Legislation has become a defining feature of the investment regime and is now a liability.
A beautiful parcel of rough diamonds lies across the table as Ilan Kaplan, Vice Chairman of the Diamond Manufacturers Association shares the story behind the issues faced by a typical beneficiator.
The audience at the Diamond Indaba looks on while he explains that apart from the sourcing of diamonds, one of the issues is finding a manufacturer. One has a choice of using an operation that is either based in Johannesburg (a state-of-the-art operation) or in neighbouring Southern Africa. Once you have sourced the goods, you have to pay VAT on your purchase.
Yes, you might get the VAT back in maybe 60 or 90 days, but it will have a major cash flow impact on your business. This reduces your further purchasing ability if another opportunity arises in the interim.
Kaplan says that 30% of the diamonds on the table cannot be manufactured profitably. Assuming that he goes with the illusion that he can maximise profit by moving them in their rough form as opposed to releasing the value addition through polishing, he is a holder of a beneficiation licence certificate.
It stipulates that he can beneficiate 80% of his purchases in South Africa and he has 20% leeway to sell or export.
That 20% needs to be offered to a diamond exchange and export centre for a period of four days for local sale before he can export to a customer. All of this happens while still trying to find a polisher for the diamonds.
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