Thursday, July 5, 2007
African diamond duty to hit Indian exporters
African diamond duty to hit Indian exporters
Sunil Raghu font size
The Rs70,000crore Indian diamond industry may lose its sheen if South Africa, Botswana, Congo and Angola—between them, these African countries produce 90% of world’s rough diamonds—go ahead with their plans to impose a 5-7% export duty on rough diamonds.
India imports almost 80% of the rough diamonds produced in Africa; these are polished in factories in Gujarat and Maharashtra. Now, the African countries want polishers to set up factories within their boundaries in an effort to boost the local economy.
“(The) Africans feel, and rightly so, that Indians and others have, for over four decades, monopolized the business. They now want to attract diamond polishing units to Africa to generate local employment,” says Pravin Nanavati, president, South Gujarat Chamber of Commerce and Industry. Nanavati is a Surat-based diamond trader.
Russia, another country that produces diamonds, had tried unsuccessfully to encourage companies to set up polishing operations within the country by offering them diamonds at a discount.
The duty will make rough diamonds dearer by at least 5% and companies in the polishing business will not be able to pass that on to customers, according to K.K.Sharma, executive director of the Surat-based Indian Diamond Institute. This is because Indian firms do not make the end product, jewellery in most cases.
South Africa introduced a Diamond Export Levy Bill in its Parliament in October 2006 and discussions on it are in the final stages. Indian diamond traders say that the duty on diamond exports from South African mines could be announced in the next three months. Other African countries will follow suit, they add.
That could spell disaster for at least some of the one million workers employed by diamond units in Gujarat and Maharashtra. Many of these units plan to move to Africa and, according to estimates doing the rounds of the industry, around 25% of workers may lose their jobs.
A recent survey of the diamond industry by audit firm KPMG says India’s share of the diamond processing business will decline from 57% (by value) now to 49% by 2015. The study adds that 10% of the world’s diamonds will be locally processed by then. The duty being considered by African countries will, if levied, accelerate this trend.
Some Indian firms have already set up operations in Africa or are in advanced stages of discussions with these countries. “Murmurs of those planning to shift part of their business to Africa have started doing rounds in Surat. In fact, Gujarati-owned but Antwerp-based firms, including the world’s largest diamond manufacturing company Rosyblue, and Eurostar have already set up operations in Africa,” says Sharma. Rosyblue owns the high-end diamond brands Rosiblu and Orra and ended 2006 with $1.7 billion in revenue. Delegations from African states have already visited Surat and are wooing owners of diamond polishing units to set up shop in the continent.
Roughs (or rough diamonds) from Africa are bought by hundreds of firms based in world’s diamond trading capital Antwerp in Belgium. Over 300 Gujarati families dominate the Antwerp business, holding exclusive licences to buy directly from African mining firms such as DeBeers. These firms ship 80% of the diamonds they buy to India where factories and small units across Surat, Ahmedabad, Bhavnagar and Mumbai polish them. The other 20% are shipped to Israel, the Philippines and China for polishing.
Not everyone is convinced Indian diamond polishers will lose their competitiveness because of the proposed duty. Sanjay Kothari, chairman, Gems & Jewellery Export Promotion Council says that the duty will make roughs more expensive but that it will take a while before African countries emerge a significant player in the diamond polishing business. “It took us over four decades to move past Israel and Belgium to reach a position where we control 80% of the diamond trade across the world,” he adds. Kothari cites the Russian example to claim that India’s competitiveness in the business is related to skills, not cost.
However, some experts say that Indian workers themselves acquired their skills on the job and over time, something that African workers can too. And labour costs in Africa will be much lower, they add.
Kothari says the industry, a significant contributor to exports—only 5% of the stones it polishes are sold in the domestic market; the rest are exported—has already approached the central government seeking tax incentives, and assistance in creating the infrastructure that could make a global hub for diamond trading.
Posted by lmurx at 8:04 PM