005

On November 1, South Africa's national assembly approved highly controversial changes to diamond laws. The new laws allow for a state diamond trader to help lock-in wealth in the world's fourth largest diamond producing nation. The goal of the new laws is to stimulate more jewelry manufacturing by black South Africans.

De Beers, the leading world diamond producer, claims that the law will harm the industry, leading to mine closures and job losses, although it remains hopeful it can work with the government. In fact, De Beers’ largest shareholder states that the proposed law may lead to the demise of the company’s powerful marketing arm.

Under the new law, miners must first offer their diamonds to a state trader, who in turn will make the stones available to local cutters and polishers. Producers will be compelled to route their exports through a state-controlled export centre, although the minister can issue an exemption from this.

Minerals and Energy Minister Lindiwe Hendricks dismissed warnings of massive job losses because of the law, and noted that several major companies had expressed interest in investing in South Africa's processing sector once the law was passed. He further rejected the criticisms by stating, "Some of the concerns raised were valid whilst others were nothing but myths that were created by people who do not want to see the status quo changed."

The bill will now be referred to parliament's lower house and will be implemented once the finance law is approved, likely early next year. Lawmakers also approved the Precious Metals Bill, which also aims to encourage local processing and requires companies to apply for refining and processing licenses.

South Africa is the world's fourth largest diamond producing country. Currently, most of South Africa’s diamond production is exported in raw form to be cut and polished. Is this a smart move by the government to create more jobs, or is it “interventionist,” placing the entire industry under the control of the current government?

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