Donwald Pressly
The State Diamond Trader made a loss of R1.7 million in the financial year to March and it was anticipating a loss topping R10m for the 2014 financial year, the state-run organisation reported to MPs this week.
While MPs on the select committee on economic development, chaired by ANC MP Freddie Adams, were told that the organisation had funding of a R50m revolving credit facility from the Industrial Development Corporation, Cope MP Kennett Sinclair said the reports by the trader’s officials were concerning.
“Serious red flags need to be raised in terms of the sustainability and profitability of the public entity, which is supposed to be a catalyst for transformation and growth of the local diamond beneficiation industry,” Sinclair said.
It was reported that skills transfer through in-house training was a serious challenge, with only four trainees out of a target of 100 currently with the trader.
Although the net income was almost R13m for the financial year to March 2012, this dropped to a net loss of R1.7m in the latest year. The loss was posted after the cost of overheads climbed from R7.5m in 2012 to R11.7m in 2013. This is projected to soar to R19.3m in the year to March 2014.
Total actual sales dropped from R433m in 2012 to R278m in 2013 and this was expected to recover only partially to about R331m in 2014.
While the cost of goods sold dropped from R410m to R269m in this time, and is projected to rise to R321m, these figures indicated problems with the business model.
Another area of concern is the rise in projected interest expenses to R2m by the end of the financial year in March 2014, compared with R280 000 in 2012 and just R163 000 in 2013.
While in 2008 former president Thabo Mbeki’s administration emphasised that the trader would be centred in Kimberley, the capital of the traditional diamond mining industry, MPs were told by the trader’s officials – including chief executive Futhi Zikalala – that they had been lobbied extensively to locate it in Johannesburg. The officials said in all probability it would remain in Gauteng.
Sinclair, whose constituency is in Kimberley, said this made a mockery of the government’s stated policy of regional industrial decentralisation in favour of the smaller cities and rural areas.
The main aim of the State Diamond Trader is to promote the growth of the local diamond beneficiation industry through equitable access to rough diamonds and through research and necessary interventions, according to a document handed to the committee.
The organisation is eligible by law to purchase up to 10 percent of the run of mine production from all diamond producers operating mines in South Africa.