The precious stone looks better in a ring than on a balance sheet
The official opening two weeks ago of the Jwaneng diamond mine in Botswana, near the southern tip of Africa, should have been an occasion for celebration. After all, Harry Oppenheimer, 73, the chairman of De Beers, the cartel that controls the production and sale of most of the world's diamonds, has called the site "the most important primary deposit found anywhere in the world since the discovery at Kimberley more than a century ago." The rich ore of the Jwaneng mine is expected to produce 3 million carats of precious stones in 1982, and eventually 4.5 million carats annually, nearly one-quarter of De Beers' total output.
This year, however, many of the diamonds laboriously extracted from the arid Botswana earth will not be sold. They will instead be added to the growing De Beers stockpile of gems. The reason is that there is a worldwide glut of the precious gems. The vaults of diamond wholesalers are overflowing with rough as well as cut and polished stones, and the market for investment-grade diamonds has virtually collapsed. A rare one-carat D-flawless-grade stone that brought $62,000 at the peak of the market in 1980 is now worth only $15,000 or less, a decline of more than 75%. De Beers' sales arm, the Central Selling Organization, saw profits tumble 46% in 1981, and Oppenheimer says that an upturn is not yet in sight.
In an effort to put some sparkle back into the diamond industry, De Beers has launched a heavy, worldwide advertising campaign. Even before the famous slogan "A diamond is forever" was coined in 1948, ads linking the polished stones with romance and marriage were routinely used to boost sales. Through publicity in Japanese magazines, for example, De Beers has helped create a market for diamonds where none had existed for 1,500 years. As Edward Jay Epstein points out in his book The Rise and Fall of Diamonds: the Shattering of a Brilliant Illusion, which was published last May, the percentage of Japanese brides with diamond engagement rings has increased from less than 5% to 60% in just 13 years.
In the U.S. this year, De Beers will spend $26 million on advertising, up 75% from 1980. The budget for television commercials alone has quadrupled, to $10 million. To spur sales of larger, more profitable stones, a new slogan has been created: "A diamond of a carat or more is only one in a million." For less affluent buyers, De Beers is urging American parents to give their teen-age daughters small, heart-shaped diamond jewelry "for those special occasions ... as only a parent can."
While the price of diamond jewelry has remained relatively stable, the market for investment diamonds has collapsed because of speculation run amuck. In the late 1970s, dealers in Tel Aviv, one of the world's diamond-cutting centers, began buying bushels of stones on credit after the government subsidized interest rates at 6%. At the same time, global inflation was causing investors to dump paper assets like currency and stock, and buy tangible goods, particularly gold, real estate and gems. The cost of an investment-grade D-flawless diamond, which had risen from $1,250 in 1967 to $7,000 in 1976, suddenly soared. By early 1980, the price had reached an unsustainable $62,000.