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Botswana claims its share
Nearly 50 years ago, when De Beers, run by the Oppenheimer family, made its first discovery of diamonds in Botswana, fed its own bottomline and led the country to economic glory, it probably did not realise that one day it may be pressured by the new found confidence of the Botswana government, who having understood the game, resisted the autocratic systems of De Beers and now seems to be holding the whip and pushing for more returns from diamonds and De Beers.
By: Diamond World News Service
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Oct 22 2012 11:42AM
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Reference: 7342  

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Caught in the vortex of this power play between the government and De Beers, are the diamantaires, the Sightholders of De Beers. In 2007, when De Beers invited its Sightholders to set up cutting and polishing factories in Botswana, it seemed like the pot of gold at the end of the rainbow. Five years and a bout of recession later, the pot of gold is as elusive and certain Sightholder companies have closed down or are planning to wind up.

All is not as hunky dory as it seems in Botswana and this is a story of the power play, politics and pressure tactics. A report on Botswana and its diamond industry by Aasha Gulrajani Swarup

Botswana has a dream, an ambitious vision. As the largest producer of diamonds, it also wants to be the only country in the world, home to all levels of the diamond pipeline – from exploration, mining, sorting, cutting and polishing to value addition through jewellery manufacturing.

Four Key Players :

There are four key players in Botswana, who can make this dream come true.

1. The Botswana government to frame policy, develop infrastructure and support the players.

2. De Beers, in a marriage of convenience with the Botswana government, has fallen in with the beneficiation plans of the government, after dragging its feet in initial resistance. Both the parties have a 50:50 partnership now in Debswana, which currently carries out diamond exploration, production and sorting activities in its four mines in Botswana.

Succintly explains Pranava Bhargava, Group General Manager, Shrenuj & Company Limited, “Botswana is the highest contributor to the De Beers kitty of diamonds with the highest share of larger roughs. The Botswana government realised its strength and pressed for better negotiations. De Beers could not afford to lose this market.”

3. The third player is the De Beers Sightholder, who has been brought in by De Beers to set up the cutting and polishing base and jewellery factories in Gaborone in line with the government demand.

4. And then Botswana – collectively the local people who will be actually trained to cut, polish and make jewellery. This may, well, be the weakest link now.

Diamonds A Priority: The Botswana government, realising the potential of development through its own mineral resources, has made the diamond industry a priority sector and pushed for beneficiation, or cutting and polishing of diamonds locally, thereby providing employment to its sparse population.

In 2007, President Festus Mogae, an economist from Oxford, UK, stated that Botswana wanted to be "no less" a centre for manufacturing than the big three - comparable to Antwerp, Ramat Gan and Mumbai. He knew the real wealth in diamonds lay not in the mining or the sale of rough, but in the beneficiation or cutting and polishing of diamonds.

De Beers Resist & Relent:
Although, De Beers initially resisted this, it fell in with the demands of Botswana. It probably realised that as the mineral wealth actually belonged to Botswana, other miners could also produce diamonds for Botswana alternately. But most importantly, it wanted to protect its bottom lines. Each year 30 million carats, or 6,000 kilograms of diamonds are exported from Botswana, representing a quarter of the world’s total annual diamond production.

“Botswana diamonds also provided two thirds of De Beers profit and until recently De Beers had actively blocked any attempts of beneficiation,” states the 2009 Southern African Development Committee (SADC) research report on Corporate Social Responsibility in the Diamond Mining Industry in Botswana, by the Benchmarks Foundation, South Africa.

In October 1997, then Botswana minister of Mineral, Energy and Water Affairs, David Magang had publicly attacked De Beers for failing to beneficiate diamonds in Botswana.

Government Twists Arm:
“In 2004, Botswana and De Beers experienced a spousal spat, with the Botswana government threatening not to renew De Beers mining licenses unless it beneficiated some diamonds locally,” states the SADC report. By 2005, De Beers and Anglo-American offered Botswana limited concessions and agreed to shift London-based Diamond Trading Company (DTC) operations to Botswana, creating some cutting and polishing capacity there. Today, however, De Beers is singing a different tune.

De Beers Falls In Line:
Informs Lynette Gould, Head of Media Relations, De Beers Group, “We support the government’s aims to create a sustainable downstream diamond industry in Botswana. In 2006, we formalised our approach and announced the establishment of DTC Botswana, the largest and most sophisticated sorting and valuing facility in the world. Also, DTC Botswana offers a proportion of rough diamonds for sale to local Sightholders with dedicated manufacturing operations in the country.”

De Beers Placates Government:
Around this time, to stay on the right side of the Botswana government, De Beers encouraged its Sightholders to set up cutting and polishing factories in Gaborone. It also announced its intention to make Botswana the hub of its diamond trade.

Many Sightholders lured by positive possibilities, invested millions of dollars in setting up capital intensive factories, purchase of state-of-the-art equipment and training a work force. But five years later, there are only 21 factories in Gaborone, limited employment, and the vision of Antwerp or Mumbai like operations, remains a distant dream.

Sightholders Distressed:
Discloses a disgruntled DTC Sightholders (on condition of anonymity), “DTC invited its clients to invest in Botswana, ensuring us a guaranteed supply of roughs for starting a polishing factory, which seemed like an attractive decision, as we suffered a shortage of roughs. We were told that there were 550 million dollars worth of goods to be given to 15 sightholders, who would set up factories in Botswana. We expected thus De Beers would provide each an average of 50 million dollars worth of roughs,” he adds, but it did not materialise.

Fishing in troubled waters:
“Setting up a factory was difficult but feasible as the local people were eager to learn. But Botswana is not organised, it has no equipment. We made capital investments in improved machinery. Four years later, supply of roughs is still an issue. There are no larger goods, labour charges are high, there is no efficiency and thus productivity is impacted. We have five expats, working mostly as supervisors and managers and we are finishing the goods ourselves. It’s not a profitable investment. It is a tight system, re-exports are difficult and we are unhappy. The DTC is tight fisted with supply, hiding behind rules and regulations. The kind of goods we get depends on historical, because we had taken smaller goods in the past, we cannot be given larger ones now. We are caught in the web of the system.”

Today, this company is reconsidering its decision and may probably withdraw from Botswana as other low-cost centres like India and China are more efficient.

Other Sightholders are also similarly placed but De Beers is not yielding. States Gould, “All DTC Slightholders are offered the rough diamonds at the same price. However, the application of sightholders with operations in Botswana, for supply and on-going performance throughout a contract period is assessed against criteria, which include a series of ‘beneficiation criteria’.

Happy Exception:
On the other hand, Shrenuj & Company Limited, an Indian company in Botswana started to make profits from the first year itself.
Informs Pranava Bhargava, Group General Manager, Shrenuj & Company Limited, “It made commercial sense to go to Botswana. In 2009, we acquired DDA, a distressed, Israeli company, which had cutting and polishing facilities in Botswana, but had bottomed out due to the ongoing recession. We took over the assets and upgraded facilities. We retained the trained work force. We had secured rough supply from DTC. We were profitable right from year one. Our secret was replicating our Indian operations in Botswana. We brought our best people from India to train the locals. We changed them to what we use in India. Profitability is a function of managing resources. Expats cost more on travel, housing, families and so on so we had to use the retrained local people as the workforce.”

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