Authors: Aryaman Belgaumkar and Jasmine Chin Region Head: Hu Si Ying
Editor: Praharsh Mehrotra
We trace the economic journey of a diamond from a monopoly to a competitive market. We also explore the implications of a new paradigm of ethical diamonds. With the growing popularity of artificial diamonds today, we also explore the future of labour-intensive diamond production and efforts that need to be taken to protect the most vulnerable stakeholders at the centre of diamond production in Africa today.
The economics behind African diamonds
In 1888, Cecil Rhodes started the DeBeers group which subsequently became one of the most lucrative monopolies till date. DeBeers utilised its negotiating power to acquire new mines, stockpile diamonds, create an artificial scarcity for diamonds by controlling the supply and run expensive advertising campaigns to bolster demand for diamonds. For the longest time people believed that a diamond cartel lasts forever. But with the discovery of new mines in other destinations of the world, The DeBeers cartel faced several internal issues - diamond smuggling, growing costs of stockpiling, cartel cheating and declining outputs in DeBeers own mines that threatened the stability of the diamond monopoly it collusively maintained. The artificial scarcity it created came under threat. Today the diamond market is intensely competitive across the value chain.
Contemporary developments in the diamond world
As global diamond production falls and artificial diamonds gain prominence diamond producers like DeBeers have been pushed to create systems that enable traceability of diamonds. DeBeers also shocked the entire industry with its plans to sell artificial diamonds under a different subsidiary. DeBeers has claimed that it would sell artificial diamonds under a brand-named Lightbox, the wholesale price for a 1-carat lab-grown stone has dropped from almost being equal to mined diamonds to about 60% below that level in certain cases (Wexler, 2019). DeBeers hopes to create another market for artificial diamonds and hopes that the price difference will prove to consumers that artificial diamonds are inferior to naturally mined diamonds. However, it is irrefutable that the growth in the artificial diamonds industry is going to have a noteworthy impact on the demand for mined diamonds. The global demand for diamonds has grown but natural production continues to fall and traditional players such as DeBeers are losing their market share and reducing production.
Ensuring ethical diamond trade… or not
Since the ethics of diamond mining came to the fore at the turn of the 21st century, there have been several initiatives attempting to regulate and trace the diamond trade. One such initiative is the Kimberley Process - a trade agreement signed by 82 countries, including 22 diamond-producing nations (Kimberley Process, n.d.). The Kimberley Process aims to evaluate whether diamonds traded within the bloc are “conflict free” via its certification scheme (Kimberley Process, n.d.). Should a signatory of the Kimberley Process violate any clause of the agreement, fellow signatories, as well as the United Nations can impose sanctions, thus threatening the country’s revenue source (Kimberley Process, n.d.). The possibility of losing export revenue is a deterrent to trading in unethical diamonds.
However, the Kimberley Process is limited in its scope by the very definition that justifies its existence. “Conflict free” diamonds are very narrowly defined as those “used by rebel movements or their allies to finance armed conflicts aimed at undermining legitimate governments” (Kimberley Process, n.d.). Other widespread yet unethical practices in the diamond mining industry, such as discrimination, unsafe work environments and human rights violations, pass by unnoticed as they do not fall under the umbrella of conflict situations (Baker, n.d.). For example, the army of Zimbabwe was able to forcefully gain control of a diamond mind in Eastern Zimbabwe and kill more than 200 miners without any consequences from the signatories of the Kimberley Process (Baker, n.d.). This illustrates a major challenge that the Process faces in ensuring a truly ethical trading environment for diamonds worldwide.
Recommendations and conclusion
The diamond-generated revenue for many diamond-producing countries - most of which are in Africa - have been threatened by the increase in consumer awareness on human rights abuses during the diamond mining process. These ethically conscious consumers may choose to purchase synthetic diamonds instead, fuelled by the push for these diamonds by De Beers.
In order to counter this shift in demand away from mined diamonds, big diamond conglomerates should work directly with mines to secure the working conditions of their workers, instead of purchasing their stock from intermediaries. These companies can then also create and publicise stories around the diamonds in direct support of the miners and their communities. This increases the transparency around the diamond mining industry and empowers miners to actively seek employment in the industry, instead of seeing it as a last-resort option.
However, in view of the current COVID-19 pandemic, the diamond industry could see a resurgence in the trade of illegal diamonds and potentially more human rights abuses. The implementation of lockdowns and social distancing requirements has disrupted the informal economy in many parts of Africa, and in turn, threatened the livelihoods of many who depend on it. These unemployed groups may turn to smuggling illegal diamonds or working as miners themselves in order to survive, putting their lives and the integrity of the diamond supply chain in jeopardy.
What is the Kimberley Process? (n.d.). Retrieved from https://www.kimberleyprocess.com/en/what-kp.
Baker, A. (n.d.). Blood Diamonds. Time. Retrieved from https://time.com/blood-diamonds/.
Wexler, A. (2019, November 30). De Beers Diamonds Reflect a Changing Market. WSJ.Retrieved from: https://www.wsj.com/articles/de-beers-diamonds-reflect-a-changing-market-11575109800