Diamond factories on the brink of collapse

DIAMOND cutting and polishing companies want the government to save them from total collapse by cutting the price of rough diamonds the state supplies to them.

The global diamond industry is beset by problems that have seen prices fall and production cut in most countries, including the Namibian market.

But locally, owners of factories say the government can solve the crisis by providing cheaper rough diamonds that would ensure the survival of factories.

“Time is running out. The industry is about to collapse,” said Burhan Seber, managing director of a Windhoek-based factory, Hardstone Processing, in an interview. Seber is also a former president of the Diamond Manufacturers’ Association of Namibia.

The Namibia Diamond Trading Company, a 50/50 venture between the government and De Beers, supplies rough diamonds to local cutting factories.

The situation is so dire that only four of the once thriving 13 factories remain in operation. If the government does not come to their rescue, the rest of the factories will close, Seber said.

“All we are saying is that there is a crisis in the industry. There is a rough pricing issue,” said Seber.

“The factories are now like ghost towns. The few factories in production are only trying to survive,” he said.

Ofer Babluki, the president of the Diamond Manufacturers’ Association of Namibia, said the few factories operating are not making money.

“Times are bad. Productivity is only at 5%,” added Babluki. Both Seber and Babluki declined to reveal the price of diamonds they buy from the NDTC or the amount of rough diamonds they want to buy as the crisis persists.

Hundreds of workers who have over the years honed their cutting and polishing skills are either out of work or sit in factories with nothing to do.

“At one time, companies were stealing workers from each other but now workers are on the streets,” said Seber.

Babluki said most rough diamonds supplied to local factories end up not being polished as it is expensive to do so. Given this scenario, Babluki said supplying cheaper rough diamonds would be a win-win situation for both the government and the factories.

According to Babluki and Seber only 10% of the rough diamonds supplied to local factories are being cut and polished, with the rest either sold overseas or declined and returned to the NDTC.

Babluki and Seber said as a result of the troubles in the industry, the workforce in the industry has dropped from a peak of 2 000 a few years ago to 400 workers. This figure is much lower than the 700 job losses mines minister Obeth Kandjoze mentioned during a diamond conference last month.

“The government must knowledge that there is a problem and it must happen soon,” said Seber.

He said the industry can still survive in Namibia and jobs return if the government listens to the industry.

Seber said asking for cheaper rough diamonds should not be seen as a form of subsidising the industry.

Last month, international traders estimated that De Beers’ diamond sales will be down by at least 60% this year. Traders also asked De Beers to drop rough prices by between 30% and 50% to inject profits and liquidity into the trade. Traders expect De Beers’ first half sales to drop by at least 60% or more to about US$1 billion as opposed to US$2,9 billion last year.

Richard Steenkamp, senior manager of sales and marketing at the NDTC, told The Namibian that the NDTC has ongoing discussions with its clients and sightholders to understand their perspectives on the industry, as part of the normal relationship management process.

“Through this process we engage with our sightholders to help us understand the challenges and successes of their businesses. This is part of an ongoing process that feeds into our business and decision-making,” said Steenkamp.

Asked whether the NDTC will consider reducing prices of rough diamonds, Steenkamp said the company constantly reviewed its prices.

“With respect to industry conditions, in 2015 we reduced our rough prices by 15% on an index basis. However, the inventory indigestion issues faced by the diamond industry’s midstream sector this year mean that many diamond businesses continue to face challenges,” he said. Steenkamp said the NDTC’s pricing decisions were supported by a comprehensive analysis process and this took into account a number of industry-wide factors. “Any pricing adjustments would be made on the basis of this analysis,” he said.

Steenkamp explained that there was no single quotable price for a certain quantity of rough diamonds, as they varied substantially in value depending on size, shape, colour and clarity.

The ministry of mines did not responded to questions emailed to them on the issue.