Lets power ahead on beneficiation

Lets power ahead on beneficiation


Last week, the De Beers Group of Companies released financial results for the year ended December 2014. The Group declared over US$1.4 billion in earnings before interest and tax, a 36% increase in earnings when compared to the US$1 billion declared in 2013. The increase in earnings is attributable to growth in consumer demand in key markets.

The United States has seen economic recovery, China, despite the slowing of growth in its economy, also saw modest growth in consumer demand; and, finally, India which has seen a surge in consumer confidence after the new Modi administration was ushered in.

Full year diamond production has also increased by 5% to 32.6 million carats in 2014. 74% (24.2 million carats) of this production was contributed by Debswana Mines. That means 74% of the earnings come from Botswana diamonds. The 74% of De Beers diamond market share of 40% (according to 2014 data) can safely be said to derive from Botswana and its diamonds.

One can safely posit that De Beers needs Botswana to exist and maintain its market share.

Sight holders stick with De Beers for two reasons; they buy a box of diamonds for 20-30% less than they would buy in secondary markets, and for consistent availability of rough diamonds. And both of this Botswana contributes significantly towards and it gives De Beers comparative advantage. One can safely posit that De Beers needs Botswana to exist and maintain its market share. Maybe De Beers realized this much earlier and it responded by changing its corporate strategy in the early 2000s.

De Beers had been opposed to the idea of diamond beneficiation for producer countries until the early 2000s, under the tutelage of Gareth Penny, when they dramatically rolled out the ‘Supplier of Choice’ Strategy, a strategy which advocated for producer country diamond beneficiation. De Beers had been humbled by a dramatic loss of market share in the 1990s decade, from 90% in the 1990s to about 40% on the 2000s.

Government responded by drafting a diamond beneficiation policy which implementation started during NDP 10. It is the implementation of this policy that saw DTC migrate from London to Gaborone, and the resultant set up of cutting and polishing firms by De Beers sightholders because the policy dictated that a portion of Botswana’s rough diamonds be processed here. About 3200 jobs were created as a result.

A little over a decade into the beneficiation promises, last week, two such sight holder polishing firms closed shop sending over 500 employees, mostly Batswana, to hell. These employees will join 20% of their compatriots who are actively looking for the elusive jobs. These companies, I gather, prefer to polish and cut in Asia (India and China mainly) where it’s cheaper. Well, the bulk of what they process done in Asia and only a small proportion is processed here.

The sightholders bought into setting up in Botswana despite the relatively higher processing costs, because these were offset by the cheaper primary producer gems, and consistency of supply. They sightholders are somersaulting and we are yet to receive a formal statement from De Beers responding to the underhand tactics being employed by its sightholders. Meanwhile, over 800 000 Indians, a non-producer country, are at work on downstream diamond processing industries.

If their labour is cheaper than ours, how then do we explain thriving diamond processing industries in Belgium, Israel, and the United States.

If their labour is cheaper than ours, how then do we explain thriving diamond processing industries in Belgium, Israel, and the United States, where processing costs are higher than Botswana’s? Sometimes we do not see it when we have leverage. I acknowledge that we wasted time and opportunity in the 1980s to have beneficiated our diamonds. We have up to 2050, according to new Debswana projections, of diamonds at the current production rate. That’s 35 years.

Let’s invest whatever is necessary; capital, political will, ambition, and requisite infrastructure to beneficiate our diamonds in every way there is. Let’s build an industry that will process whatever diamond deposits we have remaining, and an industry that will exist healthily beyond our diamond extractive life span.

We may even decide to process only a portion of what we produce and stash away the rest into depositories to derive maximum value when diamond deposits are depleted globally. We only need to tell De Beers how we intend to roll going forward and I doubt they have any choice. BHP and Alrosa have broken the monopoly of De Beers, and I guess this is our time. And who said our partnership is limited only to De Beers?