Friday, December 3, 2021

Diamond Beneficiation in Decline in Namibia and South Africa and Stagnant in Botswana

The wages of diamond cutters in Botswana and India are not dissimilar yet in India there are 800,000 cutters and in Botswana only 3,750. The difference between the two countries stems largely from the productivity of workers. De Beers in its 2014 Diamond Insight Report has said that the cost of cutting in 2013 ranged from $60-120/ct in Botswana while in India the range varies from $10-50 per carat. In other words in the smaller diamonds, Botswana is six times more expensive than India and for the larger more expensive stones, it is almost three times as expensive because of low productivity, low cost of ancillary services as well as the number of working days in the year – 232 in Botswana as opposed to over 280 days in India.

That is the reason that Botswana is limited to commercially cutting stones of one carat rough and above. The only bit of good news is that at the top end Botswana is becoming a slightly cheaper place to produce than was the case five years ago. But the other two smaller southern African diamond producing countries which are trying to beneficiate diamonds ie Namibia and South Africa are actually more expensive locations than Botswana and it is for that reason along with the supply of rough and what the industry considers draconian beneficiation requirements etc. are also very important issues here) that employment in South Africa has almost halved in the last five years in diamond cutting from 1,800 workers in 2008 to 1,000 in 2013. The situation in Namibia is almost as bad with employment falling from 1,500 in 2008 to 970 in 2013. In other words, with the exception of Botswana diamond beneficiation is going backwards in the main producing countries of Southern Africa. Indeed the costs of cutting in both Namibia ($60-140/ct) and South Africa (130-150/ct) are higher and tend to be rising faster than in Botswana. But the increase in beneficiation and the increase in employment is mandated under a 2006 agreement between De Beers and the Government of Botswana.

If the world’s ‘diamantaire’ had their way no cutting or polishing would occur in Botswana and Southern Africa at all. The answer as to why cutting occurs in Africa is as De Beers politely puts it in its publication because of ‘government policy’. In other words if you are a De Beers sightholder and you want Botswana or Namibian or South African rough diamonds then you have to process some of them here. How much? So far the answer is not very much at all. In 2013 about 23 million carats of rough were produced in Botswana and if the Statistics Botswana figures are to be believed the total volume of polished exports was a mere 273,000 carats in 2013. Assuming it takes 2.5 carats of rough to produce 1 carat of polished diamonds Botswana is in effect exporting 3% of its rough produce.

While the value of cut diamond exports has been rising from Botswana the volume of diamond production has been more or less stagnant over the last five years of the De Beers agreement, At first the results of the efforts of diamond beneficiation i.e. 3% of production looks very unimpressive until you consider that because of the low productivity in Botswana and the fact that 80% of diamonds coming out of the ground are very small (ie less than 0.2 carat) most diamonds have to be processed in low cost centres like Mumbai and Surat in India where there are 800,000 Indians working cutting diamonds. Jewellery and cut diamonds is India’s biggest manufacturing sector and it exists because the Indians have been able to produce cut diamonds cheaply and because they have access to Africa’s diamonds. The Indians emphasize the former and ,dangerously, tend to take for granted the latter. The employment numbers, costs and the general direction of beneficiation are not encouraging in Namibia and South Africa. In Botswana the results are better but require a real reassessment by all governments as to what is being done throughout Southern Africa. Both Zimbabwe and Angola also have serious aspirations to cut and polish diamonds as well. The failure of diamond beneficiation is a direct result of the failure of industrial policy to address the fundamental issues of productivity in these infant industries.

In Botswana for example there is not even a diamond school to train cutters and polishers who have been trained by individual firms in the industry. But a school is the least of the issues. It is necessary to come to terms with workers and unions on the productivity issue or the potential benefits of diamond beneficiation will be lost to India permanently. Industrial policy in Africa has helped to create infant industries but has rarely if ever had sufficient focus on the boring, expensive and very ‘un-sexy’ issues of nurturing the infant industry to become globally competitive. Often there is contradictory policies that serve to weaken beneficiation. On the one hand governments want beneficiation but in the case of Botswana they also want diamond trading independent of De Beers so the buyers from state owned Okavango Diamonds which currently sells some 13% of national production is exempted from the beneficiation obligations and its buyers can simply take their diamonds elsewhere for cutting.

This figure is set to rise to 25% over time. Many diamantaire reason – why buy from De Beers and be forced to operate an inefficient factory in Botswana when you can buy from Okavango or Lucara and just send your diamonds to India for cutting. The thinner the profit margins for cutting become the more the complaints mount from De Beers siteholders. But it is one thing to complain, quite another to give up a secure De Beers site which assures constant supply of diamonds for profitable Asian factories. The unfortunate response of some policy makers to the low productivity and stunted development of this infant industry, is as so frequently the case, to merely look for more value added activities such as jewellery making rather than doing the hard graft of addressing productivity issues in the cutting and polishing industry. This involves working with firms and workers to develop appropriate ways of addressing the productivity and cost issues which in turn involves money which governments are unwilling to provide. This is the hard tedious work of day to day industrial policy and there are no simple or pat answers to raising productivity and becoming internationally competitive but if successful it is an activity that could create employment for tens of thousands of African workers.

But perhaps the most difficult and useful question is how do you deal with the unions and the workers? If you listen to some of the employers they simply wish the unions would go away and they be allowed to increase productivity and take all the increase in profits. Such an approach is unworkable and what is needed is a way of assuring that part of any increase in productivity goes to the workers Without such a productivity sharing arrangement and a partnership between unions and employers, industrial policy will not work in the diamond cutting sector.

From a short term perspective the best outcome would be exactly what the world’s diamantaire expect, that the infant African industries will go into terminal decline, as appears to be the case already in Namibia and South Africa, and India will resume its ‘rightful place’ as the natural home of diamond cutting and polishing of Africa’s diamonds. In Africa this outcome will be a political disaster and no thinking ‘diamantaire’, whether Asian or European should wish for as the complete failure of beneficiation as it may well prompt a knee jerk inward looking reaction from African governments when it comes to dealing with diamond trade.

These are the views of the author professor Roman Grynberg and not necessarily those of any institution with which he may be affiliated

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