The Sunday Mail
The chief executive officer of the Antwerp World Diamond Centre (AWDC), Mr Ari Epstein, was in the country about two weeks ago to attend the Parliamentary Zim Asset Seminar.
Our Senior Reporter, Kuda Bwititi (KB), spoke to Mr Epstein (AE) about the sale of diamonds from Marange to the Antwerp market as well as other dynamics in the diamond sector. Below are excerpts of the interview.
KB: What is the significance of Antwerp to Zimbabwe’s diamond sector?
AE: There are over 1 800 diamond companies that are active in the Antwerp diamond community and we are really proud of one important point and that is the fact that we are extremely transparent. We are the most transparent, not only the biggest, not only the tallest diamonds centre in the world but we are the most transparent diamonds centre in the world. We have been around for over 550 years, so we have quite some heritage; we have a lot of experience in the diamonds business.
KB: There is a feeling among many Zimbabweans that the continued sale of diamonds to Antwerp is not bringing maximum benefits to the economy because Antwerp stands to benefit more than the miners. What is your comment?
AE: Our vision and strategy have always been to have an open-door policy to people and countries that are involved in the diamond industry. We have, of course, a lot of financial institutions and Antwerp is a financier in the diamonds industry because it is a very capital-intensive industry. What you need to understand is that there is a diamond pipeline. It starts with the mining, which is the first stage, then there is the middle part of the pipeline.
In this middle part of the pipeline there are low profit margins. In the first stage of the pipeline, there is a value-addition of almost US$14 billion and at the retail stage the turnover is US$72 billion.
Why is that? . . . Because, of course, the middle part of the value chain is inefficient and the middle part of the value chain is actually the part that finances both probably the mining part and the retail part. Now why is that necessary? Why do you need the middle part of the chain which is also cutting and polishing? You need that because you need a link between the 10 producers worldwide and this is where Zimbabwe is. Now the middle part of the pipeline is actually the part financed by the Antwerp diamond community. The middle part of the pipeline is very important because it is the link between the 10 mining companies in the world/mining countries. We deal in 84 percent of the world’s rough diamonds; 84 percent is a very important number because that means we have critical mass. Critical mass of buyers and sellers means every buyer finds a seller and every seller finds a buyer at the best price. That’s very important.
That’s part of the transparency that I am talking about.
KB: But is the Antwerp market the best way to go for Zimbabwe?
AE: We are able to provide a much better price for your beautiful natural resources than any other place in the world and that is very important; that’s what it is all about. In the first stage, it is about getting maximum revenue for your natural resource.
What is also important to understand is: how did this co-operation between Antwerp and your beautiful country start?
KB: Antwerp played a crucial role in the lifting of sanctions that hindered the sale of Marange diamonds. What motivated this stance?
AE: I will tell you that in 2009, the Kimberly Process declared that Marange diamonds are non-compliant so they could not be exported globally and in 2010 I came here to Zimbabwe and I had a meeting with the Honourable Minister of Mines and Mining Development (Dr Obert Mpofu) and we committed to help to lift the EU sanctions on Zimbabwe, on ZMDC.
Now in 2011, Mark Van Bockstael is a colleague of ours, but then as official KP monitor, came to Zimbabwe and looked at your production and what did he find? He found that your production was actually KP compliant.
It actually was compliant with what we called the minimum requirements of the KP process.
He actually said it was even more compliant with the minimum requirements and for that reason, in 2013, I came here and I said we are going to help lift the sanctions. It’s a promise I made to the honourable minister.
My promise to the honourable minister in 2010 was to help lift the sanctions. Thanks to the effort of the EU, we were able to lift sanctions in September 2013 and actually it was hard work. We had to do some explaining, but it was all about facts and figures.
We didn’t need to tell a story; we just had to show the facts and then in November we came here with a big delegation and we met with the Minister of Mines, Mr Chidhakwa, and the Minister of Finance and I remember we were sitting outside having coffee and I promised him that what he would be able to make, in Antwerp for his goods, would be significantly higher than the prices he was making in other centres and in Zimbabwe. Now you know I’m not a person who makes promises easily.
It is not in my nature but they were very forward-coming, the ministers. I think they did an excellent job and they would want to go and show the world what we already knew that they wanted to work with the world in a transparent way and for that reason in December 2013 there was a trial tender organised in Antwerp and the trial tender was very successful.
In February 2014, we had a second trial tender and in that second trial it was also already a real tender. We really were able to double the prices that were made in Harare, Zimbabwe. And, of course, I mean we can have a discussion after that about value-addition, but the first value-addition is being able to bring the goods to the market at the fair, right price which you deserve and I want to show you specifically one point which was a very important part of my presentation. That is: you know we have a profit margin of between 3 and 6 percent; that is what we gain out of trading diamonds in Antwerp before the cost. So after 3 and 6 percent, we need to deduce the cost from that. You have other centres that were able to buy your goods.
During the whole period, they took over 50 percent profit, so it means that the whole profit margin for Zimbabwe diamonds was actually channelled outside of your country until Antwerp came and organised transparent tenders for you a few months ago. And that is the key point and the key message that I want to bring to you.
That is when we were doing 1 to 4 percent profit minus cost. Other centres made between 50 and 70 percent profit margin for the same kind of diamonds. Now it was again a promise that was kept. You know, it is important that your resources are sold at the right price.
We should be able to make profit; that’s about being good business partners and you should be able to keep the substantial part of the profit to yourselves and what happened until now? You were not able to keep the substantial part of the profit to yourselves.
And the ministers came and they said enough is enough; we want profitability, we want fair prices for our resources and we were the first ones to say, “Well, we are not going to go for a quick-win. We are in the business for over 550 years.
“We want honourable profit between 3 and 6 percent, but we are not interested in making these profits above 50 or 60 percent on your backs. That’s not what interests us.”
And we were able to do it all.
KB: You say you are making 3 to 6 percent profit. How can you prove that?
AE: Very good question. How do I prove that? I prove that because you were present when we sold the goods. I didn’t come to sell the goods. I am not a diamond-buyer and seller myself.
We put the goods to tender. It is an auction for your goods. It is a public auction. When you do a public auction, you need a critical mass; you need enough buyers to be able to bid on your goods. If you and I are just two people and bid on soda, for instance, if we are both thirsty, the price of this soda water is going to be lower than if we had 100 thirsty people bidding on this soda water.
Do we agree on that? So what did we do? We represent 1 800 companies and we brought over 160 companies openly in the presence of the Zimbabwean Ambassador and the mining companies. The producers here came to Antwerp and looked at the way the tender was organised.
People are able to put prices on the goods and it is the highest bidder who gets the goods. So we have a special system of selling the diamonds which is called a tendering system.
We have a tender facility and through that tender facility we were able to sell the goods to the highest bidder in the presence of your Government, your embassy, your producers.
So, we didn’t have to do anything; we just put the goods on the table. We cleaned them because you need to clean some goods, but some goods do not need to be cleaned. Some goods you add value to by cleaning them. Some goods you do not add value by cleaning them.
We know because we have vast experience; we have 16 000 ways of assorting the diamonds, so we know the best way to present your diamonds and we did that for the Zimbabwean people and again in the presence of the Zimbabwean Embassy and the producers and that is the only way for me to guarantee you that you have the best prices and that is why you were making US$47 per carat on average when they were sold in Zimbabwe and I was making US$80 per carat for the same kind of goods in Antwerp.
That’s the reason, because you were selling your goods at about US$500 million and I can sell your goods for twice as much and, to be more exact, US$564 million and US$930 million. The KP monitor made a footprint of your mines. A footprint is a DNA of your mines, so he knows exactly what mines produce.
So we know exactly what your production footprint looks like and we use that footprint to see if the producers have sent us their full production as demanded by the Zimbabwean Government and almost all of them did, except one producer. He took off the most beautiful stones.
KB: That is a serious allegation. Can you give us the name of that producer?
Mr Epstein: No, no, no. I am not going to shame and blame. You can ask your ministry. It is known in your ministry. I am not a politician; I am a businessman, so I think the politicians need to be able to do politics. Everybody knows which one it is; the one that always criticises us. The question is: who wants to lose in the game?
It is a game being played here. It is a game of transparency and when you auction to the highest bidder, you can’t do any deals behind the scenes. Now don’t ask to do business in a different way because we will not do it. Even if you ask us, we will not do it. We can only play the game in a transparent way because we have a reputation.
I import and export for US$250 million every day. You have a production of 12 million carats per annum. So, let’s say at US$100 per carat, you have about US$1,2 billion per annum and I import and export US$55 billion per annum, I cannot play another game except a game of transparency.
Now, look at the profit margin and you will see we take our honourable profit margin with which we are happy.
KB: Is Zimbabwe getting a fair price for its diamonds?
Mr Epstein: What we are slightly disappointed with is the fact that now that there is a tender that is going at the centre that has sold your goods for the last years, you will see that the goods are going to other centres.
Now these centres have had five years of time to organise tenders. They have never done it. They have never wanted to play the game of transparency. Since we have done it, now they are so obliged to play that game.
I am also happy because the honourable vice-minister confirmed to me and confirmed to the Parliament that it is going to be exactly the same kind of goods that will go to the centres and I am certain that he will be able to maintain that.
But I am worried because you need the know-how to see that they are exactly the same goods. We are prepared and that is very important. The royalties you are getting, thanks to sending your goods to Antwerp, just for the last tender the royalties were over US$10 million and if you look at all the taxes that you are able to get from that, they are probably between US$20 million and US$30 million.
So, the taxes you are able to get through one tender are huge. Think of tendering your goods in a transparent way during the whole year with predictability because buyers need predictability. They need to know that they can go to the tender every month or every two months and they can bid for your goods and they can buy and serve their customers. You need critical mass for that. They want to test another centre.
We are worried. I am not saying we are against it; we are a mature market. We can handle it, but we are worried. The transparency game needs to be continued because that’s the only way you can maximise on your natural resources and I am sure the minister and yesterday’s Parliament was explicit about wanting the game to be played.
This is the game they want to play. So, we could have reached US$100 per carat if this one miner could have played the game correctly, which they did not.
They sent nothing to Antwerp. They are a big producer but they sent peanuts.
I can show you; I have details and everything. But again, it’s not for me to discuss that issue. So, we can guarantee you revenue above each and every centre in the world.
We have been able to bid on certain diamonds more than US$18 000 per carat but Zimbabwean diamonds were never bid on over US$400 per carat for few special stones. I ask you: why do we need to fight for our turf? We don’t need to fight for our turf.
I am sure the leaders have to take the right decisions and they will continue to take the right decisions and I am really hopeful that your natural resources will be sold at the best prices ever. When you ask about mining, of course, we have the know-how, we have the knowledge.
You have the knowledge today and that’s part of the MoU. Let’s implement it immediately before the end of this year. Start with the cleaning facility here; start the cleaning of the diamonds here.
The first thing you need to know is how to clean, which goods to clean and you can clean them yourselves.
The second thing is rough diamond sorting, which you need to do yourself and then the third point is the creation of a trading hub, potential polishing and cutting as well as the creation of a gemology facility and creation of potential retail industry. These are long-term; you have that in the presentation.
This is what we have to offer from Zimbabwe to Antwerp — the best way of value creation. That is what Antwerp is about. Again, I don’t need to push that. I feel that transparency is very high on the agenda here of both Government and Parliament and I am very confident that transparency will prevail because, like I said, we didn’t need to sell anything to the European Union for the sanctions to be lifted.
We only needed to show them that it can be done in a transparent way.
KB: Are you in any way willing to invest in actual mining because right now we are only doing alluvial mining?
AE: You don’t need to be doing anything at the moment because you have the alluvial part which is very profitable because the cost of alluvial mining is very low. We need to create value-addition to you.
We can do that by doing what we are best in; that is, selling at the best price to the most possible buyers and selling in a transparent way. Let’s start by signing the MoU on the table and let’s create more value but, please, don’t sell your goods under the market value.
Do not do that anymore.
KB: I understand that diamonds from Murowa fetch a higher price than diamonds in Marange in Antwerp. Can you explain that?
Mr Epstein: That’s not fully correct. Diamonds from Murowa also mix, so they are presented in a different way because Rio Tinto has different mines and Rio Tinto does not sell the production of Murowa separately.
They sell it in a mix with high category goods which they bring from other places all over the world. So you cannot say Murowa goods are sold at higher prices because these are two different places, two different footprints.
KB: You were talking about cleaning diamonds. Why is it in the first tender you allowed diamonds that were not cleaned?
Mr Epstein: The first tender was a very small parcel and the minister asked companies to do the cleaning themselves, but they lacked the know-how. So, you need to specialise, you cannot do everything yourself.