Nangula Shejavali
20 November 2008
NAMIBIA'S nascent diamond cutting and polishing industry, together with the Government's beneficiation programme, is set to be hard hit by the global financial crisis, as major diamond producers have announced plans to cut back production.
This week, De Beers Group and other international diamond players said diamond production will be cut in the coming months to decrease the supply of rough diamonds on the market.
De Beers has a 50 per cent shareholding in Namdeb, Namibia's major on- and off-shore diamond producer.
While the general feeling is that it may be too early to tell how the crisis will impact Namibia's diamond industry, negative signals are already seen across the entire diamond pipeline - from production to cutting and polishing, right through to sales of finished products.
At the Antwerp Diamond Symposium on Monday, it was announced that "demand for diamonds at retail will fall about 10 per cent over the coming year, translating to a 20 per cent decrease in demand for loose polished diamonds at wholesale, and a 35 per cent fall in the amount of rough diamonds required."
This will directly impact on the Namibian diamond industry, which contributes significantly the Namibian economy, not only on the production side, but also in terms of the downstream activities in the form of cutting and polishing centres.
At the Symposium, Gareth Penny, Managing Director of the De Beers Group, stated that De Beers has decided to cut production of rough diamonds in order to meet the decreased consumer demand, and to support and promote diamonds through a large-scale marketing campaign, particularly in the United States, which represents 43 per cent of the world sales.
THE EFFECTS The financial crisis, by affecting the sales side of the diamond industry, has wide-ranging effects on other areas in the industry.
The Namibian spoke to various important players in the diamond industry to gain a sense of how the industry is being affected.
Hilifa Mbako, Namdeb's Group External Affairs and Corporate Communications Manager, said that Namdeb does not deal directly with the downstream activities of the beneficiation process, but confirmed that there would be cuts on the production side.
"We are looking at various scenarios regarding how this would affect the labour component," Mbako said.
Namdeb currently employs approximately 3 500 people, of which 90 per cent are involved in production activities.
Cutting production levels could result in job losses.
"This week, we are locked up in meetings to discuss this issue.
We don't see it prevailing in the long term though, as at the moment the problem lies in the area of sales, due to the financial crisis," Mbako said.
The Namibian Government and De Beers in 2007 established the Namibia Diamond Trading Company (NDTC) as a 50:50 joint venture, in an attempt to increase the local benefit of diamonds to the Namibian economy through creating a downstream industry.
Paulus Shituna, Sales and Marketing Manager at the NDTC highlighted that the most significant issue in the diamond industry with regards to the financial crisis is the liquidity problem, and the inability to buy diamonds as a result, but emphasised that this was a short-term impact.
Asked how this would affect the Namibian economy, Shituna stated that "from a practical point of view, revenue from diamonds will be impacted negatively because of the decrease in sales," but added that this problem was not specific to the diamond industry, but was a result of macroeconomic trends worldwide.
With regard to the cutting and polishing industry that is meant to grow through beneficiation initiatives, Shituna said that "the status quo remains, but it is too early to say what the impact will be."
Shituna explained that because of the cut in diamond production, the amount of diamonds available for cutting and polishing will also decrease, as NDTC's activities depend on Namdeb's production.
Eliphas Hawala, General Manager at NamGem, highlighted the fact that there has been a drop in the price of polished diamonds by about 15 per cent.
NamGem sells its polished stones to US-based Lazare Kaplan International (LKI), which has to date not indicated any decrease in demand.
Hawala explained that it is still too early to tell what the impact the financial crisis would have on the business of NamGem, as the biggest proportion of diamonds are only sold between November and December, when major events/holidays such as Thanksgiving, Christmas, the Chinese New Year, and Valentine's take place.
"The crisis has hit right before the biggest sales, and if we're pessimistic, the market will also be pessimistic.
It is only after this high sales period that we can better ascertain the impact of the financial crisis on the diamond industry," he said.
Mwahafar Ndilula, co-owner of Namcot Diamonds, commented that the effect on the industry was such that consumer demand of high quality polished diamonds had decreased, with a huge slump in demand from the American market, which is the largest consumer of diamonds in the world.
"The effect is not only on polished goods, but manufacturers worldwide - many go bust.
Certain mines will reduce mining activity, and therefore reduce jobs.
The consequences are severe for the global economy, but more so for the Namibian economy because of the significant contributions that diamonds make to the national economy through levies and taxes," Ndilula said.
With regards to the effect on Namcot's operations, Ndilula remarked that the company would withstand the crisis, and that he foresees no reduction in personnel.
Kombandayetu Kapwanga, Chief Executive Officer at Lev Leviev Diamonds (LLD), admitted that the financial crisis had caught up with the company, stating that the demand on cut and polished diamonds had decreased because retailers are unable to sell their products.
"We are also affected by prices, because the price of rough diamonds have also increased, and banks don't want to finance these transactions, particularly in the US, where banks are now imposing very strict conditions on lending."
He explained that the increase in diamond prices is despite the excess supply on the market, which many clients of NDTC are not taking because of the high prices.
Kapwanga said that LLD would now be looking at restructuring, in order to survive the crisis.
"We are looking at options of getting cheaper sources of rough diamonds, and we are also concentrating on finishing current stocks.
"The Christmas season is coming soon, and we may have staff start their holiday earlier and return later.
Finally, we may also look at the option of retrenchment.
After the strike, we stabilised at 200 employees, but if the crisis continues in the long run, this option may have to be considered."
The LLD CEO cautioned that the beneficiation process would be affected if the crisis continues.
He proposed that the Government considers introducing subsidies aimed at ensuring continued employed of workers at polishing and cutting factories and decreasing prices of rough diamonds supplied through it's 50/50 venture with DeBeers called NDTC.
The Indian government has taken important measures in this regard, stopping all imports of rough diamonds, in order to protect the country's industry.
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