Emma Muller
28 September 2005
Johannesburg — IN A rare interview, Brian Gutkin, CE of the South African Diamond Corporation (Safdico), one of SA's largest and oldest diamond-cutting factories, chooses his words carefully.
SA's leading diamond manufacturers and De Beers sightholders have been remarkably silent about local beneficiation and the Diamond Amendment Bill.
SA-born Gutkin reached adulthood in the 1970s, when the previous government imposed Afrikaner empowerment on the diamond industry.
He played an active role in the development of the financial rand, which helped in the recapitalisation of the diamond industry in the mid-1980s.
In 1998, he sealed a partnership with high-end jeweller Graff, in which all stones for the venture were cut and polished in SA.
Gutkin, an accountant by training, started out in the diamond industry 25 years ago, climbing up the ranks of the Master Diamond Cutters Association and the South African Diamond Board while growing his own business, Krochmal & Cohen, which later became part of the Safdico group.
"I believe government genuinely wants beneficiation. It wants to support previously disadvantaged people, but diamonds are being singled out for special attention," he says.
"Diamond manufacturing is the most empowered sector in SA -- 70% of the sightholding companies are fully empowered in one way or another.
"Diamonds are also the most beneficiated commodity in the country -- with about 50% by value of De Beers' production being cut locally."
Under the previous regime, government's beneficiation policy forced De Beers to sell its production to South African companies at a 15% discount, which in the 1980s became 10%.
De Beers was also forced to allocate about 10 sights to Afrikaner-owned companies and banks were persuaded to finance these ventures.
Diamonds had to be cut in SA, with no flexibility for trading.
"There was simply no mechanism for a diamond cutter to sell the diamonds that he was unable to cut economically," Gutkin says.
A system of permits that cutters could obtain partly solved the problem, although this has been taken out of the current bill.
"Now, 25 years after the government relaxed what was at the time considered an archaic and draconian rule prohibiting diamond manufacturers from selling diamonds, the clock has been turned back," he says.
The diamond industry in SA never got off the ground, despite incentives and government interference, Gutkin says. It has traditionally been financed by rich companies in Antwerp.
"There was never any capital locally, money always came from overseas. Diamonds are, and always have been, a highly expensive commodity; the local industry can't afford to pay the incredible prices," he says.
He believes the current model, where factories in SA are an adjunct to an international company (like his own), is the only one that can work.
A standalone local manufacturer does not have sufficient margin to cover the overheads of an international market and distribution network.
This is precisely what government appears to be trying to combat, but Gutkin argues: "The bill is not economically viable. Why otherwise did all the standalone South African companies disappear?"
Part of the problem, Gutkin says, is that government has not made a proper effort to understand the economics of diamond manufacturing, nor has it been prepared to take advice from manufacturers, which stand accused of being privileged and "yes-men" of De Beers.
"A manufacturer needs to have the flexibility to sell diamonds he cannot cut, it's vital to the business model," says Gutkin.
"Under the new bill I will have to eat the diamonds I cannot cut, there is no provision for a cutter to trade or dispose of these diamonds in any way."
Another unworkable measure, says Gutkin, is that goods can no longer be exported on a temporary basis for cutting and polishing in low-cost countries. Small diamonds, of say half a carat, can be cut in India or China for $12 a carat, as opposed to $50 in SA.
Gutkin is outraged that the State Diamond Trader, appointed by government, can be funded by private investors who can occupy three seats on its board.
"A government body that is funded by a private investor without limitation, and that can expropriate diamonds from producers, is waving a flag that there is going to be corruption," he says.
"Any large international diamond group can come in and abuse the position."
Gutkin believes that the bill has been strongly influenced by a deep-seated mistrust of the diamond monopoly that has controlled the South African industry for more than a century.
"SA's diamond industry is going into unchartered waters," says Gutkin.
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