Diamond Amendment Bill

1. Diamond Amendment Bill Supporting Industry Growth and Development By Maximising Local Beneficiation Supporting Industry Growth by Maximising Local Beneficiation

2. Introduction • Eugene Roos – Small-Scale Manufacturer • I have been involved in the manufacturing industry for 7 years • I am a member of UDASA (The United Diamond Association of South Africa) • I represent numerous friends and colleagues in the diamond manufacturing industry • As small-scale manufacturers we submit a grass-roots level presentation Supporting Industry Growth by Maximising Local Beneficiation

3. Congratulations • We Hereby congratulate government on its initiative in becoming proactively involved in the local diamond manufacturing industry by addressing the current problems within the industry through the drafting of The Diamond Amendment Bill • We whole-heartedly support every aspect of The Diamond Amendment Bill and eagerly await its urgent and prompt implementation Supporting Industry Growth by Maximising Local Beneficiation

4. Current Industry Situation • A combined workforce of over 1 million in non-producing countries • The combined workforce of Southern African producing countries, namely Botswana, Namibia and South Africa, is less than 1% of the workforce of non-producing countries • A dismal South African workforce of only 2000 manufacturers • Poor regulation of the industry • The indiscriminant export of the vast majority of South Africa’s rough diamonds • Insufficient quantities of rough diamonds supplied to small-scale manufacturers • High rough diamond prices that are not conducive to industry growth and development • Increased rough diamond production • Poor beneficiation of South Africa’s rough diamond resources Supporting Industry Growth by Maximising Local Beneficiation

5. Our Industry Vision Statement • To become the global leader in diamond manufacturing by maximising the local beneficiation of South Africa’s rough diamond resources Supporting Industry Growth by Maximising Local Beneficiation

6. Goals and Objectives • To amend the current Diamond Act to: • Remove the current industry irregularities and obstacles that hinder and suppress local beneficiation • Create an environment for the sound growth and development of the local diamond manufacturing industry • Proactively regulate the diamond industry at grass-roots level • Maximise local beneficiation Supporting Industry Growth by Maximising Local Beneficiation

7. Current Industry Irregularities and Obstacles • The current Diamond Act, in particular Section 59 Agreements • Over-inflated rough diamond prices • Insufficient quantities of rough diamonds supplied to the local small-scale manufacturing industry despite an annual increase in rough diamond production • A poorly regulated industry • Cutting costs • A distortion of beneficiation figures Supporting Industry Growth by Maximising Local Beneficiation

8. Section 59 Agreements • One-sided, self-serving and ultimately unconstitutional agreements that have facilitated the duty free export of the vast majority of South Africa’s rough diamonds at the expense of a thriving local diamond manufacturing industry • They have failed to deliver on their commitment to industry growth and development. The figures speak for themselves. A meager workforce of only 2000 Supporting Industry Growth by Maximising Local Beneficiation

9. Over-Inflated Rough Diamond Prices • Over-inflated rough diamond prices do NOT create an environment for local industry growth and development • “Downstream Marketing” is a current industry strategy employed to facilitate and validate high rough diamond prices Supporting Industry Growth by Maximising Local Beneficiation

10. “Downstream Marketing” • This strategy now asks manufacturers to become actively involved in downstream industries, over and above their current manufacturing industry commitments and obligations, to increase the price of their polished diamonds • This strategy only serves to benefit the producer by facilitating higher rough diamond prices. This strategy does not benefit the local small-scale manufacturer Supporting Industry Growth by Maximising Local Beneficiation

11. Insufficient Quantities of Rough Diamonds Currently Supplied • Despite annual increases in rough diamond production, the current supply of rough diamonds to the small-scale local manufacturing industry is insufficient and does NOT create an environment conducive to industry growth and development • As manufacturers we wish to be supplied with sufficient quantities of rough diamonds to sustain our factories on a full-time basis, utilising every working day, as is the case in every other manufacturing industry Supporting Industry Growth by Maximising Local Beneficiation

12. A Poorly Regulated Industry • Current regulation of the diamond industry is ineffective in maximising beneficiation and promoting the sound development of the local diamond manufacturing industry • Government needs to become proactively involved in the industry to regulate the supply of rough diamonds to local manufacturers and to regulate exports to ensure maximum beneficiation • Complaints presented to key stake holders and industry role players concerning shortages of rough diamonds currently supplied to the local small-scale manufacturing industry have not been addressed within the current regulatory framework Supporting Industry Growth by Maximising Local Beneficiation

13. Cutting Costs • Cutting costs have also been used as an excuse as to why local beneficiation is not feasible • When compared to the price of diamonds, cutting costs are negligible • The value of diamonds and the level of skills required to manufacture them can surely not be compared to the value of a “bowl of rice” • As a manufacturer working from home and not employing any additional manufacturers my cutting costs are zero. Yet I battle to sustain my business Supporting Industry Growth by Maximising Local Beneficiation

14. A Distortion of Figures • The term “by value” has been repeatedly used to paint a pretty picture of rough diamond supply and commitment to the local industry. This is a distortion of facts and figures. The following phrase is used repeatedly: • “South Africa manufactures more than 50% ‘by value’ of the rough diamonds it produces”. At one stage this figure was reported to be “more than 100% ‘by value’”. • The universal unit of measure for diamonds is the carat. Why not express the supply of rough diamonds to the South African industry in terms of carats or in terms of volume as a percentage of total production. You will find that South Africa is supplied with a very small percentage in volume, or carat weight, of its total production. That is why we have a workforce of only 2000. Supporting Industry Growth by Maximising Local Beneficiation

15. Promoting the Sound Growth and Development of the Industry • Creating an environment for skills transfer and job creation which will ultimately lead to empowerment by… • Allowing equitable access to South Africa’s rough diamond resources. Supplier of Choice (SOC) does NOT promote equitable access to rough diamonds • Guaranteeing regular and sustainable supplies of rough diamonds to the local manufacturing industry based on manufacturer’s requirements • Proactively regulating the industry • Providing access to funding Supporting Industry Growth by Maximising Local Beneficiation

16. Regulating the Industry at Grass-Roots level • By appointing the State Diamond Trader to become actively involved in sourcing and supplying rough diamonds to local manufacturers in a manner which promotes industry growth and development • By regulating the quantity, quality and price of rough diamonds supplied to the local manufacturing industry to ensure growth and development • By regulating the export of rough diamonds through the imposition of an export duty • By removing from the industry entities whose sole purpose is to export industry sustainable rough diamonds from South Africa as this does NOT contribute to local beneficiation Supporting Industry Growth by Maximising Local Beneficiation

17. Imposition of Export Duties • It has been reported that the imposition of export duties will promote illegal activities such as smuggling and money laundering. By this statement, smuggling is defined as the duty free export of rough diamonds. This statement, in itself, then serves to confirm that Section 59 Agreements, through facilitating the duty free export of rough diamonds, have, in fact, legalized diamond smuggling and money laundering. Therefore the scrapping of Section 59 Agreements and the imposition of export duties will put an end to “legal” smuggling and money laundering Supporting Industry Growth by Maximising Local Beneficiation

18. Recommendation • The implementation of The Diamond Amendment Bill to: • Scrap Section 59 Agreements • Regulate the export of rough diamonds through the imposition of export duties • Appoint a State Diamond Trader • Regulate the supply and price of rough diamonds to South African manufacturers • Empower local manufacturers to determine what goods are required for manufacture • Create an environment for sustainable growth and development resulting in empowerment and job creation through maximised beneficiation Supporting Industry Growth by Maximising Local Beneficiation

19. Support of The Diamond Amendment Bill • It is our view, as small-scale manufacturers, that those parties who oppose The Diamond Amendment Bill or appose the fundamental principles of The Diamond Bill are NOT committed to local beneficiation and are ultimately NOT committed to the economic growth and prosperity of South Africa Supporting Industry Growth by Maximising Local Beneficiation

20. Thank You Supporting Industry Growth by Maximising Local Beneficiation