Johannesburg — SA's attempts to boost a local diamond beneficiation industry would not work unless there was a sufficient subsidy to compensate for the higher costs involved, De Beers director Jonathan Oppenheimer said last night.

He said polishing costs in sub-Saharan Africa were $70- $100 a carat compared with $6-$8 a carat in India, a country with roughly 1-million people in the industry .

"Unless the government is determined to subsidise that difference, the net benefit of selling those diamonds locally has to be measured against the net loss," he told Gibs business school in Johannesburg.

Nine out of 10 diamonds in the world are polished in India, according to industry body the World Diamond Council.

Measures such as the Diamond Export Levy Bill currently before Parliament are intended to increase the volume of stones cut and polished in SA, which last year produced 11% of the world's supply of rough diamonds.

Under the bill, all producers would have to supply a newly created state diamond trader with 10% of their production. Large producers such as De Beers, with annual gross sales of more than R3bn, would have to sell 40% of their annual diamond production to local beneficiators if they wanted the export of the remainder to be duty-free.

SA wants to capture part of the global diamond jewellery market, last year worth $68,9bn, according to figures from New York-based trading platform Rapaport. The US accounts for half of that demand, Japan for just more than 9%, Europe just less than 8% and the Gulf region just more than 7%. While the Chinese and Indian markets are smaller than these, they are growing fast. The diamond market in India is growing at 20% a year, Rapaport estimates.

Under the planned law, medium-sized diamond producers with annual gross sales of R10m-R5bn would have to sell 15% of their production to local cutters through the Diamond Exchange and Export Centre and would then be able to export the remainder duty free.

Even if SA focused on cutting and polishing larger stones, which would make the processing costs relatively cheaper per stone, the problem would not be resolved, Oppenheimer said. "It is mitigated at the top end, but it doesn't go away, so there's a continual subsidy."

The world's largest producer of diamonds would work with the government on beneficiation, but not support it at all costs, Oppenheimer said. "I don't think we're going to ensure success. We will support government in its policy, we will work with them to find an acceptable, optimal position," he said.

"We will support government to the fullest extent possible, but we will work diligently to show them the economic consequences of that decision."

Separately, Oppenheimer said "it was too early to tell" the significance of a ruling by a Luxembourg-based court last week in favour of Alrosa, the world's second-largest diamond miner.

The European Court of First Instance annulled a European Commission (EC) decision that would have prevented De Beers from buying rough diamonds from Russian rival Alrosa.