Proposed changes to South Africa's diamond industry which targets an increase in domestic jewelry making and black involvement could backfire, according to the head of a diamond organization.

 

The government is right in trying to boost black participation, but rushing through a sweeping new law could cause damage, said MacDonald Temane, the first black to get a diamond cutting license 15 years ago.

 

"Transformation and change is long overdue," he told the Reuters news agency. Temane is chairman of the Master Diamond Cutters Association.

 

A key element of a new law, launching a state diamond trader to open up the distribution of rough diamonds, was full of potential problems, he said.

 

"The whole concept of having a state diamond trader is flawed," said Temane. "All over the world governments have recognized that it is better for them to take tax and privatize. What the state diamond trader is doing is nationalizing through the back door."

 

The bill sees private investment in the state diamond trader, which could lead to market manipulation, while the new law also leaves vague the amount and grade of diamonds to be sold by the state unit, he said.

 

Temane said intentions were good in the draft Diamond Amendment Bill, which seeks to increase the number of diamonds that are cut in South Africa, the world's fourth largest producer by value, to boost economic growth and employment.

 

The bill also aims to boost the number of black entrepreneurs like Temane. But opening up the sector without recognizing its complexities could lead to a free-for-all, with inexperienced newcomers losing money and some players taking advantage of the chaos, he said.

 

Availability of diamonds was not the only obstacle to new entrants. Blacks need to gain expertise through hands-on involvement, not passive shareholdings, he said.

 

South Africa’s cutting industry has around 2,500 workers.

 

The southern African region - home to diamond producers Angola, Namibia and the biggest by value miner Botswana – should come come up with a strategy to boost business, Temane said.

 

"If I was government, I would enter into partnership with De Beers to bring the sorting that is in London [at the DTC] to South Africa."

 

South Africa could learn from Botswana, which insisted on owning a half share of the local diamond producing company, he added.