SA Draft Diamond Law Cancels Agreements With De Beers For Supplying Rough Through London; Imposes 5% Export Duty On All Rough Diamonds

A cursory reading of the proposed amendments to the South African Diamond Act 56 of 1986 shows two major changes: all rough diamonds are subject to a 5 percent export duty and special agreements with major producers (De Beers, Trans Hex) are not possible any more. This will dramatically change the domestic diamond scene.

The most dramatic draft amendment is to Section 59, which allows the South African Diamond Board to enter into agreements with producers to find the optimum way to guarantee adequate supplies to the local cutting industry. The draft law simply makes it mandatory that all rough diamonds produced in South Africa, which can be cut there, must first be offered to the local industry.

Since 1993, there has been an agreement between De Beers and the Diamond Board that it is allowed to export its production to London and then provide the South African Sightholders with the goods they need. This agreement, it was argued at the time, has the advantage of allowing South African Sightholders to obtain supplies in qualities and classes which are not limited by the production from local mines.

The draft law, in Section 59, which calls cutters and toolmakers “beneficiation licensees”, now reads:

“In order to ensure that diamond beneficiation licensees obtain a regular supply of unpolished diamonds, any producer, dealer or any association or organization of producers or dealers must allocate or offer unpolished diamonds to diamond beneficiation licensees in the prescribed manner."

Another point of contention was the exemption of the 15 percent export duty that De Beers enjoyed as part of its Section 59 agreement with the Diamond Board. As the conclusion of agreements has been cancelled, it follows that the exemption is cancelled as well. 

The draft says simply that an exporter is exempt if “the Minister of Minerals and Energy, with the concurrence of the Minister of Finance, determines that it may be so exempted.” In fact, the 15 percent was seldom – if ever – actually collected as it only applied to rough diamonds which can be cut in South Africa but which had not been offered first to local industry.

This provision seems to have made way for a blanket export duty of 5 percent on all rough diamonds. The current law enables a “deferment of payment of export duty” – this option has also been cancelled. That brings the export duty very much in line with the rate charged in other African diamond exporting nations.

The bad news for producers is that it seems this duty will apply to all rough exports except those which the minister wishes to exempt. It is not clear under which circumstances the minister will make such exemptions. 

There are no changes suggested in the arrangements regarding polished diamonds.

We shall come back to this issue after getting feedback from industry players. The Department of Energy invites comments on the draft bill, to be submitted not later than June 17. It is unlikely that the last word on this draft has been said…