Hamid Ansari probably didn’t give it much thought. When journalist quizzed him on his visit to Botswana, the Indian Vice President did what comes naturally to visiting politicians: waxed eloquent about the mutual interests his country shares with the host country ÔÇô diamonds.
Indications, however, are that there is going to be lots of tears before Botswana, De Beers and India’s bed time. Journalists interviewing the Indian vice president read a brewing storm into his answers. That Ansari’s visit is going to shake the already troubled relationship between Botswana and De Beers.
As it turns out, no visit by an international politician has ever concentrated so many questions about the future of Botswana’s relationship with De Beers as that of Ansari.
Even in the shock dulled world of diamond mining and trading, stories suggesting that Botswana’s relationship with De Beers is entering a difficult patch would make many industry watchers sit and pay attention.
The longstanding intimate relationship between Botswana and De Beers has been the subject of many complimentary similes such as” family” and “Siamese twins” and has for many years been a nod of public relations niceties. But it was not long before Botswana’s national concerns began to press in.
By the turn of the century, the Siamese twinsque relationship had become a lightning rod of controversy as the private press and citizen beneficiation champions started demanding a better deal for Batswana. Many letters to the editor and stories later, Botswana now seeks to secure a more independent role in the diamond industry. Botswana’s relationship with De Beers seems on the verge of changing, forty years after the pair first forged their partnership.
Indian journalists accompanying their Vice President on the visit reported this week that, “ In what may provide competition to De Beers, the world’s largest diamond miner and trader, India plans to sign an agreement with Botswana to directly buy uncut diamonds for its diamond cutting and finishing industry.”
Hamid Ansari who arrived in Botswana yesterday (Saturday) was quoted by the Indian media as saying, “this is of direct interest to us, as we have a large and prosperous diamond cutting industry in Gujarat. As more and more countries are discovering, direct dealing between seller and buyer is better than the indirect dealing through a monopoly organization in London.”
As recent reports suggesting a troubled relationship between Botswana and De Beers go, Ansari’s statements are not the biggest deal around.
Former Coordinator of the Botswana Diamond Hub project, Dr. Akolang Tombale told the World Federation of Diamond Bourses (WFDB) meeting in Antwerp last November that: “We cannot entrust our national survival on people who, when it makes business sense, can switch their interest any time and do something else that suits them at the time,” he said. “It is simply too important for us to abdicate our responsibility or leave anything to chance.”
He further stated that, “We don’t want to be left at the end of the day without any diamonds when mining ends, so we are trying to build an industry that goes beyond producing. That’s an objective far bigger than the relationship with De Beers. It’s a matter of our survival.”
Tombale stressed that the time had come for Botswana to take the next step in building the diamond hub by encouraging third-party trading within the country. He explained in an interview with Rapaport News that the motivation for establishing a diamond-trading platform in Botswana is two-fold.
“The idea is to have a window that we can take some part of our production and market it through the platform,” Tombale said. “Secondly, we need to encourage people who are marketing and trading secondary diamonds to set up some of their operations in Botswana.”
Botswana’s fate is currently intrinsically tied to De Beers. The two have joint-venture agreements as equal owners of Debswana Mining Company and the marketing company Diamond Trading Company Botswana (DTCB). The Botswana government also has a 15 percent stake in De Beers.
It is feared that the creation of a trading platform in the country may cause a break in the relationship, although Tombale stressed that this would not spell the end of the Botswana-De Beers relationship. Rather, “moving forward, not all of Debswana’s production will be sold through DTCB,” he explained.
As an alternative, the country is planning to host rough diamond tenders of stones from Debswana mines and other new mines that are expected to come on line in the future and to create a facility for third parties to host tenders. This may deal a blow to the De Beers “cartel” format and may not sit well with the diamond mining and trading giant.
Tombale said he hoped the new diamond-trading platform would be in place by the end of 2010, allowing others to trade in the country, while the independent marketing of Botswana diamonds “will come a bit later, probably in 2011.”
He argued that introducing the tender system for selling Botswana’s diamonds would enable some price discovery for the rest of Debswana’s production. “The hope is that Debswana and De Beers and DTC will be able to use the tool to monitor their prices as well,” he said.
While De Beers tenders through its Diamdel subsidiary, it has avoided the format for the majority of its production, opting to sell its diamonds through long-term agreements with sightholders.
Tombale, however, maintained that the Botswana tenders should not work against the De Beers format, but rather complement it, though he added that he believes the market will continue to move further away from the “cartel mentality,” whereby “we all need to learn that there is no longer one individual that sets the price benchmark.”
In making this statement, Tombale lent his voice to the tender versus sightholder system debate that surfaced at the Antwerp Diamond Symposium, which preceded the WFDB meeting. This debate was sparked by the news that Rio Tinto has dropped five of its long-term customers and is planning to start hosting tenders for a minor portion of its production.
“The current environment is showing us that things are not the same anymore,” Tombale said, referring to both the producer-manufacturer relationship and rough price dynamics.
The visit by Indian Vice President is expected to help push through Botswana’s ambitions for a diamond trading hub. The agreement was expected to be inked yesterday (Saturday). After a framework is put into place, the actual sourcing of uncut diamonds is expected to take place after two years.
An Indian official was quoted by the Indian media as saying, “even the government of Botswana wants to diversify the procurers for its diamonds. Things have changed post the worldwide economic crisis as in the global recession the monopoly procurer had refused to source diamonds.”
De Beers had shuttered mining operations in Botswana in the wake of the global financial meltdown and demand contraction. With global demand slowly picking up, direct access to uncut diamonds will benefit the Indian industry.
Interviewed by the Botswana media recently, Charles Wyndham, a diamond industry analyst with WWW International Diamond Consultants, said the parallel trading platform would be of benefit to Botswana by creating opportunities for additional money and citizen participation.
Wyndham said post the global crisis, there was a need for the diamond industry to be prepared for structural changes required for it to benefit all players. He said the parallel trading market that Botswana planned to launch was a good start.
“Botswana is the largest producer of rough in the world, but who knows that at the moment?” he wondered. “I find that strange and in my opinion, there is a missed opportunity which Botswana and others should change.”
He said the impact of the global downturn on the diamond industry was not going to be “solved in two minutes”; hence the first step was for the industry to start treating diamonds as a commodity. “Diamond is a commodity and it should be treated as such so that everyone can start making money and grow the cake,” Wyndham said.
He called for transparency in the market for both rough and polished diamonds as another imperative. “I am a firm believer in markets,” he said. “Let the market determine the prices and the opportunities. It should not be a closed shop like what is happening now.”
Wyndham said De Beers, which now controls about 40 percent of the market from about 80 percent in previous years, represents control which in the past might have been of a benefit to the industry.
“The industry has not benefited from the boom because the current system lacks transparency, which makes it less able to handle the downturn,” he said, adding that he is not against De Beers making money, but if diamonds were sold at the maximum price, the industry would benefit more players.
“If prices are determined by the market, Debswana would make more money than during boom times, as would De Beers and the Government of Botswana,” Wyndham said.