Profiles in Business: The Legacy and Future of South Africa’s Diamond Industry

In almost biblical fashion, South Africa’s now ubiquitous association with diamonds began with the surprising discovery of the magical white rock in a stream in 1866, by a shepherd named Erasmus Jacobs. If this sounds like Mark Twain fiction, or a too-good-to-be-true fairytale, imagine what Mr. Jacobs felt when they weighed his ‘discovery’ and it came in at over twenty carats!

Of course it didn’t take long for the diamond industry to quickly leave these humble beginnings once the rush was under way, with a flood of Europeans and South Africans attempting to get rich from the holes being dug in the Kimberley area. But one name amongst the herd survived and thrived, and is still doing so today: DeBeers.

Initially started on a farm by brothers D.A. and J.N. DeBeer and soon sold to a mining consortium headed by Cecil Rhodes, the DeBeers empire fought hard to gain and keep control of the industry, exerting its substantial influence and eventually working with its South African competitors to keep a tight grip on the market value of diamonds. Although that value has seen huge fluctuations in the last hundred years (it was in the 1980’s that diamonds were at their peak, accounting for over 15% of South Africa’s GDP), diamonds are still a crucial, and arguably under-threat resource for businesses there.

Of course, with the world being turned upside down economically in the last eighteen months, the story looks markedly different now than it did twenty-five years ago. But how different? We’ve all read in the business news how the price of gold has gone through the roof during this recession, so it’s easy to imagine such a precious commodity as diamonds, to be in similar shape. Not so, according to Ernie Blom, the Chairman of the Diamond Council of South Africa. He had this to say in the press recently,“SA is an exporter so we are obviously affected by the global economic crisis. Our diamond industry was definitely impaired by the crunch.” It seems that the gems have taken a real hit, with production falling 50% as of July, and now accounting for only 2% of South Africa’s GDP. Gold is seen as a safe haven, but not diamonds.

Other players in the industry, like Paul Ekon, echo these sentiments but remain optimistic for the future. “If we can start delivering more of a finished product here, in South Africa, and not just rough stones, rather than outsourcing to India, we can see a great regeneration of wealth in the industry.” MacDonald Temane, business owner of Masingita’s Diamonds gave a lengthy interview in June of last year, also calling on South Africa’s government to invest more in the industry, and by doing so, create much needed jobs for the local economy. Temane believes “the de-colonization” of the industry will help local companies, who have the know-how to finish the whole process from digging the ore to polishing the stones, to advertising and sales. Ekon agrees, “It’s high time the government and the industry starts to value itself more and realize the huge potential we have. We produce almost 70% of the world’s diamonds, and with better investments, we can reap the benefits of this and start seeing the prosperity again that we had in the eighties and nineties.”

In the second part of this feature, we’ll look at how the Kimberley Process developed and what the initiative means for Africa’s ‘blood diamond’ trade. Has it really helped legitimize the market, and keep profits out of the hands of rebel factions?