In recent months, industry members and experts have taken quite a lot of pains trying to figure out the cause of stagnation in the diamond market. By all appearances, the diamond market “fundamentals” promise a bright future for the industry: the world’s diamond output is gradually decreasing, while global sales of diamond jewelry are albeit slowly, but growing. However, despite this, prices for polished diamonds are staying flat at best and going down at worst. Some see the reason in the problems with funding diamond manufacturers, others – in the change of consumer preferences. Diamond mining giants are consolidating their efforts to revive the long-lapsed programs of generic marketing. Experts call to pay more attention to the threat posed by synthetic stones.
But there is another factor, which has somehow completely escaped the discussion.
“Just a few years ago, experts predicted Zimbabwe to play a big role in the global diamond market.”
India has always pinned its biggest hopes on Zimbabwe. When the Kimberley Process lifted its sanctions from Zimbabwe’s diamonds, it was a real salvation for diamantaires in Surat. At that time, India, the world’s diamond manufacturing hub was suffering from sharp depreciation of the rupee against the U.S. dollar, which undermined local diamond cutters financially. “Zimbabwe diamonds have become the cheapest option now,” GJEPC officials said in those days. “Zimbabwe’s cheap diamonds are attracting Indian diamantaires, especially small and medium buyers. They bring the diamonds to India paying cash in order to keep their factories running.” They also expressed the hope that the flow of cheap stones from Zimbabwe will lead to lower prices for diamonds from South Africa and Russia.
It should be said that to deal with Zimbabwe in this period was very remunerative. In 2013, diamonds from this African country, just recently considered conflict stones, were sold at a discount of up to 50% to the price of comparable rough from other sources. “Scrupulous dealers who bought diamonds at tenders in Harare, via the Dubai route, had maintained that Zimbabwe diamonds could only be bought at hefty discounts of as much as 25-40 percent arguing that diamonds from the country came with serious reputational risks for traders,” Equity Communications said in its report.
According to the data released by the Kimberley Process in 2013, net exports of diamonds to India amounted to about 110 million carats. Foreign trade statistics of the Gem and Jewellery Export Promotion Council (GJEPC) at the same time gave a very different figure – 118 million carats. To write off this discrepancy to “differences in accounting methods” will not work: 2013 was the first year when statistics from KP and GJEPC diverged so sharply. For example, in 2012 and 2011, the numbers of net exports to India from these two sources were nearly identical. Thus, in 2013 India got approximately 8 million carats of rough diamonds, which were not registered by the Kimberley Process for one reason or another – and most likely they were diamonds from Zimbabwe bought by Indian diamantaires “for cash” exactly when the falling rupee rate forced them to look for any options to maintain business.
Now imagine that you bought a parcel of cheap diamonds from Zimbabwe and turned them into polished goods. It is doubtful that you will try to approach large dealers with that kind of polished stuff – they will sure be reluctant to accept those reputational risks. Most likely, you will go to smaller dealers who will close their eyes to some of the problems related to the origin of diamonds in exchange for… of course, for the good old discount to the market price. And then discounted diamonds will start their free sail: unlike for rough diamonds, there are no certificates for polished diamonds, which would require disclosing the country of their origin.
“Perhaps, the current protracted stagnation in prices for polished diamonds is caused by the fact that the market continues to receive discounted stones cut from Zimbabwean diamonds.”
By and large, diamond cutters in Surat cannot be blamed for their willingness to support their own business. The problem rather lies in the lack of regulation. The zealous pursuit of ethically clean rough (which in itself is a good intention) did not make diamonds from Zimbabwe more or less “clean“. We are not at all trying to prejudice the Kimberley Process’ decision to impose an embargo on trading diamonds from Zimbabwe, as well as its decision to cancel it. We only draw attention to one fact: It is no secret that even after the embargo was lifted the trade in diamonds from Zimbabwe has long remained not quite legitimate and quite far from being transparent. In fact, it began to be somehow regulated only by the end of 2013, when the country’s authorities began to organize open tenders in Harare and beyond. And even this mechanism is still far from perfect.
The good news is that if the discounted diamonds coming from Zimbabwe are currently putting real pressure on the general price level, sooner or later the stock of these stones will be exhausted and everything will come back on track.
The alarming news is that even if the depletion of this stock will remove the symptoms, this will not solve the problem. We must not forget that besides major manufacturers there are small and closed companies in the market, whose pricing remains a mystery to the whole industry. This is the case not only in Zimbabwe. The Kimberley Process is now chaired by Angola, which faced the problems of illegal diamond trafficking caused by the civil war back in its history. In fact, it is in many respects thanks to the experience of Angola that the KP Certification Scheme proved its efficiency. But according to market players, the largest diamond company of Angola, Catoca is also selling diamonds at a significant discount to market prices. And if in the case of Zimbabwe the discount was caused by the sanctions and “semi-legal” status of rough diamonds, in the case of Catoca it is due to lack of transparency in the company’s sales. Of course, the Kimberley Process is not alone to bear the responsibility for market transparency, which also rests with the authorities of those African countries, which receive revenues from the diamond trade.
We should not overlook the latest news about the imminent resumption of rough export from the Central African Republic, which has been under the KP sanctions since 2013. Indeed, the amount and quality of these diamonds do not matter much – if these stones will fail to be sold in a transparent way after the sanctions will be removed, the market will soon run the risk of having another source of rough sold at a 50-percent discount.