Monday, October 3, 2011

New agreement to catapult Botswana into global player

The agreement between the Botswana Government and De Beers specifying that the world’s biggest and oldest diamond company is moving its rough diamond sorting and trading division, better known as the Diamond Trading Company (DTC) from London to Gaborone, is one of the most important developments in the diamond industry in many years.

The agreement effective as of January 1, 2011, is the longest sales contract ever concluded between the two partners and is in the words of the Botswana Minister of Mines ”a major step in securing the future of Botswana’s economy”.

Described as a major achievement for not only Botswana, but also Africa, it is to be expected that not everyone will agree, especially those who are asking for and promising assistance to bring about a regime change in Botswana.

It would be no surprise if those same voices will put this agreement down as a calculated ploy by the “imperialists” and “neo-colonialists” to increase their stranglehold on Botswana to carry on stealing and plundering the continent’s natural riches.

It is however not the purpose of this article to try and second guess the most likely response of some firebrands and the uninformed but rather to get some insight in this development that can still have far-reaching consequences in more than one respect.

Strong relationship

Botswana is the world’s leading producer of diamonds. Its relationship with De Beers is strong and goes back many years. Forty-four years to be exact and it is easy to understand why.

Since geologists from De Beers discovered promising diamond deposits in Botswana in 1967 it grew into a major operation where Botswana today accounts for 67% of the total De Beers diamond output, which in turn constitutes 2% of global diamond output.

The decision to move the DTC from its London office to Gaborone by 2013 will bring to an end a 100-year tradition of sending Africa’s diamonds to London for further processing.

The DTC, which stores all De Beers' unpolished diamonds in its London vaults, will move its entire operation to Botswana and with it all De Beers' sales to sight-holders (buyers) which will in future take place in Gaborone instead of London.

In 2010 the value of these sales was $5.08 billion and the DTC made an operating profit of $478 million.

Long-cherished goal

The agreement signed between the Botswana Government and De Beers contains more than just the move of the DTC to Gaborone but is also set to make Botswana a leading seller of rough diamonds. It allows Botswana the right to an independent price and market verification system, overriding De Beers’ prerogative to determine the direction of diamond prices by stockpiling and regulating the sale of the precious stones.

For Botswana this is the culmination of a long-cherished goal.

Not satisfied with only remaining a producer of high-quality diamonds but eager to become a recognised global player in the lucrative diamond industry, the Botswana Minister of Mines said that the agreement and its consequences will enable Botswana to achieve its long-held aspirations to become a major diamond centre engaged in all aspects of the business and transform Gaborone into the Antwerp of Africa.

The agreement allows Debswana, the local diamond mining company in Botswana owned by De Beers and the Botswana Government in equal partnership, to increase its current 10% ownership of the annual Botswana diamond output to 15% over five years.

Under the agreement, diamonds produced by Debswana will be aggregated in Gaborone with those from De Beers’ other mines in South Africa, Namibia and Canada to be sold at regular auctions in Gaborone by DTC Botswana to De Beers’ clients.

Botswana expects the agreement to result in the value of its diamond trading topping $ 6 billion.

Socio-economic improvement

The Botswana Government’s vision is for the move from London to Gaborone to stimulate downstream activities and the establishment of a production chain from mining the most precious stones through the cutting and polishing process to the final most exquisite jewellery products.

For this purpose the groundwork has already been done with the development of the impressive Diamond Technology Park in Gaborone which, in response to the agreement, embarked on an expansion drive to accommodate the expected rising demand for office space.

The Botswana Government expressed confidence that growing unemployment can be restricted by new jobs that will be created and the revenue released will allow government to develop the socio-economic situation in Botswana and help to empower the country’s citizens.

Vitally important

The success of this arrangement with De Beers is vital for Botswana’s future. The country remains highly dependent on diamond mining with about 80% of export earnings, 40% of government revenue, and approximately one-third of gross domestic product (GDP) coming from diamonds. Botswana’s diamond mineswill not last for ever and developing related industries is important to ensure that Botswana has a lasting diamond industry to supply an alternative revenue stream in the long run.

Botswana has been working towards this agreement for a long time and now that it has been signed after long and extensive negotiations, it is up to the relevant Botswana authorities to prove that it is capable of competing globally in a highly competitive and closely guarded industry.

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