No South African Solution (Yet) in the Making
August 21, 08
After last month’s DTC Sight in South Africa, we noted the both ridiculous and amazing situation in which De Beers had been in violation of sections 52 and 20A of the Diamond Amendment Act. The company had violated these sections of the Act by showing Sight goods to foreign Sightholders who were not legally “authorized representatives” of their own local Sightholding entities. Sightholders, we wrote, could have been arrested – as could have some of De Beers’ representatives.
Though the law is the law, there are several ways to remedy this situation, and we were convinced that, after our publication, De Beers would engage with the Regulator to solve the problem. After all, the DTC Sightholders are the major manufacturers, the principal employers in the diamond industry, and the creators of enormous added value for the local economy. To make a long story short: the DTC apparently has neither the leverage nor the goodwill among senior government officials to resolve the issue in advance of this week’s Sight.
DTC SA Managing Director, Faried Sallie, engaged with the Regulator and got nowhere; on August 4, 2008, the DTC “urged all our Sightholders who have foreign representatives to register them with the Regulator as stipulated [in the law].” Alarmed that the DTC itself may get into trouble, and not wanting to take chances, Nigel Simson, the head of DTC sales in South Africa, advised his clients that “unfortunately we are not in the position of allowing persons who are not an Authorised Representative onto the Sight floor in the Harry Oppenheimer House (HOH). I appreciate your understanding and cooperation in this matter and sincerely hope that the impact on your
This must be the first time ever that the DTC has advised principals of Sightholding groups that they are not allowed to inspect their goods before purchase. The only ones who can do so are duly accredited local representatives who must also be in possession of a valid South African work permit as well as being a resident of the country. It is quite unlikely that the foreign-based owners of the SA Sightholding entities would even be
Last month we predicted that the “DTC will undoubtedly find a solution well before the next Sight. Its clients are responsible for 80 percent of employment and 90 percent of the capital of the South African diamond beneficiation scene. Therefore, the Regulator is not likely to focus on these heavyweights and march them into jail.”
We were wrong – the DTC did not find a solution and basically took the easy way out by advising the relevant Sightholders that they couldn’t view their goods. Incidentally, this applies to DTC brokers as well.
In the meantime, some temporary “one time” partial solutions were improvised. A handful of foreign DTC Sightholders formally applied to become an authorized representative for their firms – and on the basis of a “receipt” certifying that an application was made, the DTC allowed access on to the Sight floor. So they did see their Sight, in spite of not meeting the conditions outlined in Simson’s letter. Another administrative trick was found for some of the DTC brokers or their representatives, who also need a license and work permit to enter the Sight floor.
It seems like an unten
Deterioration: A Blessing in Disguise?
What I find alarming is the apparent deterioration of relations between De Beers and the South African government that allows such a situation to arise to begin with.
The two relevant Diamond Amendment Acts were passed and signed into law on the 14th of February 2006. More than two years have passed since then. What has been done in that period to avoid this impasse? One gets the impression that, apparently, De Beers was not sufficiently aware of this mostly administrative obstacle and, until recently, also didn’t find it necessary to alert its clients. It is weird to think that De Beers should be “grateful” that the police didn’t arrest both Sightholders and DTC officials, who, according to the definitions of the act, were guilty of “fraudulent conduct.”
On July 30, 2008, the Regulator advised De Beers once more (in a letter from Regulator CEO Louis Selekane to the DTC’s Faried Sallie) that “assistance by non-licensees during the viewing, purchasing or selling of unpolished diamonds at any place where unpolished diamonds are offered for sale, except at a diamond exchange and export center, is prohibited by section 20A of the Diamonds Act as amended. Sightholders which are juristic persons with foreign partners or associates are advised to apply to the Regulator for registration of their foreign partners or associates as their authorized representatives.”
This is followed by Selekane’s request to the DTC to “please inform your clients (i.e. Sightholders) to apply to the Regulator for registration of their foreign partners or associates as their authorized representatives.” Indeed, DTC spokesperson, Louise Prior, confirms that “both De Beers and the Regulator however share the view that the legislation requires that natural persons attending a Sight are required to be approved as authorized representatives.”
While there is no argument about the law, De Beers is still in the process of looking for a way out – or, we should say, a way around. Says Prior: “In the period leading up to the Sight, we requested that the Regulator clarify the basis upon which Authorised Representative status would be granted and suggested alternatives.” We don’t know what “alternatives” means.
Selekane makes it clear that Sights need to be attended by local people, residents with a work permit, which is probably taking the provisions of the law to an extreme. South Africa can hardly afford to lose the goodwill of those people who are financing the secondary diamond industry. For the foreign principal to be denied the privilege to see his SA Sight prior to purchase at the premises of De Beers is as ridiculous as prohibiting Mickey Mouse from entering Disneyland. It simply doesn’t make sense.
In her characteristically optimistic parlance, Prior settles the issue by saying, “we believe that we have facilitated a workable solution to the implementation of this legislative requirement.” It would be more correct for De Beers to say “we survived the current Sight, but only barely so. The solution was not in full compliance to the law.”
While soliciting views on the current situation, it became apparent that not everybody involved seems to be unhappy, albeit for the wrong reasons.
Most people look at the larger context and consider the hassling on administrative issues (such as access to Sight floors) a distraction from the real issues. The South African diamond industry is in a deep mess. There is a handful of Sightholders that are receiving large Sights. Most others acquire barely half a million dollars worth of goods per Sight cycle. Other sources of rough have become mostly inaccessible, and factories are closing. Moreover, the State Diamond Trader is seemingly becoming an unmitigated disaster.
And, most critically, domestic employment in the manufacturing sector is declining. The banks feel ill at ease in lending to the industry; and they are losing confidence. While one of the tender houses is continuing to operate under the “protection” of a court order (an order which may not “protect” its foreign clients), a handful of other tender houses this week also applied to the courts to intervene. This cannot be the outcome anyone wanted – or hoped for.
There is an ambiguity here. Some believe the faster the whole state of affairs becomes a total disaster, the earlier the government will sit around the t
Others believe that a solution needs to be found long before the industry will suffer a total collapse. When skilled workers leave (and go to Botswana or elsewhere) or go into other lines of work, it is almost impossible to get these workers back. The loss of skills may be the single greatest threat to the very success of beneficiation.
Are there solutions? Of course there are. There is no need to spell them out again – as all parties are aware of the options. However, there needs to be a prerequisite – a basic premise – that all sides genuinely want to resolve the impasse. That premise should be axiomatic; almost self-evident. It isn’t.
And that is the real South African diamond industry tragedy.
Have a nice weekend.