Africa's Best Friends Are Its Youth and Diamonds Natural Resources

Cape Times (South Africa), November 7, 2013 | Go to article overview

Africa's Best Friends Are Its Youth and Diamonds Natural Resources


BYLINE: Mark Mobius

Africa has been an area of interest to our team for many reasons. One might say the continent's biggest asset is its youthful population.

With a median age of under 20 in many countries today, that means a very high portion of Africa's population is dependent on the adult workforce. Tomorrow, however, it means that the workforce will be massive, and the ratio of dependants to workers (the dependency ratio) could be among the lowest in the world.

This huge and youthful population is a key rationale for our interest. While economies in Africa are diversifying and providing many avenues for these emerging populations, the mining and natural resources sector remains a key industry and employer. Diamonds are one of the continent's resources worth further exploration.

Diamonds aren't just "a girl's best friend", they're one of Africa's many natural resource treasures. Used in jewellery, in industry and as a store of wealth, diamonds are gems for which I don't see demand evaporating soon.

Scientists estimate diamonds started to form more than 3 billion years ago. Their durability has been recognised since ancient times. Even the word "diamond" is derived from the Greek "adamas", meaning adamant or unbreakable.

In the past few years, global diamond mine production has been running at between 120 million and 170 million carats a year (a carat is equal to 200mg). This production is valued at roughly $13 billion (R130bn). By 2020, demand is expected to have grown to 192.7 million carats, valued at roughly $22.4bn.

While Russia has become a major source of diamonds, the diamond business is particularly important in Africa, where it brings in about $8.5bn a year. Botswana is a major producer, and diamonds play a big part in its economy, currently representing more than a third of its gross domestic product.

Botswana boasts some of the largest diamond mines in the world, and the industry has given what was one of the poorest nations in Africa a tremendous boost. In southern Africa, some 38 000 people are employed in the diamond trade.

In the past 25 years, global sales of diamonds and diamond jewellery have grown three-fold. Compared with the $13bn value of rough, uncut diamonds at the mine sites, the yearly value of diamond jewellery sold globally is estimated at between $60bn and $80bn, including the cost of diamonds, precious metals and other gems used to produce the jewellery.

Diamond mines are not easy to find. The probability of a diamond exploration company finding a diamond deposit is between 1 percent and 3 percent of all drill tests. From initial discovery to making the economic appraisal and obtaining licences can take three to five years. Then, design and construction of the mine takes another three to five years. It is no wonder that the largest profit margins are obtained at the mining level, given the high risk and expense of developing a diamond mine.

Over a quarter of a million retailers sell jewellery to consumers worldwide, and the internet has opened up new markets and introduced greater price transparency.

Why do people buy diamonds? We all know that a key element is to express love as well as gift giving, but diamonds are also considered by many to be a safe haven for wealth. In times of trouble, they are easy to carry and generally have held their value. When the Russian tsar and his family were murdered by the Bolsheviks in 1918, diamonds were found sewn into the girdles and undergarments of the tsar's wife and daughters.

Diamond mining and commerce started 1 000 years ago when traders carried rough stones from India to the Middle East, where they were cut, polished and sold to European royalty and aristocrats. …

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