OREANDA-NEWS. For the first time the diamond market faces the growing deficit of rough. The cause is not the well-known "diamond pipeline" issues, but a number of other reasons.

During the last decade no new large diamond deposits have been discovered, many of the existing ones are almost depleted. and the companies have to go underground. This makes the supply of rough diamonds scarce. According to a number of well -founded estimates, to the year by 2012 the demand for diamonds will reach USD 18 bln., whereas the supply will lag behind at just USD 9 bln. in current prices. Therefore, one may easily assume that the price for rough diamonds will soon rise to unprecedented level. This will shake the very foundation of the diamond market.

Let me point out some of the most recent principal tendencies and to put forward certain suggestions on how to cope with the crisis the industry is about to encounter. One of the tendencies to watch is the development of diamond cutting and polishing industry in the diamond-mining countries of Africa. Botswana, Namibia, Angola, South Africa and Democratic Republic of Congo contemplate setting up large cutting and polishing facilities that will consume rough diamonds in volumes equivalent to those being currently processed by traditional diamond processing centers – Israel, Belgium and India. This most recent tendency has some serious flaws. As Russia was the first of the diamond-mining countries to have created a cutting and polishing industry of its own over 45 years ago, it could be interesting for you to have a look back in our history.

For an outsider, the cutting business is not very complicated, and this napparent simplicity is always a good argument for politicians, administrators, journalists and general public in diamond-mining countries, who insist on developing of on-site processing facilities to create new jobs and boost tax revenue. The same argument had been used in Russia back in the 90-s of the last century and currently has quite a few supporters in Africa. However, this argument is false and the reality of the modern cutting and polishing business is that it operates at the very low margins.

As you may know, ALROSA set up a number of cutting and polishing facilities of its own that have been operating in the most favorable – in Russia – conditions for many years now. Today their operations clearly demonstrate that processing industry is and has always been an extremely poor instrument boosting state revenues with insignificant social effects. More than that- two of those factories were close to bankruptcy when I was appointed in February. As an example, may I draw your attention to the numbers of the Open-type Joint Stock Company "Almazniy Mir" ("Diamond World").

Annual profit received by the OJSC "Diamond World" from the cut diamonds' sales amounts to 2,06% of their full cost price. This is less than the interest rate in Russian banks and far below the annual inflation rate.

This is typical for Russian diamond processing factories. Therefore, the substantial cash flow, injected into the diamond processing industry, creates quite funny, if compared to any other sector of economy, tax base. In this respect, the diamond cutting industry is the last resort any government seeking to boost tax revenue and cut unemployment should turn to. One billion of US dollars invested into the cutting and polishing sector creates new jobs and generates taxes for a hundred million at best. This is 4 or 5 times less than, say, in construction industry. Low investment potential of the diamond cutting business, low profitability and high competition from traditional processing