Diamond prices are likely to fall by much bigger margins than originally thought, during the full swing of this year, as a result of structural problems in the pipe-line, an international diamond consultant, Chaim Even-Zohars has warned.

Zohars of Tacy Consultants of Israel, a company which also publishes Diamond Intelligence, Idexonline and Mazal Albracha magazines, told a four Cday mining conference in Cape Town that " diamond prices are likely to fall by between 59-to-63 percent during 2009" but indicated that the situation will ultimately recover.

"In the short term, outlook for the diamond industry is negative and the long term is positive," he said, adding that the industry will continue to be supported by women as they are their best friends.

He indicated that some of the problems are that no great mines had been discovered in the recent past. He said the diamond fabricated pipeline between the mines and the retails stores -- is being chocked by goods valued at between US $ 40 billion Cto - 50 billion, the large part of that coming from De Beer's restructuring process that took place some six years ago.

"A lot of inventory had been bought at high prices and could not be sold. In the 12 months to October this year, Tacy forecast US consumer demand for diamonds would drop 22% but less in Europe and Japan, giving an overall drop in global retail demand of 15%-20%. But with destocking, demand from the retail sector would fall 33%. That translated into a need for cuts in supply from producers of about $7billion. If that did not happen, prices would fall," he said.

His views make the diamond dependent countries like Botswana to shiver as it has already calculated revenue from the diamond sector to contract by as much as 50 percent during the year.

According to the Finance and Development Minister, Baledzi Gaolathe's budget speech, diamond sales revenue is expected to decline by about 50 percent as prices are estimated to decrease by 15 percent while production is expected to reduce by 35 percent opening a gap of close to 13 percent between the two views.

"The current global financial crisis has evolved into a widespread economic crisis, which has resulted in a sharp decline of private demand, especially in major industrial economies.

"This crisis continues to affect Botswana, mainly through lower mineral exports and hence reduction in government revenues. It is going to be crucial to find innovative ways of addressing our development needs within limited expected revenue. It is for this reason that a number of belt-tightening will be adopted for the 2009/10 financial year and beyond," Gaolathe has said in the national budget.

Botswana's economy relies heavily on diamonds and has managed to accrue huge foreign exchange reserves to the tune of P 72 billion -- as of last November -- that represents 28 months import cover.

The diamond industry, which accounts for 33 percent of the Gross Domestic Products C though mining only C has been under severe stress since the global financial crisis sparked by sub-prime mortgage lending started in the Unites States of America a country that consumes 50 percent of the world's diamond jewelry.

"Diamond production for 2008 was 32.6 million carats compared with 33.8 million carats in 2007. However, total sales volume for 2008 is estimated at 28.9 million carats which 17 percent lower than in 2007.

The collapse in commodity prices has already forced some of the junior miners such as DiamonEx to be rushed to the court, clamouring for voluntary judicial administration.

Further, Debswana, which is a 50/50 joint venture between De Beers and Botswana government, has suspended operations at Damtshaa mine and number 2 plant at Orapa mine.

Orapa Mine is the world's largest diamond mine. The move challenges Botswana's ambitious plan of being one of the world diamond centers as it is aggressively rolling out plans for downstream activities that include cutting and polishing and aggregation of all De Beers production.

Under the plan, DTC Botswana, a new company that started operating last year, was scheduled to sell diamonds worth US 370 million during its first year of operation and moving to US 550 million in the second year. But, Minerals, Energy and Water Affairs Minister, Ponatshego Kedikilwe, warned that meeting the target would be a 'big challenge'.

Further, the aggregation, which was traditionally done in London and which was expected to be moved to Gaborone, has been cancelled at least for this year C as De Beers is faced with tax issues in the United Kingdom.