Blog

Focus on

THE DIAMOND INDUSTRY

Ukraine’s war-time President Volodymyr Zelenskyy, who in a video address to the Belgian parliament on March 31, 2022, said that diamond sales should not take precedence over the conflict in his country.

SHOCKWAVES OF RUSSIA’S INVASION OF UKRAINE
RATTLE THROUGHOUT THE DIAMOND INDUSTRY

 

With the fallout being experienced by the war in the Ukraine, conclusive proof seems to be delivered up daily that, in the 21 Century, all events are interconnected. The Eastern European country, which is home to neither a single diamond mine or a diamond market of much significance, has nonetheless exposed the difficulties inherent in sourcing responsibly in the luxury industries.

Speaking on March 31 via video feed from Kyiv to the Belgian parliament in Brussels, Ukraine’s President Volodymyr Zelenskyy criticized the Belgians of valuing Russian diamonds over peace.

“There are those for whom Russian diamonds that are sometimes sold in Antwerp” are “more important than our fight,” he said.

Zelenskyy’s remarks, which received a standing ovation in Brussels, came after the media reported that the Belgian industry’s umbrella organization AWDC had argued strongly against any boycott of diamonds from Russia’s main diamond producer Alrosa, saying that these goods simply would be diverted to rival diamond hubs in Dubai and Mumbai. If that happened Belgium could lose 10,000 jobs, AWDC reportedly claimed.

Alrosa currently sells about $2 billion of rough diamonds per annum directly to Antwerp based companies, and an even larger number of Russian sourced goods are traded in the Belgian diamond center every year.

According to media reports, Belgium‘s diamond industry umbrella organization, AWDC, has resisted EU sanctions against Russian diamond imports from Alrosa, saying that this would serve the interests of trading hubs in Dubai and India.

NOT A SERIAL OFFENDOR

Alrosa has never been considered a serial offender of human rights. On the contrary, the Russian company has played a key role in industry watchdog bodies, like the Responsible Jewellery Council (RJC) and the World Diamond Council, and stood at the forefront of worldwide effort to promote responsible sourcing policies.

But, through no fault of its own, the Russian diamond producer has found itself caught in the war’s crosshairs, largely because an about 33 percent share of the company is held by the Russian federal government, and the fact that its CEO’s father is a former Russian defense minister and a close advisor Russian President Vladimir Putin.

Critics have charged that, because of its shareholding in Alrosa, the Russian government is a funneling revenues from rough diamond sales into its military campaign in Ukraine. But its share of the diamond company’s net profit, which totaled $840 million in 2021, makes up a minuscule proportion of what the war is costing. According to the Centre for Economic Recovery, the total daily cost of the campaign for Russia is likely to exceed $20-25 billion, including logistics, personnel, equipment, as well as the fiscal pressure on the Russian economy, as a result of outside sanctions.

The same is not true for the government of Sakha (Yakutia), the vast but sparsely populated autonomous region where Alrosa mines most of its diamonds. With more than 40 percent of its landmass beyond the Arctic Circle and covering an area six times larger than France and ten times larger than Italy, it has less that 1 million inhabitants. It receives most of its budget income from diamond mining and sales in the form of taxes and dividends. Yakutia could be devastated by a protracted sanctions regime.

INDUSTRY ASSOCIATION STRUGGLES

One industry association which appears to be struggling in the current situation is the RJC, which monitors and certifies companies’ supply chain management according to a set Code of Practice.

In many respects, RJC owes its strength to a handful of large mining companies and luxury retailers, who require than clients and suppliers also obtain RJC membership in order that they be associated with them. Among the most prominent mining companies was Alrosa, which also held a spot on the RJC board of directors.

For the brand-conscious jewelry retailers, Alrosa’s continuing membership in RJC became increasingly embarrassing, even though the Russian mining company’s representative stepped down from the board of Directors on March 4, fewer than two weeks after the start of the invasion.

An Alrosa mine in the autonomous Republic of  Sakha (Yakutia). While the Russian federal government’s share of  the mining company’s revenues make up an insignificant share of its budget, it makes up the major share of income into the Yakut economy.

RJC found itself in an almost impossible situation. Since RJC was member in good standing and there was legal requirement that it suspend its membership, the Russian company’s name continued to appear on it membership list. It was a situation that eventually helped instigate the resignation of its executive director, and also of several of the most prominent retail jewelry companies as members.

On March 31, Alrosa itself agreed to suspend its RJC membership, but by then the damage had been done. It was another example of fallout from the crisis in the Ukraine.