JOHANNESBURG — The first employees’ strike to hit global diamond giant De Beers’ South African operations in 19 years entered its seventh day on Thursday, as the company reported record high sales of $3.49 billion for rough diamonds worldwide for the first half despite below-target output.
This story first appeared in the July 29, 2011 issue of WWD. Subscribe Today.
Earnings excluding extraordinary items more than doubled to $666 million. The company said sales were driven by exceptional price growth, powered by a strong demand for diamonds in the U.S., China and India.
Backed by the National Union of Mineworkers, striking workers at De Beers Consolidated Mines have rejected a 7 percent wage increase offer and are demanding a 15 percent wage hike instead.
“This is unrealistic and unsustainable,” said a De Beers Consolidated Mines spokesman.
South Africa continues to be unsettled by strikes. A fuel workers strike has been going on for more than two weeks, resulting in gas stations unable to fill their pumps and motorists unable to fill their cars. Employees in the coal and gold mines all over the country have also joined the diamond workers’ strike. With over 300,000 workers on strike, the toll on the country’s economy is massive, slowing down recovery. Last year, a three-week transportation strike cost the economy more than $1 billion, according to Moody’s. Analysts estimate that the cost of this year’s strikes will amount to even more, something that South Africa can ill afford, considering that freshly released figures from Statistics SA put the jobless rate at more than 25 percent, with 4.3 million out of a population of 49 million currently unemployed.
De Beers, the world’s largest rough diamond producer, was established in South Africa in 1888. Although the company has sold off several mines in recent years, including the Cullinan mine, where the largest rough diamond in the world was found and now rests in Queen Elizabeth II’s crown, it has kept three operations in the country: the Venetia and Voorspoed mines and a treatment plant in Kimberley.
The De Beers Consolidated Mines spokesman emphasized that De Beers had no intention of leaving South Africa, but current economic conditions coupled with union demands could make its operations in the country unprofitable. Chief financial officer Stuart Brown said De Beers paid a 9.5 to 10 percent wage increase last year and could not afford the same this year.
“We think that continued wage inflation of 10 percent will make all of our operations unprofitable in a very short space of time,” Brown said, adding that it was important to address this and take a stand “to ensure we keep our cost base under control because we are looking at the long-term sustainability of our operations.”
He said next to rising fuel and electricity costs, the third biggest cost base was labor. The country’s inflation rate is at 5 percent.
“We have to make sure labor is within reason, otherwise we will price ourselves out of the production market,” Brown added.
South Africa was once the largest diamond producing country in the world. That honor now belongs to its smaller neighbor, Botswana. Although recently elevated to BRICSA status along with Brazil, India and China, stringent government-mandated labor restrictions and conditions threaten to cancel economic gains, erode the country’s competitiveness on the world stage and discourage future foreign investment.