Saturday, January 22, 2022

Beneficiation policies misguided ÔÇô De Beers

The language of a multinational’s annual report is natively clean, diplomatic and dry but on reading De Beers’ 2014 Diamond Insight Report, one detects a note of bitterness bubbling just under the surface. Where the company comes closest to bluntness is when it suggests that the beneficiation polices that countries like Botswana are pursuing are not “thoughtful” enough.

De Beers expresses grave concern that at a time that operating costs are defying all laws of gravity, producer countries like Botswana are pursuing policies that are not cost-effective. It says that “the development of a long-term sustainable cutting and polishing industry will require not only government intervention but also internationally competitive productivity levels.” The 90-page report harps on the productivity throughout, mentioning the word six times and in at least one instance, conflating it with “innovation.”

De Beers is a global operation and so the report crisscrosses the globe as it assesses the company’s fortunes. In Southern Africa, De Beers has mines in Botswana, Namibia and South Africa where of late, the governments have been aggressively agitating for and implementing beneficiation. The report says that the governments of these countries have been keen to ensure their countries expand along the value chain to sectors that create more jobs, such as cutting and polishing. The language is diplomatic but leaves no doubt that De Beers doesn’t think that beneficiation policies are being implemented in a “thoughtful” manner.

“At the same time as creating local jobs, beneficiation policies create a challenge. Lower worker productivity means that cutting costs are higher in Southern Africa than in countries such as India, and so the move towards local cutting increases costs and reduces the profit pool that can be shared between producers and governments,” says De Beers, adding in another part of the report that the long-term sustainability of the domestic diamond sector “will require investment in skills development and infrastructure as well as thoughtful regulation.”

On such basis, it recommends that all stakeholders must work together to maintain and strengthen the productivity and competitiveness of the sector.

The report illustrates with figures how “producer countries are gaining share on the back of government policy, despite higher costs than traditional manufacturing locations.” Where it cost a minimum of US$10 per carat to cut and polish a diamond in India last year, the cost was US$60 in Botswan.

Botswana has not had much success with its decades-long effort to foster a culture of productivity in its national workforce, both in the public and private sector. Once a taboo subject, the “laziness” of workers literally passed the dinner-table test a few years ago when a visiting Zimbabwean business leader who was officiating at a Botswana Confederation of Commerce, Industry and Manpower (BOCCIM) dinner brought it up in his speech. The former education minister and current ambassador to Japan, Jacob Nkate, was among the first politicians to bluntly speak about this laziness in public.

A University of Botswana study has proposed that “If the country is to achieve its lofty ideals of a diversified economy … and an educated and informed, tolerant and democratic country espoused by its vision document, then the public service must render service that is focused on the public.” The study also found that although the government has come up with a number of productivity intervention schemes, in general, those schemes “have missed their target.”

The 2014-15 Global Competitiveness Report of the World Economic Forum also scores Botswana’s productivity very low. In descending order it identifies “the most problematic factors for doing business” in Botswana as poor work ethic in the national labor force, inadequately educated workforce and inefficient government bureaucracy. It also found a tenuous link between pay and productivity, ranking the country 82 out of 144 countries in the survey sample.

De Beers would have reason to be worried about the level of investment in skills development in producer countries like Botswana where (in the language of the WEF report) educational productivity “presents another area of concern.” According to the report, “Education enrollment rates at all levels remain low by international standards, and the quality of the education system receives mediocre marks.”

A South African think tank called the Centre for Higher Education Transformation (CHET) has raised similar concerns. In one of its analyses, CHET found the ability of Botswana’s higher education systems to respond to the needs of the knowledge economy to be “poor” as it did their capacity/potential for research and innovation. It adjudged the linking of education and economic planning as well as acceptance of the knowledge economy approach across departments at the national level to be “ineffective”. As regards coordination structures, CHET found these to be “weak or unsystematic” and networks to be “more political than productive.”

De Beers is also conflating productivity with innovation, stating in one part of the report that “investment in operational innovation will be required to drive productivity.”

If the sort of operational innovation that De Beers has in mind is akin to that measured by the WEF, then Botswana faces a serious challenge. One of the worst performances for the country in the WEF report is in the innovation pillar. For “capacity for innovation” Botswana is ranked 106th, 118th for “quality of scientific research institutions”, 118th for “company spending on research and development (R&D)”, 105th for “university-industry collaboration in R&D” and 120th for “availability of scientists and engineers.”

This beneficiation that De Beers is not too happy about came into being beginning 2008 under the administration of Festus Mogae. While the former president is said to have been overly assertive with De Beers on this issue, he sought to downplay his role when he opened a Steinmetz diamond polishing facility in Gaborone in 2008, saying that the beneficiation happening in the country was a natural process of commerce.

“Due to shortages of rough diamonds, prices have been increasing, causing uncertainties in the rough markets and dependence on supply from the major producers, such as Botswana, Russia, Canada and Australia,” said Mogae, adding that as a result of the scarcity of rough supply, there was a shift from the traditional cutting and polishing centres of India and China to the current source of such commodity.

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