CHAPTER 2

 GOVERNMENT REGULATION OF AND INVOLVEMENT/INTER-VENTION IN THE DIAMOND INDUSTRY IN COMPLIANCE WITH THE DIAMONDS ACT, 1986 (ACT 56 OF 1986).

2.A          WRITTEN AND ORAL EVIDENCE RECEIVED BY THE COMMISSION

2.1          GENERAL REMARKS ABOUT GOVERNMENT REGULATION AND THE DIAMONDS ACT

2.1.1       Regarding Government regulation and intervention in the industry, Trans Hex, as producer, represented by Messrs D M Hoogenhout, P D Danchin and J Jolis, is of the opinion (submission 75) that all sections of the diamond industry should be treated on an equal basis by Government and no cross-subsidisation should be expected or tolerated.  Competitiveness will be enhanced by a free and unregulated environment.

There is no reason why diamonds should be regulated or interfered with by the Government to any greater extent than any other mineral resource.  Indeed, there are two compelling reasons why the Government should regulate / interfere with diamonds less than other mineral resources, if at all:

 Ø       Unlike, say, coal or oil, iron, agricultural products or even gold, diamonds have absolutely no intrinsic strategic value to South Africa.  Diamonds are luxury items.

Ø       By their very nature, diamonds are literally impossible to regulate by any authority, and any governmental attempt to do so only wastes valuable time and money, not to mention creating vast new opportunities for corruption and making the Government appear foolish in its vain attempt to regulate the unregulatable.

Trans Hex has the following suggestions :-

Ø                   Allow diamond producers, along with diamond dealers and cutters, to sell their diamonds how and where and to whom they wish, according to their best commercial judgement.

Ø                   Cease the Government’s apparent fixation with the diamond cutting sector at the expense of the rest in the South African diamond industry.  Like the rest, the South African diamond cutting industry is peopled by perfectly competent professionals who are more than capable of taking care of their own interests in the world diamond market, without any need of government handouts.

2.1.2       Both the Master Diamond Cutters Association, represented by Mr S J Cohen, and the Rough Diamond Dealers’ Association, represented by Mr E Blom, believe that all laws and regulations presently in place in South Africa which have the effect of making the South African industry less competitive internationally, which limit the size of the industry and force diamond activities to go underground, should be reviewed by the Commission, as indicated in their submissions 56 and 68.  The Master Diamond Cutters Association names the creation of the Diamond Bourse as an illustration of how an amendment to laws assisted the local diamond industry.  Prior to the establishment of the Diamond Bourse, in terms of section 45 of the Diamonds Act, any entity other than De Beers wishing to legally export rough diamonds had to pay a 15% export duty.  As the trade in diamonds carries a low profit margin, as prices are internationally based, this means that any level of export duty makes it uneconomical to export diamonds legally.  In the alternative, producers suffer by being forced to sell their diamonds at a discounted world market price which encourages black market business and large quantities of diamonds being smuggled out of the country.  In order to support this statement, there is little evidence that a minimal amount of diamonds outside of those exported by De Beers were legally exported until the introduction of the Diamond Bourse.  The 15% export duty on rough diamonds resulted in the non De Beers producers receiving 15% less for their product as the price of diamonds is determined by an international market.

Since the establishment of the Diamond Bourse, roughly US $483 million of diamonds have been exported and approximately US $42 million are sold locally on an annual basis.  While some quarters may criticise the Diamond Bourse as a conduit it should be noted that without the availability of the Diamond Bourse, the majority, if not all of the diamonds being exported, would possibly be exported illegally and South Africa would have lost the benefit of foreign exchange created by these transactions.  The advantage of the Diamond Bourse procedure is that it ensures that all diamonds that are exported from South Africa are exported at their real value which ensures that the proper foreign exchange is earned.

Therefore, in the spirit of enabling the South African diamond industry to expand and prosper, with the resultant benefit to the South African economy, the Government should take cognisance of the norms of the international industry and that South African laws that place the local industry at a disadvantage should be revoked.

2.1.3       In submission 26 De Beers submits from a constitutional and administrative law perspective that an analysis of the Diamonds Act reveals that both the Diamond Board’s and Minister’s discretions contained in the Act are too broad and subjective.  Such discretions are thus contrary to principles of modern administrative law and are, in certain instances, contrary to the constitutional rights to property and freedom of trade, occupation and profession.  The Diamonds Act should therefore provide that such discretions must be exercised in an objectively reasonable manner.

Specific references are made to sections 28(2), 34(3), 30(1), 8(2), 71(3) and 39.

2.1.4       The Diamond Workers’ Union, represented by Messrs R Rich and J D Leenaerts, states in submission 34, that the general government policy in the mineral industry is to promote:

Ø       The beneficiation of raw material

    Ø       The creation of job opportunities.

For several and various reasons Government decided that the State becomes involved in the diamond industry in a regulatory capacity.  In terms of the Diamonds Act, the Diamond Board currently monitors the industry.

The State has chosen to permit the near monopoly of the South African rough diamond production by De Beers and to become involved in the control thereof.  This in itself is a departure from the principle of free enterprise.

It must be determined if control should be abolished, retained or increased.

Abolition of all forms of control of diamond minerals would probably result in the repeal of the Diamonds Act, dissolution of the Diamond Board, demise and further losses in revenue due to the State.

Retention of existing measures of control of diamond minerals would result in no improvement to the current unsatisfactory situation as outlined in the Union’s memorandum.

Increasing measures of control of diamond minerals would therefore appear to be necessary and in the long term interests of the State, the economy and the local cutting industry.

Regulatory measures by Government, in respect of those areas which need to be more tightly controlled, conducive to willingness of the private sector to continue to invest and which will stimulate additional investment, are called for.

Legislation could provide for a system of incentives and disincentives to encourage optional beneficiation of minerals prior to export.

2.1.5       The Non-Sightholders Group, represented by Messrs L Lipchin and A J Blom, in submission 62, is of the opinion that laws and facilities should be put in place that will encourage all producers to market their diamonds through South Africa.

2.1.6       According to Mr A M Sher, a diamond dealer, the Diamonds Act still has a large proportion of sections from the original Act of 1886.  The Diamonds Act should be scrapped and a new Act drawn up which is user friendly aimed at building up a local industry.  The new legislation should have sufficient flexibility to allow the Diamond Board and its officials to use their initiative in assisting bona fide members of the industry rather than placing unreasonable restrictions on them (submission 72).

2.1.7       The Free Market Foundation, represented by Messrs G Moore and T Molutshungu, submits in submission 40 that the Diamonds Act should be repealed for the following reasons :-

Ø                    Protection diverts capital from more competitive uses.
Ø                    Licensing creates barriers to entry into the economy
Ø                    Illicit diamond buying laws are not justified.
Ø                    Control over production distorts the market.

The above issues are further dealt with in the relevant paragraphs.

2.1.8       In submission 11 Mr G D Brown, previously a diamond merchant, mentions that the Diamonds Act is discriminatory.  In his letter addressed to the State President on 1996-03-21 he stated that the Act is unconstitutional.

2.1.9       In submission 51 Mr M Katz, a diamond manufacturer, states that Government regulation should be minimal.  The State should not be in a position where the State can instruct producers to whom they should sell their product or at what price.

2.1.10     In submission 53 Mr R P Lappeman, who owned a cutting factory, supports the view that the industry is overregulated and that regulations should be minimal.

2.1.11     Mr G E Kruger of “G”Diamond Cutting Works CC, submission 43, is of the opinion that the Government should regulate the monopoly of diamonds to one company, namely De Beers .  Messrs G Jacobs and R Sherman of the organisation Earthlife Africa, however, propose that the country’s diamond wealth should reach the whole population and not just the powerful monopolies.  They suggest that the activities of the diamond industry be opened for public scrutiny and that the impact of the diamond cartel by De Beers to control production and marketing be investigated (submission 36).

2.1.12     Mr P L P Khola of the Federation for Black Diamond Dealers of South Africa, in submission 39, is of the opinion that certain sections of the Diamonds Act are not acceptable in an open democratic society, e.g. the wide discretionary powers of the Diamond Board to grant or refuse licences.

2.2          THE SOUTH AFRICAN DIAMOND BOARD

  The Diamond Board was established in 1986.

The objectives of the Board are:

Ø       To ensure that the diamond resources of South Africa are exploited and developed in the best interest of South Africa.

Ø       To promote the sound development of diamond undertakings in South Africa.

2.2.1.      In its own submission 70, the Diamond Board is of the opinion that, in establishing the extent to which the diamond industry has optimised its contribution to the growth of South Africa’s economy, it is imperative to consider:

Ø                  Does the Diamonds Act provide for an appropriate Diamond Board in the context of South Africa’s realities.

Ø                   Does the Diamonds Act empower the Board sufficiently to be an effective body to regulate and facilitate the growth of the industry.

Ø                   Does the Diamonds Act distinguish between a Board in the strict sense and management and to what extent is the effectiveness of the Board influenced by the above.

The Diamond Board makes a number of suggestions to improve on the objectives of the Board.  These are herewith dealt with :

Ø       Constitution of the Diamond Board (section 5).

      More representation from diamond producers and from the technology and tool making trades is proposed, to make provision for diversification.

Ø       Executive Committee  (section 10(2))

       It is suggested that the Executive Committee of the Diamond Board should be prescribed to comprise of 

(a)                 The Chairman of the Board.
(b)                 The Chairpersons of Committees established by the Board.
(c)                 The Executive Officer.
(d)                 Any two other members of the Board.

Hence, the Chairpersons of Committees will then be included.

Ø       Funds of the Diamond Board  (section 16)

      The Diamond Board suggests that the specific reference to the Public Investment Commissioners be deleted and subsumed under any institution. The Diamond Board should be able to generate more cash for projects rather than to carry out routine management only.

Ø       Management vs Diamond Board

      The Diamonds Act does not clearly distinguish between a Board in the conventional sense and Management.  As a result, ever since 1987 successive Diamond Boards have divested themselves of a number of functions and handed these to its employees or officers in the service of the Board.  It is suggested that Chapter 1 of the Act define management explicitly.

Ø       Import of diamonds

A chapter on importation of diamonds into South Africa has become necessary in the Diamonds Act because of increasing imports.

Most of these suggestions were confirmed by Dr V B Sibiya, Chief Executive Officer of the Diamond Board in his verbal submission to the Commission (submission 73).

2.2.2.      In submission 26 De Beers suggests to increase the objects of the Diamond Board, by including in section 4 the following :-

Ø          to create an environment conducive to the growth, development and international competitiveness of the South African diamond industry;

Ø       to regulate the diamond industry through :

-                      administering the issue and renewal of diamond licences and permits; and

-                      ensuring that the duties and obligations imposed on those persons licensed under the Diamonds Act are executed effectively, properly and punctiliously;

Ø                  to advise the Minister of Minerals and Energy on matters relating to these objectives; to facilitate the import of rough diamonds.

 

2.2.2.1    Composition

It is suggested that the Diamond Board be transformed so that it is in line with modern boards, such as the South African Telecommunications Regulatory Authority and the Independent Broadcasting Authority.

It is submitted that the Diamond Board should be composed of twelve members representing the diamond industry, and four independent members.  Accordingly, twelve members of the Diamond Board should properly represent all sectors of the diamond industry (the Rough Dealers’ Association, the Master Diamond Cutters Association, Non-sightholders Group, large and small producers, the CSO, the Jewellery Council and a representative of the employees of cutters); the Departments of Mineral and Energy Affairs, Finance, Trade and Industry and the SAPS; while the four remaining members should be shortlisted by the Parliamentary Standing Committees for Minerals and Energy after receiving nominations from the public.  The President should appoint the four independent members from the shortlist.  The Diamond Board should elect its Chairperson and Vice-Chairperson from amongst the four independent members.

In order to achieve a more efficient and cohesive Diamond Board, the Diamond Board should be reduced in size.  Under the Diamonds Act, the Minister of Minerals and Energy may currently appoint an unspecified number of members to the Diamond Board.  It is proposed that the four independent members replace the ministerial appointees.

2.2.2.2    Conflict of interests

In order to ensure the impartiality of the four independent members, the members of the Diamond Board appointed by the President should have no interest, whether financial or otherwise, in any aspect of the diamond industry.

So as to ensure transparency in the conduct of the Diamond Board, the other members should be compelled by the Diamonds Act to disclose their personal financial interest in the diamond industry.

2.2.2.3    Preservation of secrecy

In order to preserve the confidentiality of information which comes into the possession of the Diamond Board by industry participants, it is proposed that a secrecy clause should be inserted in the Diamonds Act.  The secrecy clause would prohibit members from disclosing confidential information to persons not in the service of the Diamond Board.

2.2.2.4    Quorum

In order to ensure a quorum at meetings of the Diamond Board, and thereby to enable the Diamond Board to function more efficiently, alternate members should be appointed for members of the Diamond Board who represent various sectors of the diamond industry.  The quorum at meetings of the Diamond Board should remain at seven, which is currently provided for in the Diamonds Act.

2.2.2.5    Specialist advisers

In order to ensure that the Diamond Board has access to the technical and financial knowledge which it requires, the Diamond Board should be vested with the authority to retain ad hoc specialist advisers where necessary.

2.2.2.6    Accountability

The Diamond Board should have the power to regulate its own affairs, subject to supervision by Parliament.  To ensure transparency, the Diamond Board should be required to produce an annual report on its licensing activities and its financial affairs, which should be tabled in Parliament.

It is submitted that the Diamonds Act should reflect this change by providing that the statements of the Diamond Board should be audited annually by a registered firm of auditors, which audit should, in turn, be submitted to the Auditor-General for approval, as public money is involved.

2.2.2.7    Funding

The Diamond Board is funded by levies on producers and licensees on the value of rough and polished exports.  De Beers is of the opinion that De Beers pays a disproportionate burden of financing the Diamond Board.

In order to lessen the burden on the diamond industry of financing the Diamond Board in full, the Diamond Board should be funded jointly by levies on industry participants, licensing income and a contribution by the State.

2.2.3       In submission 28, the Department of Minerals and Energy is of the opinion that the Diamond Board should play a more promotional role in the diamond industry.  The Diamond Board could house literature which should be accessible, for reference, to diamond licensees.  It should, in addition, be more proactive in the dissemination and communication of information to the industry and the public.  The Diamond Board should also play an advisory role to small entrepreneurs.

The regulatory functions of the Diamond Board are vital to the industry but there have been complaints about the length of time it takes to process diamond-dealing and cutting licences.  It would seem that current regulatory practices administered by the Diamond Board might not be sufficiently geared towards encouraging more participation in the trading and beneficiation of diamonds.  For the future well-being and growth of the industry, these important functions should be streamlined so that the licensing process can be speeded up.

2.2.4       The Diamond Workers’ Union makes the statement, submission 34, that in terms of the Diamonds Act, the Diamond Board currently monitors the industry.  The Union is represented on the Diamond Board.

There is a need to have better and more efficient control and to obtain more accurate information on a verified basis, more so if growth of the cutting industry is envisaged.

It appears that monitoring by Diamond Board inspectors is not achieving the degree of control intended in terms of the Diamonds Act and, as such, the system used to assess grades and values of both polished and unpolished diamonds needs re-evaluation.

The decision of the Diamond Board to permit export of the total South African production of De Beers whilst –

Ø         the new licensees struggle to procure suitable rough;
Ø       the number of sightholders are being reduced;
Ø       the local workforce remains at 1 500 only, and
Ø        cutting centres in countries which are non-producers appear to thrive,

does not appear to be in the interest of the local cutting industry.

Diamond workers require the Diamond Board to make such changes as will ensure that all cutters who do not have access to a regular supply of unpolished diamonds have such opportunity.

2.2.5       In submission 31 the Diamond Club, represented by Mr D L Miller, has the following suggestions 

               regarding the functions of the Diamond Board :-

  (i)              The Diamond Club suggests that the functions of the Diamond Board should be as   minimal as possible.

(ii)              The Diamond Board should have jurisdiction over the following areas :

Ø                Supervising the export and import of rough and polished diamonds including the      custom  documentation.

 Ø              The Diamond Board then compiles full statistics of rough and polished imports and exports.

 Ø               The Diamond Board continues to supervise the issue of rough licences laying   down criteria to be attached.

Ø                 The Diamond Board continues exercising Section 59 Committee functions.

  (iii)          The Diamond Club considers that a rough licence should cover both dealing in and manufacturing of rough.

  (iv)           The Diamond Club should be allocated a seat on the Diamond Board.

2.2.6       The Diamond Merchants’ Association, represented by Mr E Blom, in submission 32, agrees with most issues in the previous submission, and proposes a “central-diamond” office under control of the Diamond Board. The Association is of the opinion that it should be given a seat on the Diamond Board.

2.2.7       Mr S W Hübener, in submission 47, is of the opinion that the Diamond Board offers only limited assistance to applicants for a licence, in respect of information regarding diggers, cutters and markers.  All persons concerned should be provided with information.  He further suggested that there should be a place where dealers can be told what value to expect from their rough diamonds.  Mr Hübener is a diamond dealer and manufacturer.

2.2.8       The Masters Diamond Cutters Association, in submission 56, is of the opinion that the role played by the Diamond Board in the past has not been very beneficial to the interests of the diamond industry.  The Diamond Board should play a facilitative role as opposed to a prescriptive role.  The Diamond Board can perform its functions more effectively than a section of the Department of Minerals and Energy.  The Rough Diamond Dealers’ Association shares this view, see submission 68.

2.2.9       Mr N L Heale of Proval (GDV at the time of the submission) is of the opinion that owing to the level of involvement in the diamond industry by the GDV, it is essential that the GDV be represented on the Diamond Board (Submission 65).

2.2.10     Mr G Lazarus of Ram International Transport (Pty) Ltd (Ram) proposes in submission 66 that the Diamond Board should take over the role of Customs and Excise.  Inspectors of the Diamond Board should deal with the checking, stamping and sealing of diamond imports and exports.  He gives detailed proposals regarding two modes of importing, air-freight and personal courier, as indicated in paragraph 5.19.4 of Chapter 5.

2.2.11     In submission 11 Mr G D Brown mentions De Beers’ influence and involvement in the affairs of the Diamond Board.

2.2.12     According to Mr A M Sher, in submission 72, the intended objectives of the Diamond Board are to find methods of expanding the local industry, as well as monitoring and enforcing the regulations specified in the Diamonds Act.

The Diamond Board officials constitute a bureaucracy of the first order and assist in stagnating the industry by enforcing regulations stipulated in the Diamonds Act and not using their own initiative when interpreting the Diamonds Act.

In its present form the Diamond Board is not controlled or led by the industry.  Some of the representatives on the Diamond Board do not have any working knowledge of the industry and as a result have very little input and are manipulated by the officials who outvote the real representatives of the industry on the Diamond Board.

The Diamond Board should be re-constituted so that the majority of its members have an inside knowledge of the industry.  The Diamond Board will then be able to formulate policies which can be put before Government for consideration.  The various government departments should not be represented on the Diamond Board and should only facilitate recommendations to expand the industry.

  2.2.13       Earthlife Africa in submission 36, states that the Diamond Board, while it is undergoing transformation, does not reflect the Constitutional principles of equality and justice in either its composition or role.  Its needs to go beyond merely changing colour to changing its purpose.  That purpose should reflect a commitment to ensuring the development of all South Africans.  Its role as regulator of the diamond industry while being comprised of Government and the private sector exclusively is conspicuous in a democratic South Africa. There is the dire need for civil  representation on this structure if it hopes to be true to its broad aim of democratising the diamond industry.

2.2.14       According to the Federation for Black Diamond Dealers of South Africa, the composition of the Diamond Board needs to be amended, and the discretions of the Diamond Board are too broad. (Submission 39)

2.3          ILLEGAL  ACTS

Comments on illegal acts are included in the Chapter on IDB. (Chapter 4)

2.4          LICENCES  AND  PERMITS

2.4.1       Regarding the issue of licences, the Diamond Board, in submission 70, refers to the word “suitable” in section 28 of the Diamonds Act.

Section 28 of the Diamonds Act provides that the Diamond Board may at its discretion grant or refuse an application for a licence.

The discretion of the Diamond Board is largely based on its perception of the applicant being a suitable person.  Suitability should be viewed in the context of a new South Africa and consistency in definition is required.

2.4.2       The Master Diamond Cutters Association believes, in submission 56, that the status quo with regard to the different classes of licences should remain in place.  However, rough dealers should be allowed to hold cutting licences simultaneously with their dealer’s licence, in order to stimulate growth of the local industry.

The Master Diamond Cutters Association believes that the Diamond Board should allow for more than one licence to be permitted on a business premise or alternatively no licences should be required for business premises.  This move on the part of the Diamond Board would enable diamond polishing equipment to be utilised to its full potential.  In addition to the above, it would enable the advancement of employees.  These employees could apply for licences and contract their services out to various parties provided, of course, the owner of the equipment is in agreement with this particular arrangement.  The cost of establishing a factory is indeed a barrier to entry for the emerging sector.

2.4.3       In submission 26 De Beers submits that the discretionary power of the Diamond Board relating to the issuing of licences is framed unreasonably wide and in subjective terms.

Referred to are the issues of licences; the conditions imposed therein; the suspension and cancellation of licences; variations of conditions and licenses or diamond permits; the granting of permits and the approval of business premises.

Proposed amendments have been discussed in the general part of De Beers’ submission on the Diamonds Act.

Other suggestions are:-

Ø       Licence fees

In order to ensure that applicants intending to participate seriously in the industry, it is proposed that the initial licence fee should be increased substantially, for example, to R10 000, and that such fee should be payable annually in an amount of R5 000.  It is proposed that the income derived from this source should be used for the Diamond Board’s activities such as the promotion of diamond jewellery.  (Current fees vary between R10 and R500, payable once only).

Ø       Appeals to the Minister of Minerals and Energy

It is proposed that an independent appeal board should be established to process and deliberate on appeals. This would be in line with the practice of modern regulatory boards, and would satisfy the constitutional requirements of due process (section 34 of the Constitution) and administrative justice (section 33 of the Constitution).

It is proposed that the appeal board should consist of three persons, appointed by the Minister :-

-                      a chairperson

-                      a practising economist

-                      a person with experience in the diamond industry.

Ø                  written reasons should be provided for decisions which adversely affect or threaten to affect an applicant’s or licensee’s rights.

The Board should give written reasons for rejecting –

Ø                   a diamond licence or permit;

Ø                   the transfer and extension of business premises;

Ø                   the transfer of a licence to a company or close corporation;

Ø                   the registration of a diamond exchange; and

Ø                   the approval of business premises, and also for decisions to:-

Ø                   refuse to consent to a person acquiring a controlling interest in a company or close corporation;

Ø                   suspend or cancel a licence; and refuse to register a person as an authorised representative.

 Ø              Provision should be made for a licensee’s right to make written representations prior to a decision to cancel, vary or impose new conditions on a licence or permit, in order to provide for a fair hearing.

 Ø              The Diamond Board’s discretion to grant or refuse an application for a licence constitutes an infringement of the freedom of trade, occupation and profession, and amendments to section 28(2) are suggested.

 Ø             The Diamond Board’s discretion to suspend or cancel a licence constitutes an infringement of the right to property and section 37(1) should be amended.

2.4.4       In submission 9 Mr E Blom suggests that the requirements of the Diamonds Act regarding registered offices should not be changed, referring to the “open markets”, on Wolmaransstad, Barkly West and Schweizer-Reneke.

Both licences and buying offices are needed for control purposes.  There should be either strict control or no control.  Mr E Blom favours control in the industry.  There should only be one kind of licence.

Mr E Blom is chairperson of various Associations, the Diamond Bourse and the Harry Oppenheimer Diamond Training school.  He is the owner of B & E Diamonds CC, Ernest Blom Diamonds CC and Ernest Blom Cutting Works CC.  He is also a member of the Diamond Board.

2.4.5           The Rough Diamond Dealer’s Association, represented by Mr E Blom, submission 68, is of the opinion that the status quo of approved premises should be retained (section 48).

2.4.6           Mr S W Hübener suggests in his submission 47 that persons applying for a licence should possess certain equipment.  He was further of the opinion that dealing in rough diamonds should be allowed without going to a registered office.

2.4.7       Itereleng Minerals and Energy Consultancy, represented by Mr S Tyatya, compiled a submission on behalf of the communities of Molotestad, Welverdiend, Bakerville, Grasfontein and Mogopa (submission 48).  It is suggested that diamond buyers and licencing issuing authorities should be brought closer to the communities.  Fees should be reduced.

2.4.8       In submission 44 Mr P H Versluis of Hanani Diamonds Pty (Ltd) is of the opinion that a percentage of diamond deals is done “off the book”.  Some buyers visit diggings and buy rough diamonds at diggings where no registered sales offices exist.  These practices have a negative influence on cutters and dealers who do business lawfully.  It is suggested that legislation that is difficult to enforce, such as restricting diamond deals to registered offices be scrapped.  A detective system is suggested where diamond licences be issued to a few branch detectives.

2.4.9       According to Trans Hex in submission 75, buying and selling uncut diamonds should be as free and easy and as open to anyone like dealing in anything else.  The company suggests that the State should scrap all special licences and permits for the handling and dealing in diamonds, and should subject the diamond industry to no other than the normal controls that are applied to any other commercial activity in South Africa.  Only then would the marketing of South African diamonds be optimised, to the benefit of South Africa’s overall economy.

2.4.10     Mr M Katz suggests in submission 51 that all licences should be scrapped since thousands of licences have been issued in all categories and proper control has become impossible.  He was in favour of the total abolition of brokers’ notes, returns and licenced premises.

2.4.11     In submission 40, the Free Market Foundation submits that licensing creates barriers to the entry into the economy :-

Ø                   The Diamonds Act forbids every person from carrying on business in unpolished diamonds, unless he/she has a licence under the Act to conduct the particular activity being carried on or as an employee of a licensee, or has a permit or other authorisation from the Diamond Board.

Ø                   The foundation is not happy with the wide discretionary powers that the Diamond Board has in the refusal, or termination of the licence.

Ø                   The foundation calls for deregulation of these provisions of the Diamonds Act.

Ø                   Licensing restricts competition and raises costs.

2.4.12     In submission 6, the president of Ausma, the African United Small Mining Association explains to the Commission that he applied for a diamond dealer’s licence in 1995.  He was issued with a temporary licence.  He complained in 1997 that he was issued with an extended temporary licence and was still waiting for a permanent licence.  He wanted the Diamond Board to inform him of his shortcomings.

2.5          THE DIAMOND TRADE AND EXPORT OF DIAMONDS (INCLUDING SECTION 59 COMMENTS)

2.5.1       Mr E Blom, states in submission 9, that the only company other than De Beers who offers goods on the local market in terms of a Section 59 agreement, is Trans Hex.  They are forced to do this because of this Section 59 agreement and although they act within the agreement, they do not act in the spirit of the agreement. (i.e. regarding the composition of parcels).  Without Section 59 agreements, the industry would be crippled, affecting dealers, cutters and producers.  He further submits that the Diamond Bourse is one of the most important facilities ever initiated in the diamond industry of South Africa.

2.5.2       Advocate N Cassim was the Chairman of the Section 59 Committee for about a year (1997) and was a member of the Diamond Board.  He tendered his resignation in respect of both positions at the end of 1997.

In the preliminary report on Section 59, submission 12, Advocate Cassim expresses the following views:

Ø                  De Beers is a South African company and our loyalty must be with De Beers in the section 59 context.  In this respect it must be pointed out that the “unconditional” rough has insignificant industrial value in South Africa, and via De Beers these diamonds are absorbed and utilised in India, giving new life to marginal diamond mines in South Africa.

Ø                  However, if someone believes that De Beers is exporting at a depreciated value and then selling at an undisclosed price abroad, then the authorities should investigate complaints.

Ø                  Section 59 has been used in the past to procure the supply of rough diamonds to manufacturers in South Africa.  He assumes that the purpose was to promote the manufacturing industry.  It follows then that an analysis and recordal of the facts is necessary to investigate whether section 59 has its desired results or not.  The 1997 agreement in force between the Diamond Board and De Beers was entered into by the past Diamond Board on 3 December 1992.  In essence, it compelled De Beers to supply all + 10,8 carats diamonds produced in South Africa to local manufacturers and to warrant full supply of rough diamonds to local sightholders prior to being permitted to export the diamonds mined in South Africa for mixing abroad with the London selling mixture.  According to Adv. Cassim a large number of sight-holders are not South African citizens and his preliminary investigations indicate that the revenue earned by the Government from these sightholders is not necessarily significant.  On the other hand, to ensure that South African sightholders obtain their allocation of rough diamonds, the agreement thereby guarantees the supply of rough diamonds on a carat for carat basis by category.  (Note: the Section 59 agreement between the Diamond Board and De Beers was amended in 1998)

Ø                  Section 59 should be utilised to ensure that local manufacturers who are serious to develop the manufacturing industry are encouraged.  Not only the interests of cutters and toolmakers should be promoted.  Manufacturers should receive proper and adequate supplies of rough from De Beers.

There is no reason for special protection of the local industry through a guaranteed allocation of rough.  There may be merit in the deregulation of section 59.

2.5.3       In submission 24 Mr G Penny, on behalf of De Beers, explains the Section 59 agreement between De Beers and the Diamond Board that was in force in 1997, in terms of which all unpolished diamonds produced or purchased by De Beers are exported free of export duty.  Diamonds are categorised in special stones (10,8 carats and above), fancy colours, South African goods, conditional goods and unconditional goods.  Special stones and fancies were held in a separate stock for resale to South African sightholders.  Other rough was incorporated in a London selling mixture from which sightholders were allocated diamonds.  Non-sightholders are supplied through Diamdel.

Unpolished diamonds obtained by sightholders, being unsuitable for their requirements may be exported duty free after they had been offered to the local cutting industry.

2.5.4       In submission 26, De Beers continues to explain the Section 59 agreement that was in force in 1997.

The Section 59 agreement came about as a result of the continuing decline in production, from De Beers’ South African mines, of suitable rough diamonds for the South African cutting industry, and because it had become obvious that the local cutting industry could no longer rely exclusively on allocations from local production.

The effect of the Section 59 agreement is that since 1993, South African sightholders and other cutters have had the advantage of obtaining supplies in qualities and classes which are not limited by production from South African mines.

The local shortfall in the quantity of suitable diamonds is now made available to South African cutters from sources worldwide – see paragraph 5.11.1 for applicable figures.

De Beers explains that the company is not in favour of export duty.  According to De Beers, since the enactment of the Diamonds Act in 1986, export duty itself has ceased to serve any fiscal purpose as the conclusion of Section 59 agreements by the two major diamond producers, together with the export of rough diamonds through the Diamond Bourse by smaller producers, has meant that very little export duty has become due.

The Company submits that:

Ø                  Diamond export duty should be abolished after a maximum period of two years;

Ø                  the Diamonds Act should be amended so as to reduce, with immediate effect, but for a maximum period of two years, the amount of export duty to a level of approximately two per cent of the fair market value of an unpolished diamond destined for export.  It is submitted that a duty of approximately 2% would enhance the viability of the Diamond Bourse as a competitive market for the trading of diamonds, whether by way of import, export or domestic trade, while the considerable incentive which currently exists to smuggle diamonds from South Africa would be reduced.

For this reason, it is recommended that the provisions of section 59 are incorporated in less emphatic terms in section 63.  Section 62 of the Act should be amended as an interim measure, as follows:

Ø                  export duty should only be levied on rough diamonds which are economically cuttable in, and which are exported from, South Africa.  The rationale for this proposal is that if export duty seeks to protect the domestic cutting industry, as has been the case since 1916, there is no reason for diamonds which are not economically cuttable in South Africa to be protected by it;

Ø                  as indicated above, export duty on rough diamonds destined for export should be reduced to a level of 2% of the fair market value of such diamonds for a maximum period of two year;

Ø                  It is proposed that section 63 should include, as an exemption from export duty, an agreement between the Diamond Board and the producer or association of producers of a diamond, in terms of which such diamond has been allocated or offered to the diamond polishing industry in South Africa for local manufacture.  The detailed requirements for such an agreement, currently contained in section 59(2) of the Act, should be replaced with the requirement, that when viewed objectively, the agreement should meet the interests of the diamond industry as a whole.

Ø                  an agreement concluded in terms of section 63 of the Act should provide that rough diamonds over 10.8 carats in weight and those of fancy colours should, if made available to the domestic cutting industry, be cut in South Africa and not exported in the rough by the cutters to whom they are sold.

2.5.5       The Diamond Bourse was formed in terms of section 45 of the Diamonds Act.  (Submission 30, presented by Mr E Blom, Chairperson of the Diamond Bourse)

The existence of a diamond bourse is one of the major reasons why countries have vibrant local industries.  The growth of the Israeli diamond processing industry can be attributed mainly to the existence of a vibrant bourse where a large value of goods change hands on a daily basis.  The availability of goods from the bourse enable smaller manufacturers to purchase or sell diamonds as and when required and reduce and keep to a minimum the keeping of this expensive material in stock.

It clearly follows, therefore, that for a bourse to be successful, it needs to generate as large a turnover as possible and it is important to note that the percentage of goods sold from the merchandise offered in Antwerp or Tel Aviv is significantly smaller than here simply because of the far greater volumes on offer at those centres.  This enables manufacturers to reduce their holding cost.

Ø                  The prime objective of the Diamond Bourse is to make more rough diamonds available to the local industry.  The Bourse Committee members believe that the Diamond Bourse has achieved this objective in that:

(a)                 Rough diamonds previously exported from South Africa without being offered for sale locally are now first offered on the Diamond Bourse.  For example, Trans Hex now offer goods for sale on the Diamond Bourse.

(b)                 Holders of dealing licences and manufacturing licences offer goods, which they do not wish to process for sale on the Diamond Bourse.  These goods are either purchased locally or then exported free of export duty.

(c)                 Certain critics have stated that the Diamond Bourse is simply a procedure whereby goods can qualify for exemption of export duty.  The Committee wishes to state that, notwithstanding the fact that the majority of goods offered for sale on the Diamond Bourse are exported from South Africa, the procedure ensures that the true market value of the goods is stated when exported.  This in turn ensures that the true value of foreign earnings is repatriated back to South Africa.

Ø                   The existence of the Diamond Bourse is of great benefit to producers of diamonds, particularly smaller independent producers who are not a party to any Section 59 agreement.  The Diamond Bourse affords producers the opportunity of offering their goods for sale locally and if not sold locally, then these goods may be exported from South Africa at a value as per the reserve price for the goods.  The full value of these goods will have to be repatriated back to South Africa.  Without this procedure, goods which were produced in South Africa, would have to be exported under their true value to enable these goods to be sold on the international market.  It is important to note that without the Diamond Bourse, producers of diamonds would have to export their goods to an international market whereby export duty of 15% of the value thereof would have to be paid.  This would result in producers receiving 15% less for their goods.

Ø                   It is important to note that prior to the establishment of the Diamond Bourse there were very little exports of rough diamonds from South Africa.  During the year prior to the establishment of the Diamond Bourse only US $3 million worth of rough diamonds were officially exported from South Africa.  The current annual value of exports from South Africa is in the region of US $2 billion.

2.5.6       The Diamond Worker’s Union, in submission 34, submits that in 1993 the Diamond Board entered into a Section 59 agreement with De Beers for a twelve-month period in terms of which De Beers was permitted to export free of export duty its entire South African production on the basis that the 13 South African sightholders only would be supplied by De Beers from London with sights which would contain a greater volume of rough diamonds in those assortments and categories required by local cutters.  (The only cutters who attend Diamond Board meetings are sightholders).

                Notwithstanding the said agreement, retrenchment of diamond workers, which had commenced in June 1990, continued.  For such reason the representative representing the interests of diamond workers opposed the renewal of the said agreement which was renewed despite opposition thereto.  The Diamond Workers’ Union is of the opinion that there is a shortage of suitable rough diamonds available to the local cutting industry due to the bulk of rough diamonds being exported.

2.5.7       The Free Market Foundation (submission 40) is of the opinion that protection diverts capital from more competitive use:

Ø       Present export arrangements benefit South African cutters compared to the rest of the world as they receive more diamonds of the sorts that they want, including the larger stones and fancy colours.  If the local industry is competitive, then these arrangements should be repealed.  If not competitive, they should also be repealed as capital investment is diverted from competitive industries to an uncompetitive industry.

2.5.8       In submission 46 Helam Mining (Pty) Ltd states that the company gets exemption from export duty in terms of section 63(1) of the Diamonds Act.  The company requests that this section of the Diamonds Act be retained, to assist the smaller producers.

2.5.9       The Non-Sightholders Group believes that there should be greater control of the export of rough diamonds from South Africa (submission 62).  Mr P Babie, a diamond dealer who represents Phillip Babie’s Diamond Hives CC, (submission 63) is of the same opinion and said that the Diamond Board needs to examine the export of rough.

2.5.10     Regarding the contents of section 59, the Diamond Board, in submission 70, suggests that section 59 should be more equitable and seek to establish a mechanism to verify the obligations of those sectors benefiting from privileges conferred upon them by section 59.  Manufactures should manufacture their diamonds in South Africa and not export them.

2.5.11     The Master Cutters Association has the following comments in submission 56: the restriction to the dealing in unpolished diamonds being restricted to approved premises is hindering the dealing in rough, which is the cornerstone of a vibrant industry.  The restriction that both parties to the transaction be licensed diamond dealers or cutters in terms of section 26 of the Act or are in possession of a permit issued in terms of section 40 of the Act should be sufficient.

The Master Cutters Association explains the contents of section 59, but has no specific suggestions in this regard.

2.5.12     The Rough Diamond Dealers’ Association is of the opinion, in submission 68, that section 59 should be amended so that all producers would be subject to the same procedures and hence fall within the ambit of the Constitution.

The most sensitive issue covered under section 59 are the conditions under which parties can export goods without duty.

If the Act is changed so that section 59 exemptions from export duty can no longer be applied, and everyone in the industry is subject to the same laws, the effect would be that anyone wishing to export goods without attracting duty will have to do so through the Diamond Bourse.

The nett effect on the industry would be as follows:-

Ø                    De Beers and Trans Hex who presently enjoy privileges under section 59 would have to offer for sale locally all the goods they do not want to stockpile.  They will have the option of selling goods directly to their formal (sightholders) and informal customers, or placing them on the Diamond Bourse under the tender system.

Ø                  The Diamond Bourse would become one of the major diamond trading centres attracting diamantaires from all over the world who would be interested in tendering on the abundance of goods which would be available for sale on the Diamond Bourse.

Ø                  The Diamond Bourse would have the opportunity of becoming a proper barometer and distribution point for the local industry by reconstituting itself so that it is controlled by a panel of local diamantaires representing the whole cross-section of the local industry.

Ø                  The Diamond Bourse should introduce rules for parcel sizes and control the conduct of those who wish to make use of its services so that it could maintain its credibility as a body and at the same time provide a service to the industry that will be fair and equitable to all, regardless of size and financial backing.

Ø                  All goods not sold on the Diamond Bourse could be exported free of duty.

Ø                  Goods purchased on the Diamond Bourse by foreigners should be allowed to be exported if a duty of 3% to 4% was paid.  This would give the local manufactures a slight edge and could encourage foreigners to manufacture goods purchased on the Diamond Bourse by giving them to local manufactures on commission or opening up their own factories in South Africa.

Ø                  There would be a large saving by dispensing with the services of the GDV as his services would no longer be required.  The true value of diamonds is what the market is prepared to pay and all goods requiring valuation for export would be evaluated by the seller (reserve price) or by the actual sales price if the reserve price was exceeded.  The only other goods that would require valuation, which is presently being done by the GDV, are those diamonds seized by customs or the police.  The valuation of these goods can be established by placing them on the Diamond Bourse for sale under secret tender.  If valuations are required under special circumstances they would be done by diamantaires of the Diamond Bourse who would probably be more qualified than the present system of the GDV.

The proposed system would not prejudice any of the local manufactures who are presently privileged to receive sights. In fact their position would be greatly improved by being able to purchase goods which will be more available on the Diamond Bourse.

By making use of the free market, De Beers would be in the same position to stock goods, the only difference being that they would be stockpiled in South Africa and not in London as is the present scenario.  The regulation of the stockpile should not present a problem in the light of the computer and communication systems available today.

One of the greatest spin-offs by creating a reputable and internationally accepted diamond trading centre through the Diamond Bourse as a catalyst, is that goods from Southern African producers which constitute 60% of the worlds diamond market in value, would be channelled through South Africa and not through Antwerp and Israel which is presently the case.  The South African market would probably be more attractive to Far Eastern dealers if the above scenario comes about.

2.5.13     Regarding section 59, Trans Hex submitted a document to the Diamond Board, inter alia with the following documentation, as included in submission 75.

Trans Hex entered into a Section 59 agreement with the Diamond Board in 1987 and although it operates successfully despite extensive regulatory requirements from the Diamond Board, there remain aspects that could be improved.  Trans Hex’s main objective, i.e. that of obtaining the highest possible price on the international markets, is currently, by and large, reached by the tender procedures summarised below:

All Trans Hex’s South African production is sorted into “ cuttable” and non-cuttable” production.  Non-cuttable diamonds are those diamonds that are not processed by the cutting industry in South Africa.

The “non-cuttables” are exported free of duty at a valuation submitted by Trans Hex which is subject to random testing by the GDV.

The “cuttables” are sorted and classified into a number of parcels to be offered in terms of an agreed sealed tender procedure.  Trans Hex pioneered the tender selling of rough diamonds and has being doing so since 1982 in Europe and in South Africa.  Trans Hex’s tender procedures had to be adjusted in order to allow for the requirements of the Section 59 agreement and the Diamonds Act.

The Diamond Board is advised of the dates and the location (either in Cape Town at the Trans Hex offices or in Johannesburg at the Diamond Bourse) of a planned tender offering.  The Diamond Board then notifies all licensed dealers and cutters in South Africa.  Viewing appointments are then made either with Trans Hex’s office for Cape Town tenders or the office of the Diamond Bourse for those in Johannesburg.  The tender parcels are normally open for viewing for a period of approximately 2 weeks.

In making up the parcels, the composition of the parcels are such as to satisfy the needs of both dealers and cutters in South Africa, i.e. parcels sorted according to size and quality for cutters; mixed parcels that are more attractive to dealers; as well as smaller parcels for the smaller cutters and dealers who may wish to participate.

All participants obtain a tender form at the viewing which, after completion, has to be submitted in a sealed envelope at the offices of the Diamond Board on the given date.  The reserve prices as determined by Trans Hex are submitted in a similar sealed envelope on a similar tender form.  The tenders are then opened by an officer of the Diamond Board and an officer of Trans Hex and tabulated in order to determine the winners.

Due to the number of international diamond dealers and cutters who have acquired participation with South African licence holders and are therefore allowed to attend Trans Hex’s South African tenders, a number of these international dealers wish to participate in a “pre-tender” in Antwerp held on the day preceding the opening of the tender at the Diamond Board.  The “pre-tender” is administered by a Notary Public who opens the sealed “pre-tenders” (including Trans Hex’s reserve price) and the highest price for each parcel is then used as the final Trans Hex reserve price for the opening of the tender at the Diamond Board the next day.  This procedure has evolved from the customers’ own preferences to obtain Trans Hex goods in Antwerp rather than in South Africa.  Although not ideal, this procedure gives Trans Hex some comfort of realising its objective of obtaining the best possible price.

After the opening of the tenders at the Diamond Board the winners are notified immediately.  Having remitted the total purchase price i.e. the highest tender value into Trans Hex’s bank account, the successful tenderers take delivery of the parcels.  In those cases where the reserve prices are the highest, the parcels are exported to Trans Hex’s office in Antwerp free of export duty, where they are then either sold to the winners of the “pre-tender” or on the open market for no less than Trans Hex’s reserve price.

In order to contribute to the costs of maintaining an office in Antwerp, the parcels so exported, are exported, at a value of 2% below the reserve price unless the second highest tender had been within that 2% margin, in which case they are exported at 100% of the reserve price.  This has been approved by the Commissioner of Inland Revenue and the Exchange Control authorities at the SA Reserve Bank.

The foreign exchange proceeds of all parcels exported are repatriated in terms of normal exchange control regulations.

Trans Hex has investigated other methods of marketing its production but believes strongly that the tender system of selling rough diamond production works best for the company.  The tender system allows Tans Hex:

Ø                  to sell relatively large amounts of rough diamond production with a minimum of sales infrastructure;

Ø       to sell at the best possible price; and 

Ø                  to operate with the maximum possible “transparency”, which is crucial in an industry where “skulduggery” and shady practice is, sadly, all too often the norm.

It is submitted that Trans Hex is fulfilling both the letter and the spirit of the Section 59 agreement by offering the entirety of its various productions (less those stones deemed by the Section 59 Committee to be “not-cuttable” in South Africa) for sale first to the South African industry.  The Johannesburg diamond cutters’ complaints that they “cannot get any, or enough, rough” should be seen in perspective.  The fact is that the world is awash with rough diamonds; what with De Beers in London and Kimberley; what with De Beers’ Diamdel in Johannesburg, Antwerp, Israel and Hong Kong; not to mention the free and open world market in rough diamonds operating in New York, Antwerp, Tel Aviv, Hong Kong, and Johannesburg itself, one can only objectively conclude that any cutter who “cannot get enough rough” is either unwilling or unable to pay the current “going” market price for rough.  This is not something that should be made the responsibility of the South African producers.

The Section 59 Committee may want to take care that it doesn’t fall into the trap of promoting training skills which are neither wanted nor needed in the marketplace.  (The Section 59 Committee should remember that the producing sector of the diamond industry provides far better paid jobs than the cutting industry does).

                Possible improvements to Trans Hex’s Section 59 agreement

At the inception of the Section 59 agreement, the Diamond Board selected 10 licensed cutters in a random manner to be invited to Trans Hex’s tenders.  In 1989 this was extended to all cutters plus 13 selected dealers and in 1992 further extended to include all licensed cutters and dealers that wish to attend Trans Hex’s tenders.  Trans Hex has learned, in its long experience in diamond tendering, that unlimited numbers of participants in the tender inevitably drive away the most competitive and serious tenderers, and the seller is left with a less than optimum price.  This problem has been exacerbated by the number of licences which have recently been granted by the Diamond Board which resulted in further pressure on Trans Hex to accommodate more and more participants.  Trans Hex’s system can barely accommodate 20 participants per tender, and while it is understood that there are about 200 dealers and holders of cutters licences, all of whom could theoretically demand to attend a tender, this would be clearly practically impossible and would be ruinous to the Trans Hex tender system.

A system of limiting participants to a maximum of 20 with a waiting list and dropping those tenderers that are not competitive in their bids will overcome this problem.

Pressure from the Diamond Board has resulted in Trans Hex having to offer more and more smaller parcels supposedly to make the tenders more attractive to the smaller dealers and cutters in South Africa.  This has been found to be contrary to the seller’s interest due to the well-known fact in the diamond industry that larger parcels give participants an inducement to offer a higher price.  Experience has also shown that the smaller dealers and cutters do not participate in the tenders and if they do, their offers are normally amongst the lowest.  Trans Hex’s strongest customers constantly ask for fewer and larger parcels for which the best prices are obtained.

No restrictions as to the size of parcels should remove this problem.

Trans Hex suggests the abolition of the 15% export duty on rough diamonds, and its concomitant Section 59 agreements.

2.5.14     Mr A M Sher, diamond dealer, is of the opinion, in submission 72, that section 59 should be scrapped.

There is no reason why any bona fide dealer, polisher or producer should not have equal rights with regard to the marketing and exporting of goods.  The present system discriminates against the small producers and large producers receive favourable privileges in terms of section 59 of the Diamonds Act.  This section has been abused and is partly to blame for the industries present demise.

It is difficult to understand why the larger producers’ position in South Africa would be prejudiced if they were subject to a uniform system of marketing whereby they would have to offer all the goods they wish to export on the Diamond Bourse, as is the case of the small producer.  The ultimate price they get for their goods will be no less than they presently get on the world market. The only difference would be that all their profits would be earned in South Africa and they would have to re-patriate their foreign currency earnings.  The local industry would be the real beneficiaries of the system as the polishers will have a better opportunity of acquiring diamonds at realistic prices and foreigners who require the polished goods would find it advantageous to finance factories or go into joint ventures with local polishers.

At present all goods outside those dealt with under section 59 of the Diamonds Act, have to be offered to the local market by placing them on the Diamond Bourse for tender even though they were previously purchased through a successful tender on the Diamond Bourse.  This makes a mockery of the system and results in goods being taken out of the country by unconventional methods.

To overcome this problem, the successful tenderer should be allowed to export the goods by paying a nominal export duty.

2.5.15     Mr M Katz (submission 51) adds that the polishing industry should be given the opportunity to purchase any diamond at the declared export price, with all producers being subject to the same rules.  Diamonds not taken up should be exported free of duty at a fair value.  He believes, although he could not prove it, that De Beers has over the years undervalued the diamond mineral wealth exported from South Africa, thereby avoiding huge tax payments.  He has also enquired as to who checks the values of the biggest producers’ exports.  Certainly not the GDV, a De Beers appointed employee, he maintains.

2.6          CONTROL  MEASURES

2.6.1       In submission 33 the Diamond Security Association, represented by Mr G J van Dyk, suggests an amendment to section 78 of the Diamonds Act.  The association submits that –

Ø                   at present there are no control measures regarding uncut diamonds brought into the Republic.  Hence, three additions regarding registration of diamonds brought into the country or imported diamonds are proposed to section 78, to prevent any irregularities as for the possession of and/or dealing in uncut diamonds is concerned.

2.6.2       In submission 26, De Beers submits that -

Ø                  Section 77 confers extensive and potentially arbitrary powers on the Minister of Minerals and Energy to control the production and disposal of diamonds and should be repealed; such powers include –

(i)       To determine the maximum quantity of unpolished diamonds that may be exported;

(ii)           To prohibit a producer from selling unpolished diamonds at a lower price than the assessed value;

Ø                  the powers of inspectors and police officials to search and seize must be brought into line with the constitutional rights to privacy by, inter alia, providing for prior authorisation (a warrant, issued by a judge or magistrate) and for searches and seizures only in circumstances where there are “reasonable grounds to believe” that specific, listed circumstances exist.

Searches and seizures may only be undertaken without prior authorisation where an inspector or police official has “demonstrably reasonable grounds to believe” that listed circumstances exist.  Section 81 should be amended accordingly.

2.6.3       The Free Market Foundation (submission 40) is of the opinion that control over production will distort the market :-

Ø                   The Foundation endorses the view of De Beers regarding the provisions of section 77 of the Diamonds Act.

Ø                   This government intervention would distort the market, and the provisions are undesirable as they enable the Government to interfere in the market.

2.7          OFFENCES, PENALTIES, GENERAL

2.7.1       In submission 33 the Diamond Security Association suggests some amendments to security sections of the Diamonds Act, as follows :-

Ø                   Proposed additions to section 82.  The proposed additions are necessary in order to extent protection of rights and interest to certain persons by means of the Diamonds Act, and deal with setting foot on land or entering a building without certain permissions.

Ø                   The proposed amendment of section 87(a) is to introduce an increase in sentences and fines, and to grant the court the discretion to impose such fines or sentence if in the opinion of the court, such a fine is in the interest of justice.  The proposed fine is R500 000 and imprisonment up to 15 years.

Ø                   The proposed amendment of section 87 is to add the new proposed subsection 87(e).

2.7.2       In submission 26 De Beers submits that the unconstitutional presumptions that a diamond is “unpolished” and that an employer or principal is guilty of an offence in circumstances where an employee or agent commits such an offence, must be removed (section 90).

2.7.3       The SAPS suggests in submission 71 the following amendments :-

Section 87, to increase the fine to R1 million.

Section 91, to remove the word “inspector”.

Section 92, to include a reference to a regional court.

2.7.4       In submission 31 the Diamond Club submits that levies and duties should not be further increased, because of intense international competition in the diamond trade.  The Diamond Merchants’ Association (submission 32) has the same view and submits that levies and duties be kept to a minimum.

2.B          ISSUES ALREADY ATTENDED TO

2.8          GENERAL REMARKS ABOUT GOVERNMENT REGULATION AND THE DIAMONDS ACT

2.8.1           Regarding Government regulation in the mining industry in general, the White Paper refers to the investment and the regulatory climate in Chapter 1 thereof.  The South African mining industry has the capacity to generate wealth and employment opportunities.  Government has committed itself to a process of economic liberalisation, thus strengthening the competitive capacity of the economy, fiscal and tariff reform and bureaucratic deregulation.  These steps will enhance competitiveness, attract investment and create business expansion.

Government’s policy is to :-

Ø                   create a macro and regulatory environment conducive to economic growth and development, in which the mining industry can make effective use of its human and capital resources;

Ø                   improve industrial relations in the industry;

Ø                   ensure efficient provision and functioning of the physical, social and institutional infrastructure necessary for the competitiveness of the mining industry, and

Ø                   lower barriers to entry to prospective new investors in the industry.

Regarding governance in the mining industry, the White Paper, in Chapter 6, indicates that :-

Ø                   Government involvement should be focused on efficient and cost-effective resource management.  This includes the mineral, human, and environmental resources of the country.  Such governance will require both regulatory and developmental dimensions, but with a clear separation of powers in order to maintain transparency and equity;

Ø         furthermore, the principle of tripartitism and consultation, which is necessary for open and inclusive governance, should be accommodated.  This should include the opportunity for other parties and individuals to constructively engage Government and the main stakeholders on matters of common concern;

Ø       the regulatory and promotional activities of Government will be conducted in a transparent and efficient manner in carrying out its brief to manage the development of South Africa’s mineral resources, and to regulate the mineral industry, to meet national objectives and bring optimum benefit to the nation with a primary role for the Department of Minerals and Energy.

Ø                   the Department will provide for separate intra-departmental components and mechanisms to handle mineral resource management and the promotion of the industry on the one hand and mineral resource administration and regulation on the other, and ongoing review of minerals and mining policy;

Ø                   all institutions concerned will be guided in terms of national objectives and priorities;

Ø                   mining companies will consult affected communities, taking note of local needs;

Ø           Government will ensure equal treatment and standards in respect of the management and regulation of the mineral industry in all the provinces of South Africa;

Ø                   the minerals and mining industry will be governed at national level through a single lead department, but will obviously to required to comply with all national, provincial and municipal legislation; and 

From the above it is clear that Government policy regarding the minerals and mining industry, including the diamond industry, is in place.  Comments about new legislation can be found in Chapter 2, Outstanding issues, paragraph 2.15.

2.8.2       The issues, summarised in Chapter 2, paragraphs 2.1.1 to 2.1.12 have not been addressed and should all be considered when the Diamonds Act is reviewed.