Wednesday, October 21, 2020

Botswana, DeBeers synergy attracting foreign investors

The past two years have seen a gradual acceptance at all levels of government, as well as the private sector, of the idea that Botswana is now not only the world’s biggest diamond supplier but also the key decision maker in the industry.

Certainly, it now controls its own destiny in what is a key industry for the country. Government officials say foreign investors have been knocking on the door since the changes began more than 18 months ago, with money pouring into Botswana’s undeveloped but fast-growing diamond manufacturing sector, as well as other sectors of the economy, such as electricity, construction and telecommunications.

Local residents in the capital, Gaborone, say real estate prices have shot up.

And it’s visible, too. Apart from the simple brick airport that typifies the tranquility entrenched in Botswana’s culture, where time has a different meaning, Gaborone’s face is changing rapidly with new shopping malls, restaurants, taxi services as well as a less attractive feature, crime.

Many of Gaborone’s roads are being upgraded or extended, while shimmering office buildings are rising alongside the modest residences and acacia trees.

Meanwhile, the government is seeking to consolidate its leading position in the global diamond industry with manufacturing as well as trading facilities. It is also encouraging foreign investment in research and development to help advance diamond cutting and polishing.

The renewal in 2004 of two 25-year mining leases for the Jwaneng and Orapa mines with De Beers saw Botswana insist on a greater share of the profits.
The margin of profit in the 50:50 joint venture with De Beers was increased from about 75 percent to 85 per cent after tax on the mining side.
In addition, the government has insisted that London’s Diamond Trading Company (DTC) effectively move to Gaborone next year.

Now that Botswana has its own DTC, it has also reduced the marketing margin to De Beers.
Although De Beers’ London-based DTC, which for decades controlled the international diamond market, still appears to be fighting tooth and nail to keep at least some supplies coming through London, De Beers is now an active supporter of Botswana’s new vision.

The man with the most important and potentially difficult task in Botswana’s diamond industry is Brian McDonald, who was recently appointed to transform DTC into a genuine Botswana-based joint venture between the government and De Beers.
His main tasks will be reviewing the sales system, pricing policy and establishing a skills transfer mechanism that takes into account the region’s aspirations, while ensuring a profitable business model.

McDonald, who was GM of the Botswana Diamond Valuation Company between 1990 and 1996 and also served as its deputy manager, appears well aware of the challenges he faces in the new job, with De Beers having to take a step back and a government with limited diamond skills stepping in its place. In his previous position as Executive Director responsible for sorting and purchasing at DTC in London, McDonald spent considerable time traveling between Botswana and London, preparing the ground and ensuring government backing for his appointment. This goal he seems to have achieved.

“As a start-up operation, Diamond Trading Company Botswana will face many challenges, least of which will be the MD’s ability to function in a new environment,” says Akolang Tombale, the permanent secretary in the Minerals, Energy and Water Resources ministry, giving a ringing endorsement of McDonald’s appointment.

“In selecting Brian, we were careful to ensure that the candidate has the requisite skills and experience to perform under these challenging conditions.”

One of McDonald’s immediate challenges is ensuring that a sufficient volume of diamonds for manufacturing is supplied locally, while making sure the new manufacturing operations ÔÇö all De Beers customers ÔÇö are sustainable.

A technocrat, more than the old-style De Beers diplomat, McDonald says clients will be judged on the basis of a profile that would primarily take into account the sustainability of their operation. “We prefer a step-by-step approach by those manufacturing in a new environment above those who applied for large volumes to meet new factory demands,” he says.

Other criteria include proper skills transfer, employment opportunities as well as supporting local social or health projects.

For the 16 players that have set up manufacturing operations in the country, the criteria are a 180┬║ turnaround from the criteria imposed by De Beers since launching its Supplier of Choice policy in 2000, which focused on alliances with jewellery brands, and heavy advertising, aimed at boosting consumer demand for diamonds.

The new approach of recognising the primacy of supporting local cutting rides a “coach and four” through De Beers’ original aims of its Supplier of Choice strategy that was based on complete objectivity when selecting sightholders irrespective of where the factory was situated.

Under the new structure, McDonald will be reporting to a board with equal representation by De Beers and the government, although the government appears to have a firm hand in influencing who sits on the board on behalf of De Beers.

With the government’s firm backing and obvious goodwill, McDonald is seen to be turning to a new page in a long history coloured by deep suspicion and distrust between the government and De Beers.
His job is to keep the relationship intact without derailing the ambitions of both parties, smoothing some of the inevitable differences in aspirations.

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