RAPAPORT...Representatives from Namibia’s diamond manufacturing sector recently established the Diamond Manufacturers Association of Namibia (DIAMAN), an industry body to coordinate their activities and tackle the common challenges they face. Namibia is arguably the smallest of southern Africa’s cutting and polishing industries and the association is seen as a significant step in cementing progress already made to beneficiate Namibia’s diamonds.
That beneficiation drive was officially launched in October 2007 when the Namibia Diamond Trading Company (NDTC), a joint venture between De Beers DTC and the Namibian government, started selling rough goods directly to local sightholders. As a result, where there had been four cutting and polishing factories operating in the country, there are now 18 license holders, 11 of whom are in operation and had become NDTC sightholders by April 2008.
Burhan Seber, managing director of Hard Stone Processing and current chairman of DIAMAN, explained that although the organization was only “officially registered about three months ago, already there are some prevalent issues that we need to deal with.”
Skilled Labor Poaching
The most prevalent of these issues, Seber noted, is the poaching of skilled labor, which has created some resentment among manufacturers. The limited number of skilled workers in Namibia until recently served just the four factories, he explained, and the new factories that have opened are stealing away experienced employees from their current jobs in those four factories to staff their own operations.
Among the solutions being considered is an industry-focused training program, as opposed to each company incurring the cost of training its workers from scratch. However, the limited growth potential of the Namibian cutting and polishing industry as a whole raises the question of whether such a program would be economically viable.
“In a best-case scenario, the cutting industry in Namibia could grow to 18 factories, in which there would be room for maybe another 500 workers,” Seber said. The industry currently employs between 1,200 and 1,500 people.
Growth ConstraintsA major constraint on the industry’s growth is the country’s limited rough diamond resources. While Namibia has a century-plus history of mining diamonds, its inland mines are being depleted, forcing it to move offshore.
Namdeb, the joint venture mining operation of De Beers and the Namibian government, reported that production of its land operations fell 3.5 percent to 999,000 carats in 2007, while sea production rose 12 percent to 1.18 million carats. The company is reportedly planning to spend approximately $98 million on new exploration projects off the Namibian coast that have an estimated potential to deliver 500,000 carats per annum.
Shihaleni Ndjaba, NDTC’s chief executive officer (CEO), said the move offshore was expected and had been factored into the development of the NDTC. “We always knew that we were dealing with a finite resource and that there would be a need to move offshore,” Ndjaba said. With its mandate to supply sightholders with 10 percent of total rough production, Ndjaba said NDTC would supply about $300 million worth of diamonds over its first two years of operation.
Indeed, while beneficiation efforts experience some growing pains in other countries, most notably in neighboring South Africa, Namibia has had few glitches since NDTC started operations. “We must give credit where it’s due,” said Seber. “NDTC has worked efficiently and is doing an outstanding job.”
Regionally InsulatedSeber noted that, as with all stakeholders in the global diamond industry, the current economic market downturn means tough days ahead for Namibia. The impact will be cushioned somewhat, however, by the fact that economic growth in developing countries, such as South Africa, Botswana and Namibia, has been less dramatically affected by the recent global turmoil than developed countries.
South Africa’s Finance Minister Trevor Manuel said the country was relatively well insulated from the crisis, attributing this to the minimal exposure its banks, which rely heavily on rand-based capital, had to the U.S. subprime markets. Nevertheless, he lowered the government’s economic growth forecast for 2009 from 4.2 percent to 3 percent.
James Allan, a South Africa–based diamond analyst and a founding partner at corporate finance boutique AllanHochreiter, noted that a fall in demand for rough diamonds would have a greater effect on Namibia and Botswana, where diamonds play a larger role in the economy. Allan, who expects global demand for diamonds to slow by 2 to 3 percent in 2008, stressed, however, that it was too early to assess the impact the financial crisis would have on the southern African diamond-producing economies.
“Where it is having an impact,” Allan said, “is in junior mining companies’ ability to raise capital and proceed with their projects in the region. So you may see less short- to medium-term investment in development.”
The MarketplaceIn South Africa…
• Trading activity is minimal. People are reluctant to buy diamonds due to the volatility and continuing depreciation of the South African rand, which dropped more than 30 percent in value against the U.S. dollar in October.
• The weaker rand results in diminishing purchasing power. The amount that could have bought a carat a few months ago will now buy a significantly smaller stone.
Article from the Rapaport Magazine - November 2008. To subscribe click here.