In a note published on the WFDB website, Paz says the diamond industry is resilient and will survive the global economic crisis.

Botswana, whose diamonds made up 65 percent of its exports in 2008, has sold few gems since November last year. Diamond revenues have hitherto given the country one of Africa's largest fiscal surpluses, but the market slump has resulted in an unusual budget deficit for 2009/10.

After five years of an average of 4.4 percent growth, experts now estimate Botswana's economy to contract by 5.2 percent through to this month and 6.2 percent in the 12 months after that, according to Moody's Investor Service.

The country's Aa3 credit rating, the highest in Africa, is under threat if the government fails to rein in expenditure. Already Moody's and Standard & Poor's have cut Botswana's foreign currency rating outlook from stable to negative.

But if a diamond market recovery is on the horizon, the countrys gloomy days will be shortened, giving respite to the government which has vowed not to cut social spending despite reduced revenues.

The world's biggest diamond miner, De Beers, also reported last April it had begun to see "signs of improvement" on the market, a trend it expected to continue for the rest of this year.

The diamond industry has been one of the worst affected by the global economic crisis, with demand for rough falling sharply since the fourth quarter of last year. Cutters, polishers and retailers responded to the financial crisis by conserving cash and reducing inventory levels, prompting diamond miners to cut production and close mines.

Meanwhile, Paz notes that it is important for the industry to consider how to conduct itself in a recovering market. "Times of upheaval, while clearly complicated, also present opportunities for positive change," he says. "This current crisis is no exception."

This was a "golden chance" for the industry to correct two standard operating procedures that have "placed a tremendous burden" on WFDB members and have had a "devastating effect" on profitability. Paz names these as memo sales and extension of inordinately lengthy payment terms with clients.While memo sales were not a new phenomenon, the industry had become too reliant on it, he explains. Further, rough producers demanded cash for what they sold to WFDB members while retail clients were given "generous" payment terms.

"Add to that the fact that the goods were supplied on memo, and you will realise that a year could pass before you actually (saw) a return on the investment you made when you purchased the rough diamond," he says, adding that WFDB members had become the jewellery sector's primary financier over the past two decades.

However, with the markets in turmoil, this has to change. "The burden of financing the diamond pipeline needs to be more evenly distributed," he notes. "Both the rough producers and the jewellery trade must play a more active role." (Additional reporting by Miningweekly)