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Round the Rugged Rock

By Charles Wyndham.

‘Round the rugged rock rode the brave robin’, is one of those old tongue twisters that goes with such others as ‘She saw sea shells on the sea shore’ or ‘Peter Piper picked a peck of pepper corns…’

All pretty fatuous but quite fun to try and for me inevitably fail, just like the business model of the doomed UK bank Northern Rock where a cross bench committee of Members of Parliament have castigated the authorities for allowing such an obviously flawed business model to have passed muster.

What is not surprising is the news that the business model was garbage but that it was so bad that any MP’s realised it was garbage.

So the news of the power cuts in South Africa comes as one of those unsurprising shocks, just as the Northern Rock debacle should have been and has been in hindsight.

As the government spokesperson in Botswana said they were expecting these cuts to happen next year not this year, and as a consequence no contingency planning is in place.

The Botswana government is relying on the agreements that the South Africans have signed. I am sure they are right, but I would not want to bet all my chips on that outcome.

The combination of South Africa and Botswana represents close to 40% world rough diamond production by value and around 30% in carats; so what happens in those two countries is significant and in particular what happens in Botswana the largest producer by value.

This power crisis presumably is not some short term blip but rather a very long headache; building the odd new nuclear reactor takes time, or I hope it does.

Forgetting any political fall out that may occur and such minor details as a probable (?) cancellation of the 2010 football world cup in South Africa and focusing just on our own little prosaic world of diamonds, this cannot be good news.

A view could be that this will add to the shortage and those that have the goods can look to a bonanza.

My take is somewhat different.

We have already entered a most uncomfortable world where I become increasingly surprised at the prices being paid for rough. The excitement level is too feverish in my opinion.

The situation reminds me when I phoned to book at the hotel I usually use in Johannesburg. As I went through the usual trauma of booking I asked what was the rate, more as an after thought as it has been around R2,500 for a long time and sometimes much less, if I am lucky.

I was told the rate was R4,600. After recovering from an immediate swoon I asked the lady to check what price I had paid only two months ago. She kindly confirmed it was R2,500.

No need to go on about this but to add that naturally I did not stay at that hotel, in fact I would recommend the Peech off Corlett Drive, where it is reassuring to pass several guards with curious looking weapons that look like portable gatling shot guns, or those Tommy guns used in all the Cagney movies, at every mini round about on the way to the hotel. I would avoid Valentines Day if I were you.

The point is that there comes a moment that even the dumbest punter simply switches off. This is not only due to the total price but also against a test of ‘reasonableness’.

This is more difficult to define but is rather like the hotel room.

If there is a known general inflationary increase so the user is expecting an increase and the actual increase is within ‘reasonable’ bounds of that number he is more than likely to accept it. However even if the total may not shock him if he knows the increase is way beyond what could be called normal he will probably simply walk away.

Increasingly, I am feeling that we are coming to that point.

Prices have simply shot up far too quickly which is not to say that they are not sustainable, I simply do not know, but what is ever clearer is that the rate of increase is unsustainable.

So this enforced further squeeze on availability that this power crisis looks to bring at a time of current concerns about shortages, must add fuel to rising rough prices.

The issue is going to be whether polished follows, because if it does not we will all be able to look back with the benefit of hindsight and see that crashing into the rugged rocks was inevitable.

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