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The Diamond Affair

Updated: Jan 7, 2021

The Diamond Affair

Written by: Ng Yanting

Compared to the dazzling diamonds that we see in stores, “raw” diamonds which are freshly dug out from the Earth look nothing like that. Instead, they resemble clear stones. These “raw” diamonds are known as rough diamonds. Rough diamonds are mined diamonds in their natural state that have not yet been processed or polished (Sarine, n.d.). Only after being processed do they become the diamond that we are familiar with. This is why diamond jewellery was not popular until sometime in the 1300s when people learned how to cut them in order to show their brilliance (LeGrand, n.d.). Moreover, there is a lot more to diamonds than just being an ornamental piece for wear. In this article, we will unearth the economic value of diamonds, explore its importance and take a look at some of the challenges faced by the industry.

The Industry’s Blood Diamond Hitch

Decades ago, blood diamonds were the industry’s greatest challenge. “Blood” diamonds, also known as conflict diamonds, are illegally traded rough diamonds used to finance conflict in war-torn areas, particularly in Central and West Africa (Armstrong, 2011). They came under public light due to the conflict in Sierra Leone in the 1990s. Rebels took control of diamond mines and forced people into diamond mining. To assert authority over them, violence was used. Such acts included having the arms and legs of slaves dismembered. Money made from the exploitation of slaves in diamond mining was used to fund the violent activities of the rebels. Thus, this was how the name “blood” diamonds came about.

Economic loss aside, the main reason why “blood” diamonds were such a big issue was because of the immense amount of social unrest and inhumane sufferings that revolved around it. This eventually led to the Kimberley Process (KP) which prevents “blood” diamonds from entering the mass market through regulations. The Kimberley Process Certification Scheme requires participating members to implement safeguards on rough diamond shipments and certify them as conflict-free (Kimberley Process, n.d.). Since the inception of KP in 2003, the issue of “blood” diamonds has been quashed to a minimum. Today, KP members have prevented 99.8% of “blood” diamond production (Kimberley Process, n.d.), proving its success and significance.

Diamond Mining – Reaping the Economic Benefits

The diamond industry can make vast contributions to the economy. Although Russia takes the top spot for producing the majority of the world’s diamonds (Government of Canada, n.d.), the effect of diamond mining on economic development is most apparent in Africa. Botswana, a country in Southern Africa, is the second largest producer for rough diamonds in the world (Government of Canada, n.d.). In 2013, diamond production in Botswana made up 26% of its total GDP and 76% of its total exports (Statista Research Department, 2014). Revenue generated from diamond mining in Botswana has led to a reduction in poverty levels, improved healthcare services and higher literacy rates (Wende, 2016). Globally, the diamond industry supports around 10 million people directly and indirectly and has provided an estimated 5 million people access to healthcare (, n.d.). This illustrates how the diamond industry is capable of providing irrefutable economic returns to the various countries involved.

The Demand and Supply for Rough Diamonds

The demand for rough diamonds is forecasted to be 292 million carats in 2050, up by 158 million carats from 2014 (Statista Research Department, 2015). In this day and age, diamond jewellery is extremely popular due to its alluring charm. It has even become customary for couples to have a diamond engagement ring. Diamond jewellery is also symbolic of one’s wealth as they carry an expensive price tag. In the market, 30% of diamonds are used for jewellery (Constable, 2020). What about the other 70%? Diamond is one of the hardest materials on Earth which makes it popular for industrial application. Due to its chemical structure, it has an incredibly strong resistance to abrasion; an ability to withstand high temperatures and is a highly stable compound (Liu, 2019). For these reasons, diamond is an ideal material for cutting tools such as saws and drills. With its popularity and countless applications, rough diamonds are high in demand.

However, the supply for rough diamonds is nowhere near sufficient to cope with its growing demands. Diamonds can take billions of years to form. As of today, no new economically viable diamond mine has been discovered for years and the existing mines are becoming increasingly exhausted (Shah, 2015). Sometimes, there may still be diamonds in the mine but they are far too deep in the Earth for excavation. These are among the biggest reasons for the dwindling supply of rough diamonds. With high demand and low supply, the forecasted demand-supply gap for rough diamonds worldwide will increasingly widen, from being non-existent in 2014 to 278 million carats in 2050 (Statista Research Department, 2015). Therefore, in the years to come, rough diamonds will be in a severe shortage.

Tackling the Shortage of Rough Diamonds

Fortunately, the invention of diamond simulants and synthetic diamonds can help reduce the shortage of rough diamonds. Diamond simulants are man-made diamond replicas that look like the real deal but are made from very different materials. Cubic zirconia (CZ) and moissanite are some common materials used to manufacture diamond simulants (Brilliant Earth, n.d.). Synthetic diamonds, also known as laboratory-grown diamonds, are made from carbon, the same material which natural diamonds are made from and hence, are extremely similar in their properties (Brilliant Earth, n.d.). Therefore, while diamond simulants are typically only meant for use in jewellery, synthetic diamonds are more versatile and can replace natural diamonds in many areas. In fact, there have been new applications with synthetic diamonds due to their purity (Constable, 2020). To name some examples, they can be used in industrial tools and semiconductors. The market for synthetic diamonds is constantly growing and is expected to hit 19.2 million carats in 2030 (Garside, 2019). Thus, diamond simulants and synthetic diamonds will help to bridge the gap between the demand and supply for rough diamonds.

Diamond or Gold?

When it comes to investment purposes, diamond and gold are often compared. Which is better? It depends. The value of a diamond depends on its 4Cs – Colour, Clarity, Cut and Carat. Typically, only superior quality diamonds with a large size or an unusual colour will appreciate significantly over time. Weighing at 5.11 carats, the famous Moussaieff Red is currently the world’s largest natural red diamond and it was sold at an auction in 2001 for $8 million (Jewellery Discovery, n.d.). Today, it is speculated to be worth around $20 million. Having said that, natural rare, quality diamonds are hard to come by. Only 1 in every 10,000 diamonds mined are coloured (Dizik, 2014).

In comparison, gold is much easier to secure as it is widely available in the market. Buying physical gold bars online is just like typical online shopping – one only has to ensure that they are buying from reputable websites. Gold serves as an inflation hedge and acts as one of the most effective diversifiers due to its ability to reduce the gravity of losses in times of market stress (World Gold Council, n.d.). These attributes of gold, among many others, drives it to be a popular investment. Furthermore, albeit constant fluctuations, gold has seen a significant increase in its monetary worth over the last 30 years (, n.d.).

Both diamond and gold have their own assets. So why do people usually prefer to invest in gold over diamond? Gold has long been considered to have a stable value that continues to appreciate over time. It is also easily available and much more affordable than a rare diamond. Ordinary diamonds that people usually own have a low resale value as jewellers can easily buy them from a diamond dealer for a much lower price (Jewelry Notes, n.d.). But this does not necessarily mean that diamond has a lower value than gold. Gold is treated as a commodity while each and every diamond is unique to its 4Cs. Hence, a direct comparison of their worth may not do them justice. Ultimately, the decision to invest in gold or diamond depends on the individual.

How Covid-19 Impacted the Diamond Industry

Like many other sectors of the economy, the diamond industry has become a victim to this pandemic. In times of uncertainty, the average consumer will pinch their spending on non-essential goods, especially on luxury items like diamond jewellery. Consumers will only increase their consumption of luxury goods if their income rises more than proportionately. But due to Covid-19, most people are in fact suffering financially. Consequently, sales have fallen drastically. De Beers Group, the world’s leading diamond company generated approximately $35 million in sales for May 2020 compared to $416 million in May 2019 (The Straits Times, 2020). Due to the weak demand for diamonds, inventories of producers have been piling up. Gemdax, a diamond industry consultancy firm, estimates excess inventories of about $3.5 billion for the five biggest producers of rough diamond (The Straits Times, 2020).

Thankfully, a silver lining exists for this industry where there is a strong demand for diamonds. The popularity and desire to indulge in diamond jewellery remain strong. Consumers are only holding back now because of the grim outlook that encourages saving for rainy days. At the very least, the diamond industry still has a small set group of customers – the wealthy and the companies who will be manufacturing diamond tools. So while the current situation is troubling, over time, as the people and economy get back on its feet and recover, this setback will eventually dissolve.

Outlook on the Diamond Industry

Diamonds are not just about accessories and investments. They have served far greater purposes. With diamonds, ideas have been transformed into reality. Certain developments that we have today are only made possible with the invention of diamond tools and products. Diamonds have also driven the development of many communities through improving their quality of life with the profits generated from diamond production. Nevertheless, challenges faced by the diamond industry continue to persist. Innovation is vital in ensuring success in the future. From economic to personal benefits, there is no doubt that the diamond industry will continue to flourish for many years to come.


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