The Botswana Institute of Development and Policy Analysis, (Bidpa) has warned that countries in the Southern African Development Community (SADC) region will be affected by the increase in gem-quality synthetic diamonds, with Botswana to feel the greatest impact.
In a report released earlier this month, BIDPA projected that synthetic diamonds could represent about one-third of mined diamonds by 2018.
Bidpa senior researcher Professor Roman Grynberg says, while analysts agree that there is emerging demand for mined diamonds, supply from mines was expected to decline, creating space for synthetics.
Projections
“Assuming that these long-term projections of excess demand are correct, the shortage of mined diamonds will create a natural space for synthetics, which, depending largely on consumer acceptability, could grow to represent one-third of the gem-quality market by 2018. It has been assumed that the excess demand will generate significant increases in prices but, increasingly, there is the view that excess demand will result in a higher rate of penetration of synthetics into the market, which may well result in a decrease in prices at the bottom end of the gem-quality diamond market,” says Grynberg.
He adds that, in view of the fact that Botswana earns significant revenues directly from the taxation of diamond mining companies, any decline in prices will affect not only mineral taxation, but also returns on investment in the country’s diamond sector.
“It does not require significant analysis to realise that Botswana, the world’s most diamond-export-dependent country, is simultaneously the most vulnerable to any supply shock stemming from synthetics because it has the least diversified economy of all diamond producing countries,” he says.
He adds that synthetics should be a cause for concern for Botswana, Lesotho and Namibia, and, “for Botswana, a precipitous long-term decline in prices will have a greater impact on the economy than for any other producer’.
Diamond exports constitute 30% to 50% of Botswana’s total revenue, levied in the form of taxes, royalties and dividends from De Beers Debswana and De beers. The country exported diamonds worth $661-million in 2012, increasing to $842-million in 2013.