JOHANNESBURG–South Africa’s Diamond Export Levy Act offers companies trading in diamonds generous tax breaks if they sell stones locally, in a bid to build a homegrown industry for cutting and polishing stones. That is, after all, where the real profit lies in the diamond trade.
But most diamonds sold on the South African market to gain this tax break appear to be exported abroad, still uncut – the opposite of what the exemption was designed to achieve, according to a government report.
“More than 85 percent of diamonds sold locally directly from the mines are assumed to have been resold beyond SA borders,” stated the 2012 government report, disclosing that local diamond purchases are largely exported as rough diamonds.
The previous year, just 230,000 carats or 12.7 percent of diamonds locally purchased were improved in South Africa, according to government figures.
This may be because it costs $50 to $100 per carat to cut and polish a diamond in South Africa, due to limited skilled labor. In India, it costs $8 per carat.
“The industry is struggling, obviously,” said Ernie Blom, former chairman of the Diamond Bourse of South Africa. “It is very difficult to give figures on how much is beneficiated in the country – a lot of it is exported.
“De Beers has an agreement with sightholders that a significant percentage must be beneficiated in the country, but whether that actually happens, I don’t know,” he stated.
Until 2010, little data was available about diamonds that were locally cut and polished. The industry’s leading newsletter, Rapaport, reported, “It is suspected that large multi-national companies are able to acquire much of these goods through their South African subsidiaries or licensed partners, before they are shipped to be polished elsewhere.”
The figures available for polished exports reveal relatively small figures: 150 ,175 carats in 2012), 167,482 carats (2011) and 161,235 carats (2010).
But according to the government’s report, “The majority of the polished diamonds exported were diamonds imported into South Africa for expert opinion.” This refers to diamonds that that are not locally beneficiated output, but merely a transfer from one subsidiary to another, before being re-exported back.
In 2011, for instance, 150,175 carats were listed as polished exports. However, a note in the report reveals that, “46,548 carats (30.99 percent) of these exports were consignments which were imported for consultation and being returned to the owners,” resulting in just over 103,000 carats contributing to polished exports– or 0.9 percent of the rough diamonds imported for the same purpose.