In return, De Beers was given a 10-year agreement, instead of the five-year deals, which had always been the case in prior agreements. Despite the huge challenges, by the end of last year, Botswana held its first Sight. Given the enormous problems associated with the move, it seemed unlikely to some industry members and observers in late 2011 that the transplantation of the diamond operations could be carried out in such a brief period. Beyond the issue of moving DTC operations to Botswana and making the experience a smooth and agreeable one for Sightholders, some industry observers asked whether Botswana could have a long-term future as a diamond polishing center and diamond jewellery making hub given that its diamond mines are due to be depleted in a decade or so.
Practical Considerations
Some asked how Botswana would have trained and skilled sorters in place. Meanwhile, there were issues of practical concern for many Sightholders, including visa requirements, and long travel times since there are no direct flights, meaning they have to fly via Johannesburg, and then catch a 40-minute flight to Gaborone.
Meanwhile, Gaborone could obviously not provide the kind of benefits that London has, including tourism, hotels, restaurants, shopping and cafes. Many people wondered if Botswana's hotels and restaurants would be good enough.
There were also fears regarding roads and infrastructure, water quality, power supply, and Internet service, security and other Sightholder facilities such as food for religious Jews and Jain.
However, Botswana managed to hold the first Sight ahead of schedule last November and Sightholders found the facilities to be just fine. In addition, Sightholders have found that Sight week has been chosen by Okavango Diamond Company as the week when it offers its diamonds for sale and Petra Diamonds and Trans Hex have also coordinated their diamond tenders to fall at the same time. This has allowed diamond companies to kill a number of birds with one stone during their visits to Gaborone.
There are teething issues still to be resolved, admit De Beers Resident Director in Botswana, Reo Moroka, and Paul Rowley, De Beers' Executive vice president of global Sightholder sales.
The country has targets, including the possibility of direct flights. But the Botswana government is fully committed to ensuring that Sightholders and other diamond industry members have a soft landing.
Botswana Making Progress
Kago Mmopi, DTC Botswana's Communication and Corporate Affairs Manager, says the company has made exceptional progress in the six years it has been operating. The firm supplies stones to De Beers Global Sightholder Sales and to Okavango Diamond Company and to local polishers – the 21 DTC Botswana Sightholders.
The company has 430 employees who are citizens of Botswana and 60 per cent of them are sorters and valuers. "There were many doubters as to whether this could work. Would the airport be of a high enough standard? What about the hotels, restaurants, and transportation? But I believe we have seen a seamless transition. It has far exceeded expectations," he commented.
Neo Moroka, De Beers’ Resident Director in Gaborone and Chairman of De Beers Global Sightholder Sales, echoed those comments. He said that Sightholders were "pleasantly surprised" by the smooth transition of Sights to Botswana. "Sightholders said everything was better than expected: that includes airport customs, modern and secure facilities, hotels and restaurants, Internet and much else."
Mmopi added, "We have defied the skeptics. We have shown that we have the ability to be world class. The relevant ministry is hoping to sign agreements with airlines for direct flights. Let us remember that Botswana can provide visitors with tourism facilities that you won't see in London. It is important that people see the larger picture."
As for Moroka, whose main job is ensuring that De Beers and the Botswana government see eye-to-eye, he says he is the first stop in dealing with hiccups. He was a member of a steering committee with government representatives on the transfer of DTC operations to Gaborone. He says the government has proved its commitment to turning Botswana into a global diamond center. Furthermore, Botswana has more justification for becoming such a center based on its huge diamond production, certainly, he says, more than Antwerp and India, which "do not even have any diamond mines". Moroka estimates that the process of beneficiation would take time to further develop, and that further downstream activities such as jewellery manufacturing were definitely viable.
The Challenge for Botswana
Mmopi puts the scale of the challenge that the country faced into perspective. De Beers Global Sightholder Sales recruited locally, with more than half being Botswana nationals. "The local polishers had to be trained because they did not come from polishing factories where they already knew the industry inside out. So they had to be trained from scratch. But they learned really quickly, and the operations are running really smoothly. There are 21 polishing factories with 3,500 employees in total. They are producing goods that are similar to what is being produced in the rest of the world.”
He further added, "Beneficiation in Botswana is developing very well and we believe the government will realise its dream of becoming a global diamond center. The Indian firm Shrenuj has already established a diamond jewellery manufacturing facility here and it is working well. We are creating a critical mass. In 10-15 years, we may be the biggest diamond jewellery centers in the world. Even when diamonds run out in 2025-2030, we will be a service center for the rest of the world as a cutting center.”
Moroka says Botswana is an attractive place to do business because of the rule of law, and checks and balances between the president, parliament and the courts. The government's aim is to continue to create the right environment for the private sector to do business, he says.
The Okavango Diamond Company
One of the most interesting elements of the 10-year sales agreement between De Beers and the government of Botswana signed in 2011 was the establishment of new company to sell part of the diamond production of Debswana. Called Okavango Diamond Company (ODC), it is, essentially, Botswana’s own rough diamond sales channel and aims to help develop the country’s diamond industry. Established in 2012, in 2016, the firm will sell 15 per cent of Debswana’s output annually.
The ODC’s stated objective is to create a sustainable route to market for some of Botswana’s diamonds and to help turn the state into a major rough sourcing market. ODC’s sales are expected to be more than $400 million annually, making it a large supplier of rough diamonds to the industry and the largest source of purely Botswana diamonds to the global diamond market. The firm's Managing Director is Toby Frears who is a diamond industry veteran with more than two decades of experience at De Beers, including the last few years during which he created the sales operation at DTC Botswana Frears said he could not turn down the opportunity to create a new diamond supply operation established with the aim of giving the government the ability to mould Botswana’s diamond trade. “This is the next chapter in Botswana’s remarkable diamond story.”
Frears describes the general response to the buying experience in Botswana as being overwhelmingly positive. Among the critical issues that have been rapidly dealt with are: multiple entry visas, which are now being processed within a day or two; new hotels opening over the past year, providing a range of comfortable and quality accommodation; two new companies operating daily flights between Johannesburg and Gaborone during the busy diamond weeks in addition to the regular flights; and the local government diamond office taking on new resources meaning exports have been taking as little as two days to process, as long as payment in taken care of quickly.
ODC Auction Strategy
The ODC holds Spot auctions 10 times a year open to local and international firms. The diamonds are sold in a single online auction event following viewings that take place over a two-week period at the firm's specially built offices in Gaborone. “The firm runs what an ‘ascending clock auction’, which takes place over several rounds and is designed to give bidders valuable market feedback during the course of the auction that allows them to make informed bidding decisions as price and demand evolve from one round to the next. The auction has the flexibility to allow customers to participate round by round or to submit single bids and take no further part, depending on their preferences.”
Bidders must bid a specified minimum price for any particular lot in order to progress to the next round. At the end of each round, customers are told the total number of bids that have been placed for each sales lot. Prices increase from one round to the next and when the end of round price of a sales lot is higher than a bidder’s valuation, they can bid their own final price for that lot. The winning bidder is the bidder who has offered the highest price for a lot, but they only pay the price of the next highest bidder for that lot, in other words, the highest losing bid. “We think this is a fair way of establishing market value for both parties. We publish the selling prices of every sales lot to our registered customer base immediately after each sale.”
Frears said the firm's focus this year will be on refining its core systems and some form of contract supply alongside its spot auction sales. We’re now starting to turn our attention towards developing the right contract sales model for our business and our customers. We need to look at our future supply to understand the ranges and volumes of goods we’ll have available, without compromising our spot auction sales, and engaging with our customers to better understand their needs and requirements.
"Until we have carried out this work and looked at different models, we remain open-minded about when the contracts will be introduced, how they will be structured, how they will be priced and how they will be assigned. What we can say is that when we do introduce supply contracts, it will be done in an open, transparent and competitive manner. We expect to be in a position to provide the market with further detail later in the year,” he informed.
The ODC currently has more than 150 registered customers taking part in its sales. Frears said that any legitimate company active in the diamond supply chain could apply to become a customer and go through the firm’s registration process. ODC acquires Debswana run-of-mine production, which is sorted by DTC Botswana according to ODC’s own requirements and quality assured by its technical team before delivery to the ODC's offices.
“We place great emphasis on building trust with our customers and responding to their needs and I believe that this is reflected in what we offer and the services we provide. We have been conducting an online survey since our first sale and the feedback from this and other sources has been overwhelmingly positive. It relates to our selling assortments, the consistency of our presentation month on month, the design of our online auction, and our facility here in Botswana and the services we provide. Perhaps most importantly, customers have said that they value the transparency of ODC,” he concludes.
Rowley Takes Over From Varda Shine
Less well known to many in the global diamond industry than his predecessor Varda Shine who was often in the spotlight, Paul Rowley, Executive Vice President Global Sightholder Sales, replaced Shine who left De Beers after 30 years with the company at the end of January.
He was previously the senior vice president of midstream operations for global Sightholder sales. He has wide-ranging experience with the company, having joined De Beers in 1983 and several senior positions. He has served on both the DTC Botswana and Namibia DTC boards, and was acting CEO of DTC Botswana before being appointed to replace Shine
His previous positions include key account management, rough diamond purchasing in various African diamond producing countries and heading the global Sightholder sales diamond division.
“I have been fortunate enough to have worked all over southern Africa, forming strong relationships with our government partners and to have built up decades of experience with rough diamonds. It will be a privilege to work more closely with our Sightholders, who are among the world’s leading diamantaires and I look forward to starting a new chapter for global Sightholder sales in Botswana,” said Rowley.
He first visited Botswana for work in 1987, and says the changes since that time are incomparable. Rowley says that Sightholders have been pleased with the first few Sights in Botswana. He attributes that to an exceptionally high level by all sides. “By the time of the first Sight, last November, many problematic issues had been ironed out,” he informs.
The 10-year sales agreement signed by De Beers and the Botswana government in 2011 symbolises that long-term partnership in every part of their operations. “Let's remember that 60 per cent of our diamonds come from Botswana, and that we received a 10-year agreement that provides our clients with a great deal of consistency and continuity.”
On the issue of rising prices of rough goods, Rowley explained that the firm continuously tracks the prices of rough and polished stones to ensure the miner is demanding the right price for goods. “When we sell the rough, we are aware that there is a delay of several months before it is turned into polished so we have to take that into account in our rough sales price,” he states.
He commented there will be a new client selection method in 2015. “Instead of many questionnaires, we will be looking at how a client is demonstrating demand. There will be greater flexibility from our side. We want to move goods to where customers need them and that is where consumers are located,” he concludes.
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