22. August 2010 12:49
The Tanzanian Government recently passed a law, as an extension of the Mining Act, banning the export of rough Tanzanite. The government hopes this will increase investment at home in cutting and polishing and bring back more revenue to the gemstone's home country.
Until the law was passed, the vast majority of Tanzanite was exported rough to countries such as India, where the processing was done. These processing countries earned most of the revenue from the sale of Tanzanite, whilst Tanzania earned only a small percentage. The government hopes the ban will encourage the growth of processing facilites in East Africa and also give a boost to miners. Mining provides direct employment for around 14,000 workers in Tanzania at present.
How does this affect you and your Tanzanite collection?
We realize that many of our clients have invested carefully and at length in their Tanzanite collections and some are concerned as to how this ban may affect their value.
It is difficult to predict exactly how the ban may play out in the market. What is certain is that the supply side of the economic equation will be affected. Tanzania does not have the ability to process anywhere near the volume of Tanzanite that was previously being processed abroad in the past few years. Hence, the likelihood of a substantial decrease of supply to the world market is high. If we are to follow traditional economic theory, when there is a significant decrease in supply and demand levels remain the same, price increases. Hence, there is a distinct possibility of an imminent price hike in the near future if these fundamentals prove to hold true.
However, an examination of the current state of the Tanzanite market as it stands now, throws up some curveballs for consideration. The above will only hold true if demand levels remain the same or even increase. In the current uncertainty gripping the world, there is no guarantee of that. Certainly in 2009, at the height of the "Great Recession," prices of medium grade Tanzanites almost halved as supply far outstripped demand. However, interestingly, prices of the finest 1% remained solid. The reason for this was simple, the supply of these very rare pieces was rock bottom - there are very few being produced. Hence a drop in demand did not affect the price as supply was so low and demand in the past few years has far outsripped supply. Secondly, more and more people, worried about the effects of inflation and large national fiscal deficits on their currencies, opted to buy tangible investments. Gold was the biggest beneficiary (the gold price is the highest it has been in decades). Tanzanite in the finest grades was another beneficiary. Many savvy investors chose to put a portion of their investable capital into carefully selected, very fine Tanzanites. This increase in specialist demand also had an impact on price.
The lesson from the last few years is clear and is applicable to this latest development. The ban on rough export will likely only really affect the price of the finest goods. Stocks of medium grades are still very high in India and other cutting centres and the ban will likely only marginally affect these goods. The rarest 1% however, will become even harder to find as the old channels of distribution close up. This will likely affect the price upwards, despite the prevailing soft market conditions.
How does this development affect Lapigems?
We have received many queries as to how a ban on Tanzanite rough will affect our operations, seeing as we are based in neighbouring Kenya. The answer is, to our advantage, We are not directly affected by the ban as Kenya is a member of the EAC - the East African Community which is much like the EU - free movement of goods, labor and capital. However, it does mean that competition at the mine level has decreased so we are better placed than ever to cherry pick the finest pieces from all Tanzanite production for the benefit of our worldwide cllentele.
Further Reading on this Topic
Bloomberg Report on the Ban
Lapigems Gem Company
News Service Report on the Ban