Investment Adventures in Emerging Markets

Africa’s “Glass With Attitude”

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Africa has been an area of interest to our team, for many reasons. One might say Africa’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 dependents 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 there. While economies in Africa are diversifying and providing many avenues for these emerging populations, the mining/natural resources sector remains a key industry and employer. Diamonds are one of the continent’s resources worth further exploration. Read more about investing in Africa in my recent post: “Investing in Africa: Misconceptions and Realities.”

Diamonds aren’t just “a girl’s best friend”— they’re one of Africa’s many natural resource treasures. Coveted and controversial, diamonds are now mined in a number of African countries, including Angola, Botswana, Democratic Republic of Congo, Namibia and South Africa, and represent a vital part of these economies. Used in jewelry, in industry and as a store of wealth, diamonds are gems for which I don’t see demand evaporating any time soon.

Scientists estimate that diamonds started to form more than three billion years ago. Diamonds’ durability has been recognized since ancient times. Even the word “diamond” is derived from the Greek word adamas, meaning adamant or unbreakable.

Global Diamond Production

Global diamond mine production has been running at about 120 – 170 million carats (one carat is equal to 200 milligrams) per year in the past few years, valued at roughly US$13 billion1. By 2020, demand is expected to grow to 192.7 million carats, valued at roughly US$22.4 billion2. While Russia has become a major source of diamonds, the diamond business is particularly important in Africa, where it brings in about US$8.5 billion a year3. Botswana is a major producer, and diamonds play a big part in its economy, currently representing more than a third of its GDP4. Botswana boasts some of the largest diamond mines in the world, and the industry has given what had been one of the poorest nations in Africa a tremendous boost. In Southern Africa, some 38,000 people are employed in the diamond trade5.

In the past 25 years, global sales of diamonds and diamond jewelry have grown three-fold. Compared to the US$13 billion value of rough, uncut diamonds at the mine sites, the yearly value of diamond jewelry sold globally is estimated at US$60  to US$80 billion6, including the cost of diamonds, precious metals and other gems used to produce the diamond jewelry.

Diamond mines are not easy to find. The probability of a diamond exploration company finding a diamond deposit is a mere 1% to 3% of all drill tests. From initial discovery to making the economic appraisal and obtaining licenses 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.

Carats and Sticks

Over a quarter of a million retailers sell jewelry to consumers around the world, 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 sentiment 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 czar and his family were murdered by the Bolsheviks in 1918, diamonds were found sewn into the girdles and undergarments of the czar’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. At that time, India was the major diamond supplier. Starting around the 1500s, large-scale diamond mining took place in the ancient kingdom of Golconda, situated about 11 kilometers west of present-day Hyderabad. Mines in the region produced some of the world’s most famous diamonds, including the Hope Diamond, Idol’s Eye, Koh-i-Noor and Darya-ye-Noor. By the 1700s, India’s diamond supply was exhausted and Brazil became an important supplier. Then, Brazil was displaced by Southern Africa. In 1869, a diamond rush started in Kimberley, South Africa, when a shepherd boy discovered an enormous 83.5-carat diamond.

It is not surprising that in recent years, the cutting and polishing of diamonds has been moving to Asia from other countries, particularly India, Thailand, Sri Lanka and China. In the US, it costs about $100 per carat to cut a stone, while in India the cost is about US$10 – $307. India is now the world’s largest diamond-cutting center, with as many as 800,000 diamond cutters working there. The industry is thus expanding in many emerging-market economies, even those without mining operations.

In the 1990s, the issue of “blood diamonds” threatened the diamond industry as rebel armies in some African nations began to finance their armed conflicts by selling rough, uncut diamonds from local mines. In 1998, Global Witness, a non-government organization, publicized this development with particular emphasis on Africa.

To address the problem, diamond companies began working with the United Nations to prevent diamonds from being used for war. In 2000, the UN General Assembly adopted a resolution supporting the creation of an international certification system for rough diamonds. Several companies started the World Diamond Council, which instituted the Kimberley Process in 2002, a certification program where diamond-producing nations would certify the origin of uncut diamonds and that they were conflict-free. While not perfect, the idea was to prevent “blood diamonds” from entering the legitimate diamond supply chain, so only certified diamonds with a government-issued certificate could be imported or exported. Today, the Kimberley Process has 54 members representing 80 countries. According to the Kimberley process and United Nations, it is estimated that nearly all diamonds now being sold are from conflict-free sources8. To further control the trade, the World Diamond Council has developed a system of warranties to extend the Kimberley Process certification of polished diamonds to retail outlets around the world. The market for illicit diamonds (those not certified under the Kimberley Process Certification Scheme) is still significant, but at least consumers now have a degree of assurance about the origin of their purchases.

It may surprise you that only about 30% of diamonds mined are of gem quality and used for jewelry, with the remaining 70% used for industrial applications. About 95% of industrial-use diamonds are synthetic (artificially manufactured). Millions of dollars of special, high-tech reactors are needed to produce synthetic diamonds, making it more expensive to create them than to mine a natural diamond from the ground. According to some experts, the cost of mining a natural, colorless diamond is US$40 to US$50 per carat, while the cost to produce a synthetic, gem-quality colorless diamond is about US$2,500 per carat.

I think diamonds will always hold a special fascination for people around the world, and the desire for beautiful diamonds is not expected to diminish any time soon. Perhaps more importantly, the practical use of diamonds in industry is well established. Our emerging markets team has been excited about Africa’s potential in this industry, and we think many countries on the continent should continue to benefit from the continued demand for this “glass with attitude.”

Important Legal Information

Investments in the natural resources sector involve special risks, including increased susceptibility to adverse economic and regulatory developments affecting the sector.


1, Source World Diamond Council.,

2, Source: Bain & Company, “The Global Diamond Report 2013.” Used with permission from Bain & Company,

3, Source: World Diamond Council,,

4, Source: 2013 Index of Economic Freedom, The Heritage Foundation.

5. Source: World Diamond Council.,

6, Source: Bain & Company, “The Global Diamond Report 2013.” Used with permission from Bain & Company,

7. Ibid.

8. Source: United Nations, 2011.

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