Africa’s ‘glass with attitude’

Diamond mining and commerce started 1,000 years ago when traders carried rough stones from India to the Middle East where they were cut, polished and sold to European royalty and aristocrats. At that time, India was the major diamond supplier. Starting around the 1500s, large-scale diamond mining took place in the ancient kingdom of Golconda, situated about 11km west of present day Hyderabad. Mines in the region produced some of the world’s most famous diamonds, including the Hope Diamond, Idol’s Eye, Koh-i-Noor and Darya-ye-Noor. By the 1700s, India’s diamond supply was exhausted and Brazil became an important supplier. Then, Brazil was displaced by Southern Africa. In 1869, a diamond rush started in Kimberley, South Africa, when a shepherd boy discovered an enormous 83.5ct diamond.

It is not surprising that in recent years, the cutting and polishing of diamonds has been moving to Asia from other countries, particularly India, Thailand, Sri Lanka and China. In the US, it costs about $100 per carat to cut a stone, while in India the cost is about $10-$30. India is now the world’s largest diamond-cutting centre, with as many as 800,000 diamond cutters working there. The industry is thus expanding in many emerging-market economies, even those without mining operations.

Blood diamonds

In the 1990s, the issue of blood diamonds threatened the diamond industry as rebel armies in some African nations began to finance their armed conflicts by selling rough, uncut diamonds from local mines. In 1998, Global Witness, a non-governmental organisation, publicised this development with particular emphasis on Africa.

To address the problem, diamond companies began working with the United Nations (UN) to prevent diamonds from being used for war. In 2000, the UN General Assembly adopted a resolution supporting the creation of an international certification system for rough diamonds. Several companies started the World Diamond Council, which instituted the Kimberley Process in 2002, a certification program where diamond-producing nations would certify the origin of uncut diamonds and that they were conflict-free. While not perfect, the idea was to prevent blood diamonds from entering the legitimate diamond supply chain, so only certified diamonds with a government-issued certificate could be imported or exported.

Today, the Kimberley Process has 54 members representing 80 countries. According to the Kimberley Process and UN, it is estimated that nearly all diamonds now being sold are from conflict-free sources. To further control the trade, the World Diamond Council has developed a system of warranties to extend the Kimberley Process certification of polished diamonds to retail outlets around the world. The market for illicit diamonds (those not certified under the Kimberley Process Certification Scheme) is still significant, but at least consumers now have a degree of assurance about the origin of their purchases.

Diamond quality

It may surprise you that only about 30% of diamonds mined are of gem quality and used for jewellery, with the remaining 70% used for industrial applications. About 95% of industrial-use diamonds are synthetic (artificially manufactured). Millions of dollars of special, high-tech reactors are needed to produce synthetic diamonds, making it more expensive to create them than to mine a natural diamond from the ground. According to some experts, the cost of mining a natural, colourless diamond is $40-$50 per carat, while the cost to produce a synthetic, gem-quality colourless diamond is about $2,500 per carat.

I think diamonds will always hold a special fascination for people around the world, and the desire for beautiful diamonds is not expected to diminish any time soon. Perhaps more importantly, the practical use of diamonds in industry is well established. Our emerging markets team has been excited about Africa’s potential in this industry, and we think many countries on the continent should continue to benefit from the continued demand for this “glass with attitude.”

Mark Mobius is executive chairman at Templeton Emerging Markets Group. This article first appeared on his blog.