Monday, August 10, 2020

Botswana betting on India and USA recovery

Botswana’s diamond dependent economy has pinned its hopes of recovery on developments in India and USA, two of the world’s most hard hit by coronavirus pandemic yet key markets for Botswana’s diamond exports. 

Marcus Te Haar, the managing director of Okavango Diamond Company (ODC), a government owned diamond company, this week revealed that the diamond industry is in its worst economic downturn, owing to disrupted supply chains caused by Covid-19 containment measures that has led to clogging up of the diamond pipeline. 

ODC was formed in 2012 after the Botswana government negotiated with global mining giant De Beers to sell 15 percent of Debswana’s rough diamonds to the state-owned diamond company. Te Haar said that diamond sales this year have been impacted by developments in India, a leading market for rough diamonds, and the United States (USA) which is the biggest market of jewellery. 

About 75 percent of ODC’s rough diamonds end up in India for polishing and manufacturing. The Asian country which is responsible for over 90 percent of rough diamond imports has recorded over 1 million confirmed cases of coronavirus, placing it  just behind USA and Brazil. India in late March imposed a nationwide lockdown, restricting movements and shuttering business activities.

“If we cannot access the Indian market it creates a huge bottleneck for us. ODC is no different, every single rough diamond seller in our part of the pipeline is feeling the same,” Te Haar said.

After around two and a half months of restricted business activities in India, diamond markets and factories resumed operations beginning of June. However, some parts of India had to shut down the factories after many diamond polishers tested positive in mid-June.  

The diamond industry in Surat, a major diamond cutting city in India, has been badly hit with over 600 diamond polishers testing positive till date. Mumbai, where most rough diamond buyers are based, has also recorded high number of infections. 

“Our customers are not inclined to buy our rough diamonds because they cannot process the materials that are in their factories. We have two other  problems in India. We have got a high level of diamond inventory, which is carried from 2019,” said Te Haar.

“The Indian manufacturing community as a whole have a self-imposed embargo on importation of rough diamonds. So, they collectively decided that they are not going to import diamonds from anywhere in the world.”

The second issue is the tax levied on online purchases of diamonds going  into India, which has impacted pricing, Ter Haar said, adding that until India opens up, companies like ODC and their competitors are in a tricky spot in what they can sell. 

The diamond industry value chain has also been affected further downstream as the largest market for polished diamonds is battling to fend off high number of Covid-19 infections. The USA has the world’s highest number of Covid-19 infections at over 3 million, with the outbreak affecting consumer sentiments in the world’s biggest economy.

“The USA is important as a retail destination for polished diamonds. The vast majority of diamonds are sold in the USA in the second half of the year. If there is any squeeze on the ability to sell polished diamonds in the USA it affects the entire value chain,” Te Haar said. 

Signet, which is the largest diamond retailer in the USA, is closing 380 stores this year, representing 12 percent of their retail footprint. Most of retailers are projecting 20 to 40 percent of diamond sales for 2020 retail year. 

“In my experience in the diamond industry, which is over a decade, I have never seen an impact which has been so severe and so sharp as this particular one,” he said. 

Te Haar added that the Covid-19 outbreak in late January reversed what appeared to a be a recovery in the diamond industry, which has been under pressure since 2017 due to high inventory of lower value rough diamonds. The disruptions caused by the Covid-19 containment measures have resulted in sharp declines of diamond prices, forcing diamond companies to postpone some of the planned sales. 

The ODC boss said they are exploring other avenues to sell internationally. The company usually holds ten rough diamond sales in Gaborone, with annual sales hitting over P5 billion. But with Gaborone currently closed off to foreign travellers, Te Haar says they are sending their products to Antwerp to see if there is any demand there. The city in Belgium is the only diamond centre in the world that is currently open but represents a small component of ODC’s customer base.

“We would rather sell than not at all. But it is not all bad news. We think the recovery is imminent. Two most important factors have to happen, India needs to open up and so does the USA,” Te Haar said. 

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