Export tax could cut South African diamond supplies:Analyst

The inclusion of a 5 percent export tax, which is part of the South African government�s Diamond Amendment Act, may have the effect of cutting rough diamond supplies by up to 30 percent and, ultimately, result in the loss of about 5,000 mining jobs, said analyst James Allan, speaking at the Diamonds Africa 2007 conference in Johannesburg.

Allan said that the 5 percent export tax would create a price differential for local diamond cutters that could create an additional 500 jobs in the cutting industry, but added the �unintended consequences� would be a less competitive South African mining industry, which may result in a dramatic falloff in production and a much larger reduction in employment in the mining sector.

In Allan�s opinion, the local cutting industry can only be grown by reducing costs and improved productivity. He said that South African cutters find it very difficult to compete with India and China, when their cutting costs vary between $45 per carat $100 per carat, whereas in India the costs are between $1 per carat and $8 per carat and in China between $6 per carat $12 par carat.

For South Africa to become a major diamond beneficiation center, it would have to cut its production costs to not more than $20 per carat, Hotchreiter stated.

Another unintended consequence of the Diamond Amendment Act, Allan said, is that South Africa could become a diamond smuggling center.