6

BUSINESS MATTERS, Mark Powell, LTP Publishers 1996 UNIT THREE Monopolies

A Girl’s Best Friend?

Like classic cars, vintage champagne and 24-carat gold, there is always a market for cut diamonds. But what’s so special about diamonds and why are they so expensive?

Have you ever bought anyone a diamond as a present? How do you know if it was worth what you paid for it? For in the world of diamond dealing nothing is quite what it seems…

Try the quiz below and then check your answers in the article, Diamonds Are Forever.

1. How many companies control the world diamond market? a. Hundreds. b. A dozen. c. Three. d. One.

2. How rare are diamonds?

a. Extremely rare. b. Rare. c. Fairly rare. d. Not rare at all.

3. How valuable are diamonds?

a. Priceless. b. Extremely valuable. c. Less valuable than people think. d. Almost worthless.

4. Are diamonds a good investment?

a. Yes, they always appreciate in value. b. It depends on the state of the economy.

c. They always hold their value. d. No, you never get your money back on a diamond.

Diamonds are Forever

Invented by one of the richest companies in the world, Diamonds are Forever is a slogan which does not bear close examination.

Common and untradeable

Diamonds are neither valuable nor rare.

Though fabulously expensive, they are actually one of the most common minerals on earth. In the West cut diamonds outnumber cars. They are almost untradeable as a commodity. Their resale value is significantly lower than their original cost, and nowadays they can easily be substituted in all their industrial uses. In fact, without the tradition and romance which have always given diamonds their sentimental value, they would be almost worthless.

Artificially high prices

The high price of diamonds is a triumph of the commercial clout and marketing genius of De Beers, the South African conglomerate that has an 80% stake in world diamond supply. By strictly regulating the mining and distribution of diamonds, De Beers has managed to keep prices artificially high. And by turning the diamond into a universal symbol of romance it has prevented secondhand diamonds from flooding the market and forcing prices down. Even in times of hardship people are reluctant to part with their diamonds. De Beers knows that if they ever did part with them, the market would be saturated overnight.

Supply outstrips demand

World supply of diamonds has consistently outstripped demand, so logically diamonds should be cheap. If not for De Beers, the world’s greatest cartel, they would be. But such has been the power of De Beers that even a glut of diamonds, massive stockpiling, chronic cashflow problems and political uncertainty have been unable to loosen its stranglehold on the $60 billion world diamond market.

Cheap labour

Most of the diamonds traded internationally are mined by the African poor or bought on the cheap from the Russians. And three quarters of the world’s gems are cut in poverty-stricken Surat in India, often by young children earning as little as four American cents per stone. Appalled by De Beers’ business ethics, America outlawed the company, effectively preventing it from opening its own outlets in the United States. Ironically, America remains by far De Beers’ single biggest market and the company operates through American dealers unhindered.