DE BEERS, IT IS SAID, IS TRYING
TO POLISH ITS REPUTATION.
T HIS WEEK DE BEERS, THE LEADING SOUTH AFRICAN DIAMOND GROUP SAID IT HOPES THAT TALKS WITH AMERICA’S GOVERNMENT ON CHARGES OF PRICE FIXING WILL BE CONCLUDED TO ITS SATISFACTION.
No doubt it does, but then it has been saying that for rather a longtime. For nearly 50 years, De Beers, which produces more diamonds than any other firm, has been blocked from selling directly to the world’s largest jewelery market by a lawsuit from America’s Department of Justice (DoJ). The lawsuit alleges that De Beers runs an illegal cartel for the production and sale of diamonds.
Its global business is healthy---- net profits rose by 11% in 2003, helped (paradoxically ) by strong indirect sales in America. But the bosses and owners of De Beers have long said that they want the firm to be legally compliant there if only so that its executives can visit New York without risk of arrest.
There are some reasons to expect that to happen “in the not terribly distant future,” according to some insiders . Both sides are said to be more hopeful than before. De Beers is increasingly keen to polish its image among consumers and governments. Fearing a boycott, it helped to draw up industry rules to stop the trade in “conflict diamonds” that has paid for many of Africa’s wars.
The owners of De Beers, the Oppenheimer family, vocally support South African plans to put more wealth into black hands. In Botswana and South Africa, from where De Beers gets most of its diamonds, it treats workers with AIDS, decently. Striking a deal now in America, perhaps with De Beers admitting some guilt and paying a fine, would help “prove that the old De Beers is dead and buried,” says one company official.
The concerns of the DOJ ought also to be easing. De Beers has rethought how it trades diamonds, and is facing stronger competition from rivals. It once accounted for nearly all world -wide sales of rough diamonds, from its own output and by purchasing and hoarding that of competitors. Now it accounts for barely half of sales, and relies mostly on its own output. Thus it should be less vulnerable to charges of price fixing. A separate private lawsuit against the firm in America, and smaller legal wrangles in the European Union, probably pose much less of a problem than the DOJ.
Another change could soon alter the firm’s situation. The Oppenheimer family is said to be preparing to double its current 45% stake in De Beers, by buying the shares owned by South Africa’s mining giant, Anglo American—which may need the money, judging by the mediocre results it announced this week. Though officially denied, undoing the messy ties between the two firms would make it easier to demonstrate that De Beers is independent and competitive: two qualities much admired by the D oj’s trustbusters.
The ECONOMIST Magazine
February 28th, 2004. (Pg. 62)
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