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Diamond Sector’s Role in Sustainable Development in Africa De Beers’ Top Brass Gareth Penny Addresses Council on Foreign Relations
De Beers’ Top Brass Gareth Penny Addresses Council on Foreign Relations
By: Diamond World News Service
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Jul 19 2008 12:45PM
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Washington June 10, 2008: It is an honor to be invited to share De Beers’ perspective on the role of business in helping to create a more prosperous Africa, and also to speak as a Guest of the Council on Foreign Relations. Through its continued attention to the African continent – both its struggles and its successes – the Council provides an invaluable resource for those of us who have a strong interest in seeing Africa develop in a successful and sustainable manner.

As an African myself, and also the CEO/Managing Director of a company whose past and future are inextricably linked to the continent, I am gratified by the recent focus of the international community on Africa. Dare I say, Africa has almost become fashionable—from international bodies like the G-8, all the way to the pages of Vanity Fair.

Today, however, I would like to focus on one part of the African story that perhaps is not receiving the attention it deserves. That is the role the private sector can and must play in addressing the challenge of poverty and building a more prosperous Africa in the decades ahead.

Africa Working : You can’t open a newspaper today without reading stories about the suffering too often found on the continent. While the challenges are indeed immense, there’s another side of the story – one we call, “Africa Working” – where Africans are not only lifting themselves out of poverty, but collectively lifting their nations to new levels of sustainable prosperity.

Consider the following : In 2007, African continental economic growth averaged 5.7 per cent, with the best performers closer to 7 per cent. Compare that with the dismal economic performance in Africa in the 1980s and 1990s, when growth hovered around 2 per cent, with negative growth in certain years. What’s more, last year’s growth was broad-based – 1 in 3 countries grew by more than 6 per cent.

Advent of Democracy : Twenty-five years ago there were only three democracies in Africa - Botswana, Senegal and Mauritius. Today, more than 40 African countries have held multi-party elections. And while they may not be perfect, the trend is clear to see. Good governance, the rule of law, independent judiciaries, a free press and a civil society sector growing in confidence are, despite some important exemptions, increasingly the norm, encouraging vital foreign capital investment and reducing dependency on overseas aid.

Positive Role of Diamond Producers : In the diamond producing arena, in particular, we have seen some truly remarkable changes, with presidential elections in the DRC (for the first time since independence), in Sierra Leone and in Liberia. De Beers was pleased – along with others in the industry – to assist in the re-establishment of Government Diamond Offices in both Sierra Leone and Liberia, despite our having no commercial presence in these countries. Both are now full-fledged members of the Kimberley Process, which aims to ensure ‘Conflict’ or “blood” diamonds never enter the legitimate diamond trade. We look forward to those countries benefiting fully from their membership of the diamond producing community. Angola, one of the most prospective diamond producing countries, has emerged from years of civil conflict and is now increasingly active on the world stage. We look forward to the forthcoming presidential and parliamentary elections there.

Models of Fiscal Prudence : Then, of course, there are the established southern African democracies – those countries where De Beers has its mining operations today: South Africa, the home of De Beers, which has seen such a tremendous transformation since 1994. Botswana and Namibia, where De Beers is privileged to work in joint ventures with the respective governments, are both models of fiscal prudence and sound resource management.

Optimistic Picture in Totality : So, taken together, these developments paint a rather more optimistic picture of Africa than may be apparent in the daily news, despite the challenges that remain ahead.

Creative Capitalism : Recently at Davos, Bill Gates issued an important challenge to the private sector. He called on the business community to engage in “creative capitalism,” which he explained as “a new system with a twin mission of making profits and improving lives.”

We at De Beers believe we have some relevant experience in this area and something to contribute to the debate.

Please allow me a few minutes to describe De Beers and the contribution we are making to “creative capitalism.”

We have been a successful Africa-based company for more than 120 years and we plan to be for a long time hence. The sort of joint company ownership we have established in a number of African countries has the dual benefit of ensuring that African citizens have a strong stake in the development of their mining sectors and an understanding of the business fundamentals, while also helping De Beers to gain better insight into national goals and aspirations, important to the long-term success of our business.

Historic Transformation : Much like the African continent itself, our company has evolved quite dramatically in recent years. In the late nineties, De Beers underwent an historic transformation, completely altering its business model. We shifted from a supply-controlled business to a demand-driven one. In addition, we have started to move from a centrally-controlled business to locally-led businesses in Africa, and around the world.

Joint Ventures : De Beers, with its joint venture partners, employs 21,000 staff worldwide. 19,000 of these employees are African citizens based in Africa. Our operating companies in Africa are all run by Africans. And our management teams and employees are overwhelmingly local citizens. What’s more, in the past ten years, we have moved many of our skilled diamond sorting and valuing jobs from London to Gaborone in Botswana, Johannesburg and Kimberley in South Africa, and Windhoek in Namibia.

Today, De Beers with its partners contributes more than US$4.6 billion to African economies each year. In some ways, diamonds represent one of the largest transfers of wealth, from the rich western consumer markets to developing African producer countries. To put that in perspective, for example, the diamond industry in Botswana accounts for 33 per cent of its gross domestic product and approximately 70 percent of the government revenue.

Selling Off Earlier Diamond Mines : In the past year, our business strategy has taken another important step, with the decision to focus on larger mining projects and prospects and sell off some of the smaller mines that no longer fit our portfolio. Mines in South Africa that drove the early growth of the company are now passing on to new ownership, providing an opportunity for junior mining houses and Black Economic Empowerment groups to enter the diamond mining market by acquiring some of the world’s most established diamond mines.

Eliminating ‘Conflict Diamonds’ : We are actively engaged in international and local initiatives designed to promote transparency and good government. We were a founding stakeholder in the Kimberley Process, which, as I mentioned earlier, aims to ensure ‘Conflict’ or “blood” diamonds never enter the legitimate diamond trade. In addition, we have joined with Partnership Africa Canada and Global Witness, among others, to found the Diamond Development Initiative, a regime that seeks to optimize the beneficial aspects of artisanal diamond mining and enhance its government regulation.

We also are a signatory to the ten principles of the UN Global Compact, and an active participant in the Extractive Industries Transparency Initiative.

Aim-Sustainability : So De Beers today is a transformed company, deeply engaged in “creative capitalism.” However, our transformation is not confined to our business practices—it is much broader in scope and ambition. It falls under the heading of what many call “sustainability.” That is a word with a lot of new currency behind it, but one which may lack precision.

So, let me describe what sustainability means to De Beers. For us, it might be easier to start with what sustainability is not. It is not a program “added-on”, siloed somewhere in a corporate social responsibility office. Nor does it apply only to certain parts of our business—like environmental practices—but not to others. Rather, it informs how we operate today and how we plan for the future.

Sustainability, for us, is at the core of our business strategy. In the diamond industry, in order to be viable in the long run, a business must deliver a sustainable contribution to the communities in which it operates. Let me elaborate :

High-risk Business : Diamond mining, as De Beers does it, is a high-risk business, demanding large amounts of upfront capital and long-term horizons. Once a diamond deposit is located, it can take up to US$1 billion and a decade before any diamonds are recovered and another decade to see a return on our investment. In order for our mines to function effectively and profitably for generations, we need operating environments that provide stability – in employment, health, governance and infrastructure.

Our business is strengthened by diversified economies in flourishing communities. The diamond industry must be a catalyst for further economic development in the countries where we operate. In an effort to encourage this type of growth, De Beers sponsors initiatives like Peo in Botswana, which invests in small and medium-sized citizen-owned businesses in a variety of industries – everything from restaurants and automotive repair shops to a forensic science lab. We do this because we understand the important role these enterprises play in spurring economic growth and prosperity in the communities where we operate. We call this the “diamond economic flywheel” and we do it because it makes good business sense.

Resource Nation : Increasingly, too, African countries are seeking to take a more extensive role in managing their own resources – a sort of Resource Nationalism, if you will. We understand that effective management of a country’s resources is an essential part of building a more prosperous Africa. We have embraced that desire by establishing joint venture partnerships with the countries where we operate.

Informal Shareholders : In places like Botswana, for example, where, through a company called Debswana, we have a 50/50 partnership with government, 82 cents of every dollar earned from diamond mining stays in-country. That directly translates into funding spent on health care, fighting AIDS, education, and infrastructure development. In addition, the Government of Botswana, and thereby its people, are one of De Beers’ shareholders, with a 15 per cent direct stake in the ownership of our entire company.

Turning national resources into shared national assets requires more than just ownership of the assets. In our operations we face major challenges, which need constant focus.

Health Challenge : We work primarily in southern Africa, where pre-natal health care is woefully lacking, where literacy rates are low, and where more than 46 million children are not in school. Three-quarters of the world’s AIDS deaths occur in southern Africa, and the prevalence of HIV/AIDS among staff and their families is a huge challenge to the sustainability of all businesses in the region. For this reason, De Beers was the first mining company in South Africa to offer free ART to HIV positive employees and spouses in 2001.

In the past year, more than 80 per cent of our employees and their families have participated in the voluntary counselling and testing programs we offer. We are working with a number of local and international organizations to continue to manage the risk of infection and improve the quality of life for those living with HIV/AIDS in the communities where we operate.

Investment in Training : Another way we confront Africa’s challenges is to invest in the further education and skills-training of our employees. Substantial amounts are allocated each year to training in engineering, geology, metallurgy and related areas. Our Women in Mining Program serves as a resource for women in technology disciplines to pursue additional training courses at the Da Vinci Institute of Technology in South Africa.

So to be a viable business in Africa, we need a healthy, educated, skilled and motivated work force, as well as good governance and stability. Thus, our ability to train and hire local citizens; provide proactive health care; encourage economic growth, diversification and skills-transfer; and preserve our working environment contributes to a more stable and prosperous state. This, in turn, protects and maximizes our investment. To put it another way, our sustainability model, at its core, is driven by a belief that creating wealth and sharing it can be inextricably linked.

Our commitment to sustainability doesn’t end with our mines. And so I now want to turn to what we call “beneficiation” in the countries in which we work. In more familiar English, this means that we are helping to ensure that more of the value addition that occurs after a diamond is mined-activities like sorting, cutting and polishing - remains in-country.

New Sorting Facility Providing Jobs: The most spectacular example of this, of which we are particularly proud, is the opening in March 2008 of the DTC Botswana, an US$83 million state-of-the-art diamond sorting facility in Botswana’s capital – the most sophisticated facility of its type in the world and one that will bring more than 3,000 highly-skilled, well-paying jobs to Botswana, an in-sourcing which accounts for a 30 per cent increase in diamond industry jobs in Botswana and a 10 per cent increase in the country’s total number of manufacturing jobs.

Influx of Other Related Jobs : Our investment in Botswana is bringing other businesses and jobs in downstream industries to the region. In fact, for every 1 job De Beers or its associate companies, such as Debswana or DTC Botswana create, another 5 are created in related industries like diamond cutting and polishing, as well as in financial, security, technology and logistics services.

And that has a lasting impact on the economy and the people of Botswana. To further encourage job growth, DTC Botswana offers customers additional supply of rough diamonds for factories they open. This is incentive for our customers to move their diamond-finishing operations – and the thousands of skilled jobs they create – to Africa. This year alone, DTC Botswana clients have opened 16 diamond cutting and polishing facilities in Botswana to meet the downstream demand created by our DTC facility.

We believe this facility represents the future—where national resources can fuel the growth of a strong middle and entrepreneurial class, which in turn becomes the new bedrock of national prosperity.

De Beers’ approach to sustainability is a good example of “Africa Working”: working to ensure that there are African employees at all levels of our company, including senior management; working to ensure revenues contribute to sustainable development, poverty reduction and good, stable, and transparent governance; and working to build a new class of ownership in Africa, where people have access to what you in the States call “the American Dream” – a good job, health care, a safe place to live and work, education for your children, security in retirement.

African Dream : Well, that is the “African Dream” as well – and it is becoming true in more parts of our continent than you may realize.

The results of this ownership society are profound in the countries where it is taking root. They offer hope in those societies still struggling with the legacy of poor governance, war, disease and poverty. As the New York Times columnist Tom Friedman once wrote, “Nobody ever washed a rented car.” Ownership creates stable, prosperous societies. And that is what our sustainability model is helping to do.

Model for Others : We don’t claim to have all the answers, but we do have some insights. We are hopeful that by sharing what we have learned along the way, we might serve as a model for others seeking to do business in Africa - a model we can all build upon as the world community continues to debate how best to encourage sustainable economic development in Africa.

So, if I am to sum up my thoughts. I believe passionately that the private sector is not just helpful but is an essential ingredient, together with good governance and the rule of law, to the building of a prosperous Africa. But it’s not just doing business that will make the difference, but how you do business that is the key.

So we have focused today on examples of Africa Working, on creative capitalism, on transformation and on value addition to natural resources.

Principal Insights : This assessment leads to our 8 principal insights for the role of business in Africa : 1. Form strong partnerships with Government so you both learn what it takes to succeed for business and for the country as a whole. 2. Commit to building a citizen-run organization, developing skills at the managerial level. 3. Help small citizen companies develop by outsourcing your supply chain. 4. Look to shift skilled value-adding jobs to Africa. 5. Play an active role in leading the fight against HIV/AIDS and in supporting education. It’s key to your bus 6. iness and your communities’ long-term success. 7. When it comes to climate change, energy conservation is necessary, of course, but focus on the impact of climate change on Africa – in our case, this is about water – or the lack of it – in our operating areas. 8. Support international efforts to eliminate corruption and support good governance which will multiply the positive impact of business ten-fold. 9. Of course, to share the wealth in a sustainable manner, you have to first create it. But for business the “how” you create it can make a big difference when it comes to making it sustainable.

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