Wednesday, February 24, 2021

Botswana faces synthetic diamonds threat

Failure by De Beers to assure Botswana Government that it would not enter synthetic gem quality market is posing a serious threat to the country’s diamond driven economy, a study conducted by the Botswana Institute for Development Policy Analysis (BIDP) has shown. The study titled, “synthetic gem quality diamonds and their potential impact on the Botswana economy,” found that “In the recognition of the 25 year mining agreement for Jwaneng as well as the marketing arrangement with De Beers, the Government of Botswana had sought assurance that De Beers would not enter the synthetic quality gem market. De Beers did not provide such assurance.”

The study states that in response to this in the suite of agreements signed between Botswana and De Beers, there was an agreement on synthetics which provided that in the event that De Beers enters the gem quality synthetic market De Beers will market these gems in a 75-25 percent joint venture with the Government of Botswana, While a joint venture with De Beers in the production of synthetic gem quality diamonds may mitigate a part of the loss that Botswana would suffer as a result of the widespread use of synthetics in the jewellery industry, this can not compensate for the loss that would result from the country’s loss of the economic rents in the mined diamond sector, the study says. “This is because mining of rare gem such as diamonds has traditionally brought significant rents whereas an industrial process which is readily replicable will in the long term drive only normal profits,” says the study.

The researchers, Roman Grynberg, Margaret Sengwaketse and Masedi Motswapong also found that an important secondary effect of the advent of gem quality synthesis is in regards to the policy of an optimal resource depletion of the remaining stock of diamonds in Botswana. By and large, Botswana has been pursuing a passive policy of supplying diamonds in accordance to demand as determined by De Beers.

“The advent of market penetration by synthetics decrease the potential for Botswana acting unilaterally or in conjunction with other supplies to limit production,” says the study. The researchers say if Botswana maintains a policy of supply of diamonds driven by demands, i.e. whatever is optimal for De Beers, then production is likely to go into decline at the end of the 2020s. “It is ambiguously in the interests of Botswana and all other mined diamond products to maintain the value of diamonds. However, in the absence of mandatory global standards to oblige all suppliers along the value chain to document that the diamonds traded are indeed mine diamonds, cannot be assured,” the researchers say. “It is in the long interest of Botswana and other mined diamond producers to demonstrate to the international community that mandatory international labelling standards are necessary to avoid fraud in international trade,” says the report. Botswana, the study says, is also the world’s most diamond dependent economy and a catastrophic decline in the price and profitability of the sector as a result of a loss of consumer confidence in the long term value of diamond as a store of value is a definite but unquantifiable risk.

“That risk is being increased by the industry through its use of synthetic annealment and enhancement techniques to increase the value of mined diamonds,” says the study. According to the study, in the long term only mandatory global standard that clearly differentiates mined from synthetic and enhanced diamonds can protect the commercial value of Botswana’s assets; however the international community is unlikely to support such a standard unless it can be demonstrated that there is fraud occurring, the researchers argue.

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