Diamond beneficiation in ‘cautious’ recovery

NAMIBIA’S diamond manufacturing industry took quite a hit from the global financial crisis, with the country’s beneficiation strategy being set back a few notches as a result.

But as the diamond industry begins to recover, with demand for rough diamonds having experienced an upsurge, it seems there is a bright light at the end of the tunnel for local cutters and polishers, and for the strategy designed to ensure that Namibians benefit from their own natural resources.Speaking to The Namibian last week, Namibia Diamond Trading Company (NDTC) CEO Shihaleni Ndjaba said although diamond demand remained unbalanced, with demand for polished gems still trailing far behind demand for rough diamonds, a small recovery in the manufacturing industry was better than none at all.’It is good news that the demand for rough is picking up. But it may take some time for things to get back to where they were before the crisis, particularly for manufacturing,’ he says.Ndjaba expresses the hope that with the upsurge in demand for rough diamonds, manufacturers will follow through by increasing their cutting and polishing activity, thereby creating jobs.And it seems his wish might just come true.Eliphas Hawala, Managing Director of NamGem, says the diamond manufacturing industry took a hard knock but now it was looking forward to getting back to full production. ‘We are seeing positive signs and are gearing ourselves to produce more diamonds, especially before the Christmas season.’While this statement in itself doesn’t say much about the creation of new jobs in an industry that saw the slashing of over 450 jobs as a result of the crisis, it certainly does have some positive implications for beneficiation.Beneficiation is the term given to the initiative to increase the local benefit of diamonds to the Namibian economy by creating a downstream industry, for example cutting and polishing factories. The initiative started in 2007 with the creation of the Namibia Diamond Trading Company (NDTC), a 50:50 joint venture between the Government and De Beers, ensuring the supply of up to 10 per cent of Namdeb’s rough diamonds to local diamond manufacturing companies. Eleven companies -
called sightholders – benefit from this.BENEFIT LOCALLY?But with the impact of the financial crisis, beneficiation had to take a back seat, as companies struggled to weather the economic storm.The Chairperson of the Diamond Manufacturers’ Association of Namibia (DIAMAN), Burhan Seber, puts it best.He says: ‘During the crisis, survival was on the top of every company’s agenda, overriding but not negating other matters like marketing, R&D, and beneficiation, amongst others. However, with the current upswing and revived confidence in the market, companies have put beneficiation back on top of their agendas. But their commitment to beneficiation can best be testified to by the minimal job losses that the industry suffered through the crisis.’Ndjaba too praises the sightholders for showing their commitment to the beneficiation process, but admits that ‘the crisis was not good because it led to a point where factories were almost closing their doors.’He says the situation was so dire at one point, that the trading company would hold sights (rough diamond sales events) where nobody would buy rough diamonds.’Now they’re buying almost everything,’ he says, noting that the industry is in a much better position compared to even three months ago, though still ‘cautiously optimistic’.But sure enough, it’s often the impact on jobs that fully reflects the extent of the crisis. In the diamond cutting and polishing industry, the number of jobs before the crisis stood at around 1 150. Today, the industry employs only 700 people, reflecting a 39 per cent dip in jobs in the industry.These job losses came largely as a result of the closure of Lev Leviev Diamonds’ (LLD’s) cutting and polishing factory, which cost the industry 420 jobs, with another 30 retrenchments from NamGem. Additional job losses at other factories remained ‘minimal’.Seber, who points out that each manufacturer fared differently during the crisis, says: ‘In real terms, the crisis has cost many jobs, but this was primarily due to one company’s closure and not representative of the industry. The remaining (minimal) losses across the industry were necessary for 1) survival through cost-cutting exercises during the crisis, 2) realignment with market demands; and 3) changes in rough supply. Now that we are over the first, the other two situations still exist.’JOB RECOVERY?Seber adds that with these factors still at play, he doesn’t expect any significant increases in employment figures in the industry in the short term, mainly because ‘there were not many losses to begin with, and the industry must remain cautious.’He notes, however, that ‘we are more likely to see companies rehiring the small number of employees who were previously laid off during the crisis’.Hawala says that with the Okahandja-based NamGem continuing efforts to operate on a low cost base, including staff costs, the company ‘would like to employ as many people as possible’.He says that given Government’s stake as a 50 per cent shareholder in the company, ‘We support the Government’s policy of employment creation through beneficiation of the country’s natural resources. We shall do everything in our power to support the policy our Government, which is also our shareholder, to provide employment opportunities for the youth of Okahandja.’But a number of factors continue to affect the extent of the manufacturing industry’s recovery.On the demand side, Seber says that with demand levels still falling below pre-crisis levels despite significant improvements since the crisis, ‘we as manufacturers need to cater to the new realities of a less bullish market. The recovery is still very fragile and thus companies must remain extremely cautious’He adds that given the decreased production during the crisis, the amount of rough diamonds currently available to cutters and polishers worldwide is much less than before the crisis. This means that cutting and polishing ‘factories must be structured for these new and lower levels of rough supply,’ he says. Overall though, while cautious, the mood remains rather optimistic, with Hawala stating that ‘We believe that the situation will continue to improve and the demand for diamonds will start increasing. There are no new mines coming up soon and diamonds are bound to become scarce, thus pushing up their global demand.’LESSONS LEARNTBut putting aside the optimism, with the hard knocks that the diamond industry experienced during the crisis, one would hope that some important lessons were learnt along the way.Seber summarises the lessons from DIAMAN’s perspective into three key points:First: ‘Our industry is part of a global industry, and the industry in general is highly vulnerable to global economic downturns.’ Second: ‘Beneficiation must be financially viable, especially if it is to succeed in the long term.’ And third: ‘Expect the unexpected.’Hawala focuses NamGem’s lessons on the shareholders, saying he is proud of the support shown by company’s shareholders (Government and De Beers), particularly in ensuring that as many jobs as possible were kept. ‘We learnt that it is very important to have strong backing in order to survive. We also learned that relying on our people was the best way to ensure the company’s resilience, especially when one is faced with a tough situation,’ he says.And Ndjaba adds that the industry, including NDTC, had to take critical measures in order to survive, stating that the company, and its sightholders ‘had to learn to be tough’, and were ‘trained the hard way to cope’.He brings us back full circle to beneficiation itself, saying a sure-fire lesson that the crisis displayed, was that NDTC’s sightholders are fully committed to the beneficiation cause.He concludes that ‘Even at the critical points where demand was low, they kept their establishments here…and showed their commitment to stay and continue operating.’- nangula@n
amibian.com.na