MEASURES TO ENHANCE THE COMPETITIVENESS OF THE LOCAL INDUSTRY.
10.A WRITTEN AND ORAL EVIDENCE RECEIVED BY THE COMMISSION
10.1. GENERAL
In view of South Africa’s geographic and political isolation, the country has been removed from international competition. The situation has now changed. The diamond industry of South Africa, in order to survive and compete internationally, will have to be effective, efficient and very competitive. The industry will have to be capable and well financed, and their operations must be able to hold their own with foreign competition.
Most of the submissions to the Commission have identified the need that the South African diamond industry must become efficient and international competitive in order to survive. Hence the issue of competitiveness, both locally and internationally, has been discussed under various topics.
10.2.1 De Beers predicts (submission 22) that the amount of diamonds that can be cut economically may decline by the year 2010, thus the local industry may increasingly have to compete for resources on merit with other countries.
De Beers (submission 18) informs the Commission that cheap labour costs of between $50-$100/month makes India highly competitive. It is further argued that other countries with higher labour costs than South Africa have increased the size of diamonds they cut, improved technology and thereby productivity and ultimately their competitiveness.
10.2.2. Mr R Lappeman (submission 53) recommends that in order for South Africa to compete with places like India, China and Bangkok, there needs to be a discount on the smalls.
He argues that the reason why Indian labour costs are less than South African costs is because India has a lot of experience in the manufacturing of smalls, hence, a high productivity. He firmly believes that South Africa can become competitive given some time after gaining the necessary experience.
10.2.3. The Non-Sightholders Group (submission 62) however, has a slightly different view. The Group believes that the polishing industry locally requires a radical paradigm shift. The Group is of the opinion that for the polishing industry to succeed in South Africa and become international competitive, the following changes would have to occur:
Ø A complete different work ethic and work dynamic will have to be evolved without any protection from competition from workers in the Far East and India, who are prepared to work longer harder, and more productively for less money.
Ø There should be no minimum wages. Workers, who choose to, should be allowed to perform ‘piece work’ only.
Ø There should be no interference from labour unions in the South Africa diamonds industry.
Ø A system of “Hives” should be set up which allow small operations to hire expensive capital equipment for a nominal fee. They in turn can produce piece work at a reasonable cost.
Ø There should be greater control of the export of rough diamonds, which originate in South Africa. However, the cost of polishing in South Africa must be reduced to a point where it can compete with that of India and the Far East.
Ø There should be tax incentives for South African rough diamonds, which are polished in South Africa. These incentives should be in the form of reduction in company tax or value-added tax, which is proportionately based on the amount of benefication.
Ø Better buying opportunities should be created for the small dealers if they aim to stand any chance of survival, one way to achieve this would be to set up a monthly ‘African Sight Day’. All African diamonds producers must then be allowed to bring in all (unrestricted) diamonds they wish to sell. This could be a two days event, with only South African dealers being allowed to view and purchase diamonds on the first day.
10.2.4. Mr G M Ralfe (submission 25) is of the opinion that if there were more cutting factories operating competitively in South Africa a broader range of rough shapes and sizes could be cut. If these factories had a higher level of skills, training, better productivity and a lower cost structure, then over time more diamonds would become profitable to cut and the industry would expand which would be the ideal for producers, and cutters.
10.3 TRAINING AND DEVELOPMENT
10.3.1 Mr J Gaddie (submission 41) argues that the local diamond industry is dying because of the shortage of expert diamond cutters. He wants people to be trained to be master diamond cutters and not only be trained to cut small and medium diamonds. He says they should be able to cut and process diamonds from the beginning to the end. Mr T Barnes (submission 8) emphasises the importance of training covering all aspects of the diamond industry from rough evaluation to cutting and polishing. Mr R Lappeman (submission 53) also supports the idea of training of the labour force. He was involved in the training of disadvantaged and disabled persons.
10.3.2 The Diamond Workers’ Union (submission 34) observes that since the introduction of operative labour into the local cutting industry during 1977, at which stage there were approximately 1 500 White artisans, all of whom had completed a minimum 5-year apprenticeship, the intake of apprentice labour became minimal. The Union adds that average skill, ability and productivity have declined with relatively few experienced operators gaining artisan status by means of trade tests. The Union states that the intake of apprentices in the cutting industry during the 1959 to 1975 period amounted to some 1 445, of these only 198 are currently employed in the cutting industry. Apprentice labour presently employed in the industry is 9 only.
The Union says that according to figures released by the Bargaining Council for the Diamond Cutting Industry of South Africa, some 1 513 employees have remained in the industry (including office staff, drivers, foreman, managers, messengers, kitchen staff, cleaners and machine room employees). The number of employees involved in the actual processing (cutting, sawing, cross-working and brilliandeering) of diamonds would be substantially lower.
The Union adds further that general earnings levels of diamond workers have neither kept pace with the inflation rate nor with earning levels of workers in other industries, notwithstanding the fact that the product value of diamond workers is much higher.
According to the Union, 2 000 members have lost their jobs (retrenched) as a result of De Beers cutting off the supply of rough diamonds to their employers’ sight. The Union argues that De Beers is exporting conditional goods which can easily be cut by South African cutters, and thus provide more jobs for the local diamond industry. The Union also suggests that the Commission should look into the issue of a minimum wage for the diamond cutters. The Union feels that the workers are highly exploited and paid very low wages as compared to the other industries (e.g., catering and cleaning). The Union favours the expansion of the diamond industry, hence it finds measures such as the exporting of vast quantities of diamonds and conditional goods that can be cut in South Africa unacceptable.
10.3.3 Mr E Blom has provided the Commission with a complete exposition of the establishment and the operations of the Harry Oppenheimer Diamond Training School. He says that the School aims to provide training in essential areas, such as sorting and evaluation of rough uncut diamonds, the cutting, polishing and manufacturing process, training in business and other diamond related skills. It is anticipated that the School will be complemented by the introduction of more intensive training of factory management in modern manufacturing and process control. (submission 45).
The Diamond Training School has also embarked on a bursary programme that affords persons from a disadvantaged background in obtaining basic training to enable them to enter the diamond industry.
10.3.4 It is clear at this stage that considerable efforts will have to be invested in training in order to make the diamond industry internationally competitive. This industry, according to De Beers (submission 18), will have to follow the advances of other industries with regard to management training, systems and skills. Communication, accounting, personnel, production planning, and motivational skills will have to be assessed. International marketing skills and international contacts must be enhanced as this will be critical for survival in the global markets. Considerable effort needs to be invested in training. With the injection of R400 000 by De Beers the Diamond Foundation School will be revamped and is to be known as the Harry Oppenheimer Diamond Training School.
10.3.5 Mr T Mfazwe (submission 13) wants to see training extended to small-scale miners and that the cost in connection with the training be incurred by the State.
10.3.6 Mr M S Mpyane, a representative of various companies (submission 50) and Mr M K Narib (submission 60) make a similar suggestion that education and training facilities be provided for people in the diamond industry and that Government should sponsor those who lack funds.
10.3.7 In submission 10, Mr A J Bond mentions the need for training and in addition the use of modern technology like laser machines. It is suggested that loans be made available to further develop the cutting industry. Problems in the local industry are high minimum labour rates, a low productivity and a low quality of production. Most laser machines are used in India.
10.3.8 The Department of Minerals and Energy emphasises two issues (submission 28)
Ø The jewellery cluster study should continue to receive Government’s full unequivocal support. This study depends on the participation of all affected parties in the process, viz, Government, Industry and Labour. It is reported that certain industrial players have displayed some apathy towards the investigation. This is unfortunate as the growth potential for jewellery in South Africa will largely be determined by the outcome of this study. It is important that Industry and Labour be continuously encouraged to participate in the cluster study process.
Ø Foreign companies and institutions, particularly those possessing in depth know-how and skills, should be given incentives to set up shop in South Africa. There already appears to be numbers of these waiting at our doors for an opportunity to invest. Education and training is vital if this country is to fully develop its potential for further downstream beneficiation of diamonds which most certainly would lead to an expansion of the domestic jewellery industry. The jewellery school project that is currently on the cards should be implemented soon as part of developing skills and craftmanship in the industry.
10.4 INTERNATIONAL COMPETITION
10.4.1 According to Mr A M Sher (submission 72), South Africa’s economy has the wealth, knowledge and infrastructure equivalent to many stable First World countries but its finances lack the credibility and confidence of the international community. He further states that the country is reputed to have a powerful economy but in actual fact it is not even strong enough to protect its currency from international powerful organisations (not countries) who speculate on the international market.
10.4.2 Regardless of actions taken by De Beers or Government, Mr J Hughes of De Beers (submission 22) argues that the fortunes of the South African diamond industry as a whole are dependent to a large degree on what happens abroad. Demand for, confidence in diamonds, and stability in the market place have endured because of the market-making skills of the CSO, the financial resources of De Beers, and the resolve of the key Southern African producers to adhere collectively to the principle of single channel marketing. The support of host Governments, both active and tacit, has been essential from the start in this endeavour.
Three alleged main international competitive threats to South Africa’s diamond industry are identified:-
(i) Russia
Since the discovery of diamonds in Siberia in the 1950’s, Russian diamonds have been sold to the West in terms of successive agreements with the CSO. Of late, Russia has ceased to subscribe wholeheartedly to market disciplines, and large shipments from Russia’s strategic stockpile accumulated during the Cold War era have leaked. This forms part of a general disposal of strategic stockpiles in response to increased domestic demand for foreign currency that has impacted on numerous minerals markets, including gold and platinum. Diamond prices have stagnated as a result and the CSO has been obliged to withhold from sale some US$ 4 billion of diamonds from all sources, and to hold these in stock until such time as balance is restored, though of course, a part of this represents pipeline or ‘working’ stocks. Russia is known to have significant long-term diamond resources, as yet undeveloped.
(ii) Canada
Canada was expected to join the league of diamond producing nations from the end of 1998. A cluster of small but high grade and high value pipes discovered in the 1980’s just south of the Arctic Circle in the North West Territories at Lac de Gras will become Broken Hills’ (BHP) first diamond mine to be known as the ‘Ekati’ mine, and should produce about four million carats per annum at the outset. Rio Tinto’s Canadian subsidiary Kennecortt, in partnership with Aber Resources, a Canadian junior, has another diamond prospect at an advanced stage and early indications point to this prospect also becoming an important source of Canadian diamonds after the turn of the century. The marketing intentions of these new entrants are not clear at this stage, but the fact is that the South African diamond industry will have to learn to live with, and if necessary compete with, yet another new producer nation of substantial volumes of high quality diamonds.
De Beers is discussing marketing arrangements with BHP and its partner, and it is hoped that the Canadians will sell their production in a responsible manner, irrespective of the chosen route. De Beers has been prospecting in Canada for many years, and will seek to ensure that if there are more diamonds finds to be made, it will be the discoverer.`
(iii) Industrial synthetics
Challenges to the status quo emanate not only from the threat of new mines in foreign countries. Over the last twenty years, preferences in the industrial diamonds for a variety of reasons, mainly because of improved product quality and consistency. De Beers has remained at the forefront of this trend. It has synthetic industrial diamond factories in Gauteng, Ireland, Sweden and Germany, and invests heavily in research and development. Meanwhile, in order to respond to the continuing production of natural, low quality, near-gem small diamonds, previously classified as ‘industrial’ the CSO has promoted such diamonds for polishing in low – cost cutting centres such as India. This generated an alternative outlet for such diamonds and benefited producers of small such as Premier and Finsch (Venetia as well) whose livelihood would otherwise have been in jeopardy.
De Beers does not believe that gem quality synthetics represent a major short-term threat to the diamond mines, but there is no room for complacency. Small quantities have been finding their way to world markets of late, especially from Russia. De Beers has a clear synthetic gem defensive strategy. It has over one hundred research and development staff working in the area to keep the Company at the forefront in this field. It is in liaison with laboratories and the trade bodies, it makes synthetic diamonds available for research purposes around the world, and it has developed synthetic diamond detection instruments to help discerning jewellers and consumers identify fakes, should the need rise.
10.4.3 Competitive responses to alleged threats
In order to counteract the above alleged threats to the local diamond industry, Mr J Hughes (submission 22) formulates the following responses :-
(i) Exploration
De Beers believes that grassroots exploration is the best way to secure major, new mines. Four world class successes have been scored by De Beers’ earth scientists in the last three decades, namely Orapa, Letlhakane and Jwaneng (all in Botswana), and Venetia in the Northern Province of South Africa.
Exploration is time-consuming and expensive. De Beers geolists find many new kimberlites every year, and many are drilled and tested for the presence of diamonds.
In the 1970’s, the search for diamonds led to marine exploration. The existence off the west coat of South Africa/Namibia of widely dispersed, low grade diamond deposits in deposits in seafloor sediment varying in depth and thickness, has long been suspected. The challenge has been to delineate the scattered diamonds with a measure of confidence at affordable cost, and then develop robust mining methods for all weather sea floor conditions. De Beers marine has achieved this feat in Namibia’s Exclusive Economics Zone, and hopes eventually to succeed in turning to account South Africa’s marine deposits as well.
(ii) Enhancement of existing mines
Several opportunities to extend the lives of the ageing De Beers mines in South Africa are being investigated. These will require a change of approach, leading edge mining and recovery technology, leaner organistional structures, multi-skilled and self-directed work teams, and first-class productivity. In essence, the target on the older mines is to reduce substantially the current working cost per ton in order to render profitable the lower-grade ore blocks which hitherto have been regarded as uneconomic. The investment returns on expensive, risky undertaking need to be weighed up carefully in the light of future scenarios for diamond prices and levels of demand, government fiscal and labour policies, export duties, exchange rates and inflation.
In Namaqualand, economically viable strip-mining takes place beneath sand overburden up to thirty metres deep. Palaeo-river channel features at twice this depth (i.e. equivalent to a fifteen-story building) in the vicinity of the current mining area are being identified and sampled in the hope of adding to ore reserves. A radically innovative approach to overburden stripping or even underground mining will be needed to convert these possibilities into reality.
(iii) International marketing
De Beers spends nearly R1 billion every year promoting diamond jewellery worldwide to cultivate consumer demand so as to accommodate the output of new producers and, where possible, to encourage ‘trading up’ by consumers, this being the only means at De Beers’ disposal of generating better sales. There is no intrinsic demand for diamonds. Whatever demand there is, has been, and must continue to be, created by the CSO’s marketing efforts. The task is highly specialised. The first advertisements were launched over fifty years ago in USA. The still-famous slogan ‘A diamond is forever’ was coined in 1947 by the advertising agency employed by De Beers. Today the message is spread to all main markets in all types of media and in many languages. In South Africa, jewellery is promoted under the ‘Shining Light banner. No other kind of gemstone, or precious metal for that matter, enjoys such a comprehensive campaign mounted with the collective commitment of major producers, and it is generally acknowledged that consumer demand for rough diamonds would be only a shadow of what it has become in modern times De Beers’ marketing efforts.
Selling a luxury product is not straight forward. De Beers faces challenges in all markets. The health of the USA economy is a key, for it remains the major market. More than half the world’s production measured in carats is consumed in the Unites States. Any adverse influence has to be carefully monitored by the CSO’s marketing professionals, as is the case in Japan and the Far East.
10.5 CHALLENGES AHEAD IN DIAMOND MANUFACTURING
10.5.1 As previously mentioned, De Beers (submission 18), suggests that there may be two approaches to address manufacturing difficulties in the diamond industry:-
Ø Subsidies in one form or another.
Ø Apply advanced technology and other measures as dealt with below.
According to De Beers, the latter approach will be sustainable in the long run and will prove most beneficial for South Africa. In its aim of fostering a healthy, viable cutting industry in South Africa, De Beers is assisting whenever it can.
De Beers concludes that the answer to the challenge for the industry on how to improve its international competitiveness lies, inter alia, in the following areas:
(i) Improve training.
(ii) Upgrade technology in the industry.
(iii) Contain costs, reduce overheads and improve productivity.
(iv) Improve and broaden diamond cutting skills.
(v) Improve management skills.
(vi) Improve polished grading facilities.
(vii) Enhance marketing abilities and international contact.
(i) Improve training
Considerable effort needs to be invested in training. The revamping of the Diamond Foundation School (now known as the Harry Oppenheimer Diamond Training School), with the help of the De Beers will be of great assistance. It is also anticipated that this school will be complemented by the introduction of more intensive training in factories.
(ii) Upgrade technology in the industry
South Africa has in the past been at the forefront of technological advancement, in particular with the ‘Maxicut’ bruting machine and the ‘Piematic’ automatic polishing machine. South Africa cutters were among the first to develop laser kerfing, and some of the worlds great diamonds, including the ‘Premier Rose’ (1978) and the ‘Centenary’ (1988), each requiring highly specialists using revolutionary technology, have been cut in South Africa.
In recent years, however, the Israeli industry has been the most innovative with consequent productivity increases. De Beers believes that advanced technology is needed in South Africa to win the competitive edge, even if this puts pressure on jobs. In connection with this, there should be financial assistance available to encourage technical invention and innovation.
(iii) Contain costs, reduce overheads and improve productivity
South Africa operates at a significantly higher cost per unit of output than its competitors. Costs need to be reduced through increased working hours to become internationally competitive. Bureaucratic delays, for example with export and import procedures will need to be examined. The best working practices in every sphere will need to be adopted, benchmarked against international norms.
(iv) Improve and broaden diamond cutting skills
The desire of the industry and its ability to cut only the bigger and better quality rough constraints its ability to expand. The industry will need to expand its skills and willingness to handle more difficult rough, and must move to greater extent into the manufacture of fancy shapes. In technical terms, the marking of rough and the maintenance of yield in particular will have to improve.
(v) Improve management skills
This industry has not followed the advances of other industries with regard to management training, systems and skills. Communication, accounting, personnel, production planning, marketing and motivational skills need to be assessed.
(vi) Improve polished grading facilities
Extensive use is made world-wide of the facilities provided the Gemological Institute of America (GIA), and institute based in California, which trains polished sorters and runs laboratories to grade and certify polished diamonds.
At present the South African industry has access to several grading facilities but these do not enjoy wide international recognition. Representatives from the South African industry, with the support of De Beers, are engaged in discussions with the GIA with a view to its establishing a branch in South Africa. This could have a positive impact.
(vii) Enhance market abilities and international contact
In view of the geographic and political isolation, South Africa has been removed from international competition. This situation now appears to be changing, with the increasing recognition that in such an international industry with great productivity movement, low barriers to entry, low margins and stiff competition, the only survivors will be capable, well-financed operations able to hold their own with foreign competition. International marketing abilities will be critical.
10.5.2 In submission 12, Advocate N Cassim indicates the importance of international contacts and of leading manufacturers abroad being encouraged to set up business in South Africa. He further submits that technology should be further advanced, and training and diamond cutting skills should be improved. According to Advocate Cassim, this will raise standards and bring new technology and skilled employees to the country, from which our employees can learn.
10.5.3 Newcastle Diamond Cutting Works (Pty) Ltd (submission 61) submits that the incentive bonus system based on production is the only workable system to encourage productivity in the manufacturing of smalls, while guaranteed minimum wages is counter productive to competitiveness in the manufacture of smalls.
10.6 VALUE-ADDED TAX
10.6.1 De Beers recommends (submission 15B) that imports of rough diamonds be zero-rated in terms of value-added tax, in order to put the local diamond manufacturing industry on a level playing field with other major cutting countries internationally.
Presently the DTC pays value-added tax on their rough diamonds imports from the CSO. Value-added tax is calculated at 14% of an amount equivalent to 110% of the costs to DTC. The DTC’s sales to sightholders are zero-rated in terms of a South African Revenue Service’s directive. The value-added tax is recovered by the DTC 5 to 10 weeks later.
10.6.2 In various other submissions it was suggested that value-added tax at zero rate should be applicable to all transactions dealing with rough material between all licence holders. Presently only sightholders purchases are zero-rated. It is suggested that zero rated value-added tax can be used as an incentive to create jobs, promote exports and help the expansion of the local industry.
10.6.3 Ram International Transport (Pty) Ltd (submission 66) proposed a faster and more efficient way of collecting value-added tax from imports, based on values as indicated by the Diamond Board. His suggested modes of imports are described in Chapter 5, paragraph 5.19.3. It is emphasised that his proposal will dramatically reduce the volume of paper work.
10.6.4 In submission 1 Mr S G Abrahams suggests that a once in a lifetime refund of value-added tax is given to South African citizens on the diamond of an engagement ring, on proof of marriage within 12 months of the date of purchase. This will promote diamond sales and also moral values.
10.6.5 The Master Diamond Cutters Association (submission 56) points out that the processing and dealing industries contribute to State revenue. The Diamond Merchants’ Association (submission 32) suggests that all forms of levies and duties should be strictly monitored and increases be kept to a minimum, in order to allow South African merchants to perform better in the face of international competition which is not similarly impeded.
10.7 REVISED TAXATION
10.7.1 The Diamond Workers’ Union (submission 34) proposes a revised taxation system for the diamond cutting industry. The Union argues that the system used by Israel could be investigated and then possibly adapted to suite the South African industry.
The Union argues that the advantage of the Israeli tax system is that percentage tax is on the purchase straight away. The system is very effective and has benefited the local Israel industry and the Israel economy as a whole. It is recommended that the Israel tax system be examined and see how it could be incorporated into the present system in South Africa.
10.7.2 Mr R P Lappeman suggests that there be tax relief or a discount on small rough diamonds (submission 53) as an incentive to get the cutting and polishing industry going. He argues that more jobs and wealth would be created in the process.
10.7.3 Mr C Even-Zohar, editor of Diamond Magazine, (submission 37) states that as far as taxation is concerned, the Israeli Government has long discovered that no Government could adequately audit and check the books of a diamond cutter. Government, thus, reached an agreement with business to have a certain agreed assessment based on turnover, because turnover is measurable. He also suggests that the great advantage of Antwerp over Israel and other places is that there is no strict regulation.
10.7.4 Mr A M Sher (submission 72) suggests the introduction of uniform systems of taxation on diamonds produced in order to encourage sales at fully declared market values. Mr Sher suggests that incentives such as discounts to sightholders on goods supplied by De Beers and rebates on all polished diamonds exported through the Diamond Board would work if they were coupled with the amount of people the manufacturers employ to take advantage of the incentives.
10.7.5 Mr M Grote of the Department of Finance proposes that the imposition of a severance tax or royalty regime could offer a clear distinction between mining taxation on the one hand and mineral pricing and compensation for the right to mine on the other. Estimated revenue flow from this tax which is based on the benefit principal of taxation, indicate a far greater measure of stability and certainty as to the revenue collection, as what pertains in the present circumstances.
10.8 EXCHANGE CONTROL AND DOLLAR ACCOUNTS
10.8.1 In terms of the Exchange Control Regulations, participants in the South African diamond industry are prohibited from holding dollar accounts. The Exchange Control Regulations force companies to transfer all foreign currency into South African rands within a prescribed period. However, most local diamond dealers are in favour of a US dollar account system as used world-wide, and favour the removal of exchange control regulation.
10.8.2 The Non-Sightholders Group (submission 62) suggests that licensed diamonds dealers (of all types) in South Africa should be allowed to hold dollar accounts. This will afford better protection against vagaries of rapidly changing exchange rates.
10.8.3 The Diamond Workers’ Union (submission 34) recommends that US dollar currency be used to maintain books or transactions.
10.8.4 The Master Diamond Cutters Association (submission 56) favours an Israeli tax system that grants exemption to the diamond industry to operate dollar-based current accounts, which is controlled and monitored by the respective authorities. Abolishing of exchange control regulations is suggested.
10.8.5 The Diamond Club (submission 31) suggests that the US dollar account system, as used world-wide be introduced in South Africa. The Diamond Club proposes that the Israeli System be followed in that an internal dollar account be authorised for use by diamond dealers and manufactures subject to proper bank supervision.
10.8.6 Other submissions that favour a revised Israeli tax system and US dollar accounts were received from the Diamond Merchants’ Association (submission 32), the Rough Diamond Dealer’s Association (submission 68) and De Beers (submission 15B)
10.B ISSUES ALREADY ATTENDED TO:
10.9 GOVERNMENT POLICY
Government’s intent regarding competitiveness – White Paper – section 1.7.2 under Chapter 1, is that Government will undertake and promote research, technology development and technology transfer that will stimulate the optimal development of the country’s resources in the longer term and ensure that the industry remains competitive.
Government policy is, inter alia, White Paper – section 1.7.4 under Chapter 1 that –
(i) Research and development efforts will be needs-driven and directed to develop solutions in exploration, mining, processing, beneficiation and environmental conservation and rehabilitation of the environment as well as to satisfy the needs of global customers and to exploit the value adding potential of the country’s minerals. This applies to large and small-scale mining.
(ii) Focussed and co-ordinated research on economic geology will be supported by Government and industry to attract exploration investment to South Africa.
(iii) Co-operation between the various mining and mineral processing research and development institutions will be encouraged to make best use of existing facilities, to promote collaborative research efforts, to promote technology transfer and to ensure that minerals-related research and development is conducted in accordance with the country’s science and technology policy and national objectives for the minerals industry. The results of the technology foresight exercise being conducted by the Department of Arts, Science, Culture and Technology will contribute to this endeavour.
Section 1.1 of Chapter 1 of the White Paper stresses the importance of a stable macro environment for economic growth, encouraging investments in mining and other industries.
The White Paper – sections 3.2.1, 3.2.2 and 3.2.4 under Chapter 3 – refers to the Government’s policy to encourage, support and facilitate human resource development in the mining and mineral industry. One of the main issues is to rectify the position of previously disadvantaged workers via training and education.
Government policy can be summarized as follows :-
(i) Government will support and promote provision of appropriate education and training in the mining industry. Particular emphasis will be placed on Adult Basic Education and Training (ABET), and health and safety training at all levels.
(ii) Government will require that all learning achievements in the minerals and mining industry are registered on the National Qualifications Framework, to enable people to progress through various learning pathways, across levels of learning, and throughout their lives.
(iii) The Mine Qualification Authority will also be established as a sectoral Education and Training Authority in terms of the Skills Development Initiative by the Department of Labour with added functions as contemplated in that initiative.
(iv) Government will ensure that people in the minerals and mining industry have access to quality education and training so that they can gain the knowledge and skills they need for work and to improve their lives.
10.10 TRAINING AND EDUCATION
10.10.1 Most initiatives in respect of training and education have been addressed in Chapter 3, paragraph 3.34, where the following important developments are highlighted :
- training for small scale miners
- mineral beneficiation developments
- The Harry Oppenheimer Diamond Training School, having a mission to access the disadvantaged majority.
10.10.2 In addition to this, the Diamond Education School of Mr T Barnes has courses available in respect of grading, cutting and many other aspects of cutting and polishing.
10.10.3 A further development is an initiative by the Government (Departments of Trade and Industry and Minerals and Energy) to provide for training and education in respect of various aspects of the diamond industry in India. The first group of students, mainly small scale miners and retrenched workers will leave for India shortly, and will receive training in jewellery design, costing and marketing.
10.11 VALUE-ADDED TAX REFUND
The submission by Mr S G Abrahams (submission 1) regarding the proposed refund of value-added tax on the diamond on an engagement ring was forwarded to the Minister of Finance. The reply by the Chief Director: Value-added Tax of the South African Revenue Services was as follows :
- “When Value-added tax was introduced in September 1991 it was decided that exceptions, exemptions and zero-ratings should be kept to a minimum to minimize the cost of administration and to prevent evasion. For this reason only house rents, passenger transport by road or rail, interest and educational services are exempt while the concession of the zero rate is limited to certain basic foodstuffs.
Your proposal that a refund of value-added tax on diamonds of 50 points of less be made to newlyweds goes against the principles above. Such a concession would also entail the maintenance of a register to prevent evasion and would no doubt open a floodgate of requests for concessions for equally deserving causes.
In the circumstances your proposal cannot be supported. As requested I have forwarded a copy of this letter to the Commission of Inquiry into the South African Diamond Industry”.
The reply is self-explanatory and needs no further comments.
10.12 ALLEGED INTERNATIONAL THREATS
Of utmost importance are the three main international competitive threats to the South African diamond industry, as indicated by De Beers :
- Russia
- Canada
- Industrial synthetics.
In order to counteract these international threats, De Beers has formulated the following responses :
- Exploration
- Enhancement of existing mines
- International marketing.
10.C OUTSTANDING ISSUES
10.13 GENERAL
The various proposals to improve the competitiveness of the local diamond industry should be thoroughly considered when implementing the relevant sections of the White Paper on research and development and human resource development, White Paper – sections 1.7.4 and 3.2.4.
10.14 VALUE-ADDED TAX, DOLLAR ACCOUNTS AND REVISED TAX SYSTEM
(i) It is quite clear from the submissions that the local diamond industry is in favour of a US dollar account system introduced in South Africa .
All diamond transactions could then be settled in US dollars, resulting in a situation where the diamond industry is no longer exposed to exchange rate fluctuations.
(ii) The industry also favours a revised Israeli tax system modified to suit the local industry and the abolishing of exchange control regulations.
(iii) Furthermore, the local industry is in favour of value-added tax at zero rate being applied to transactions dealing with rough diamonds between all licence holders. Presently only sightholders purchases are zero rated.
The above three issues should be referred to the Department of Finance for investigation and recommendations.