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. Last Updated: 07/27/2016

Government to Limit Diamond Imports From Africa

Though Russia mines about one quarter of the world's diamonds, the country has seen a sharp increase in imports of the gem from Africa leading to the government's decision last week to place more stringent standards on inflows.

Several domestic diamond cutting companies have imported eight shipments of diamonds since the beginning of this year, mostly from Tanzania and Guinea, the business daily Kommersant reported last week.

Prior to this year, only one small firm imported diamonds from Africa. But as domestic diamond refiners seek to diversify supply and lessen dependence on state-owned uncut diamond monopoly Alrosa, imports have grown.

In a response to this rise in imports from a troubled part of the world, Prime Minister Mikhail Kasyanov last week signed a decree ordering compulsory certification of imported diamonds. In doing so, Russia complies with the Kimberley process, an international agreement designed to prevent "blood diamonds" from entering the market. Revenues from selling such diamonds, mined in Africa's hot spots, are used to finance hostilities in these areas.

This year's eight shipments were small trial bundles carrying a price tag of less than $100,000, said Ararat Evoyan, vice president of the Russian Gem Producers Association, who added that the importers wished to remain anonymous, fearing retribution from Alrosa.

"It [the rise in imports] is a surprise for all of us," Evoyan said in a telephone interview. "But this [trend] is normal. This is the free market that we have wanted for so long."

As of 1997, Russia has permitted diamond imports, but it imposed regulations that were prohibitively complex, Evoyan said. President Vladimir Putin signed a trade liberalization decree last year simplifying the process.

Alrosa is the world's No. 2 producer of uncut diamonds, but domestic diamond cutters have been disloyal to the state-owned behemoth for two reasons, Evoyan said. For one, Alrosa exports much of what it mines, so domestic clients aren't always sure of stability of supply. The other reason is that domestic prices have risen to international levels, depriving Alrosa of its cost advantage, Evoyan said.

A spokesman for Alrosa, Valery Novikov, said prices have risen in part due to the harsh conditions of the Russian north, where most diamonds are mined. Air temperature there drops to minus 60 degrees Celsius in the winter, making transportation expensive because it relies heavily on planes.

Alrosa annually mines $1.6 billion dollars worth of uncut diamonds, selling one half of them to South African giant De Beers and the other half to Russian refiners, according to Vedomosti.