5 minute read
Diamonds & Gems
SA’S ZERO EXPOSURE
TO GLOBAL RUSSIAN DIAMOND BAN
Following Russia’s invasion of Ukraine, over 30 countries imposed sanctions on Russian diamonds. We consider the impact this ban may have on the local market
By Itumeleng Mogaki
The Russia-Ukraine war has destabilised markets and supply chains the world over, including the supply of raw materials such as rough diamonds.
This is largely because more than 30 countries have imposed sanctions against Russia, cutting energy imports, blocking financial transactions and halting shipments of key imports such as semiconductors and other electronics. The United States (US) barred the import of “non-industrial” diamonds from Russia shortly after the invasion.
Rough Russian diamonds currently account for 30% of the global trade in the precious stone. And the US Treasury Department estimates that diamonds are one of Russia’s top 10 non-energy exports, totalling over $4.5-billion in 2021.
According to the Organisation for Economic Co-operation and Development, severe disruptions to global markets caused by the war have exposed vulnerabilities to the security of the supply of raw materials critical for industrial production and for the green transition. For countries affected by supply chain vulnerabilities, there is potential to diversify sourcing through expanded production and accessing known critical raw materials reserves.
How is South Africa impacted by these supply chain vulnerabilities?
30 COUNTRIES
Have imposed sanctions on Russian diamonds
SA DIAMOND SUPPLY BUSINESS AS USUAL
Clare Appleyard, owner of Katannuta Diamonds, doesn’t think the Russia diamond ban could (if it hasn’t already) lead to unwelcome diamond supply chain disruptions in South Africa.
“It’s unlikely there was or will be any supply chain disruptions. Remember that South Africa is a diamond-producing country, and in 2021 we produced 8% of the world’s total mined diamonds, by carat weight. Over and above that we produced nearly 10 million carats of diamonds, but imported less than one million carats,” says Appleyard.
The diamond industry in Southern Africa boasts a history of 150 years of discovery and mining, forming the cornerstone of the development of the core, modern economies at the southern tip of Africa.
The Southern African countries considered are South Africa, Zimbabwe,
Namibia, Angola, the Democratic Republic of the Congo, Lesotho, Botswana, and eSwatini, the first five having a history of diamond production stretching back more than 100 years.
Appleyard adds that the ban on Russian diamonds hasn’t a ected their business operations, saying Katannuta Diamonds continues uninterrupted. “We source diamonds locally, so we’ve seen no interruptions in our supply at all. Our local suppliers are all still exceptionally well stocked and there’s been no challenge in sourcing the goods we use most.”
DIAMOND BAN A ‘POSITIVE’ FOR SA’S MINING COMPANIES
Nielette Henderson, director at SA Diamond Source, a wholesaler and retailer of polished diamonds, says she thinks the ban on Russian diamonds should have a positive e ect on South African diamond mining companies.
“There should be an increase in the demand for South African mined diamonds. There will also be an increase in prices for smaller diamonds, the type of goods Alrosa is known for producing.”
Alrosa is a Russian partially state-owned diamond mining company that specialises in exploration, mining, sales of rough diamonds, and diamond manufacturing.
LAB-GROWN DIAMONDS
Henderson reminds us that even though the country has seen little to no e ect, because of the Russian goods sanctions, the country is not only a world-leading source of natural or mined diamonds, but is also a world leader in manufacturing lab-grown diamonds.
“Russian diamonds refer to all diamonds originating from Russia, whether man-made or naturally mined,” says Henderson.
“Russia was the first country to develop a machine that produced diamonds in an economic fashion. They lowered the overall cost of making the diamonds and increased the quality of synthetic diamonds. To date, Russia is still one of the top leaders of top-quality laboratory grown diamondproduction.”
Henderson also says we’ve reached the point where the diamond industry will be going through a lot of changes.
“It will be interesting to see how labgrown diamonds will a ect the demand and prices of natural diamonds. We are finding that nowadays, more couples are gravitating to engagement rings featuring lab-grown >
30%
global diamond supply coming from Russia
CONFLICT OVER DIAMONDS
The Kimberley Process (KP), a coalition of governments, the diamond industry and civil society representatives, which certifies that diamonds are not used to fund rebel groups, has some of its members divided over Russia’s invasion of Ukraine.
A er it invaded its neighbour in February 2022, Russia drew sharp criticism from civil society, which is pushing to broaden the KP’s definition of conflict diamonds to include state actors that use the stones to fund acts of aggression.
“Russia was the first country to develop a machine that produced laboratory-grown diamonds in an economic fashion. “ – Henderson
diamonds, because of the price tag,” says Henderson.
According to Henderson, these diamonds cost significantly less for a much larger stone than a mined diamond of the same size. “Millennials and Generation Z are increasingly embracing lab-grown diamonds, because they are eco-friendly, ethically sourced (conflict-free) and of course competitively priced.”
ADMIN ISSUES
Darren Etkind, owner of manufacturing and trading company Prodiam Trading, believes the sanctions predominantly impacted Alrosa.
“Alrosa must surely be severely affected by the ban, because there are global diamond industry bodies and other civil society representatives that are playing the roles of ‘watchdogs’ on the sale and distribution of rough diamonds coming out of Russia,” he says.
If anything, Etkind says, because there’s now a negative posture leaning towards any goods coming out of Russia, the South African administration side of diamond trading has been affected. This is because of the reasons stated above, and other payment issues as well – because a diamond is a commodity that gets traded on the international market.
“Prodiam Trading has had zero exposure to the ban, and in any case, all rough diamonds are made available by the state-owned entity State Diamond Traders and are also accessible from open market groups through the tendering process,” says Etkind. n
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