Botswana, home to some of the world’s most known diamond mines, remains one of the key players in the diamond industry, but that role has mostly been limited to the upstream, which is the mining of the rough diamond stones, then sold off through midstream and the downstream, where the real benefit is.
In 2018, diamond global production was 154 million carats, with Russia responsible for 27 percent of production, while Botswana was second with 16 percent. Russia’s Alrosa mining company is the top diamond producer by volume, while De Beers, which sells Botswana’s diamonds, is the top producer by value, thanks to Jwaneng mine, known as the richest mine by value.
The 154 million carats in 2018 were valued at $17.4 billion, with De Beers’ share of the global rough diamond sales estimated at 34.5 percent, while Alrosa’s share was 26 percent. This is where Botswana makes most of its diamond revenues, and the country in 2018 shared with De Beers the $5.3 billion raked from the rough diamond sales.
The lower value at the bottom of the diamond industry chain means the top producing country by value misses out on the midstream and downstream, where the rough diamonds are cut, polished and sold to manufacturers. In the midstream, the dominant countries are India, Belgium, Israel and Hong Kong, which have built world class diamond cutting and polishing centres.
The value of the diamonds substantially rises from here, and by the time they are in the downstream, made up of diamond jewellery and polished diamonds, the value is pegged at $76 billion, driven by huge consumer demand from USA and China, which account for 60 percent of sales.
The huge difference between the value of diamonds exported from Botswana against the final sales from the manufacturers has been a thorn in what is perhaps the most successful and long standing public private partnership, Debswana, a 50/50 joint venture between Botswana government and De Beers. Though the discovery of diamonds in the late 1960s transformed Botswana from the world’s poorest country to upper middle-income economy, the government has been criticised for failing to extract more value from the diamond chain.
Faced with growing pressure, the Botswana government in 2011 signed the usual 10-year agreement with De Beers, but this time around scoring a major victory as they forced its technical partner to relocate the sorting and valuing of diamonds from London to Gaborone. This gave birth to Diamond Trading Company Botswana (DTC Botswana), another 50/50 Joint venture partnership between government and De Beers, which started operating in 2013.
The move was expected to open the diamond industry in Botswana, creating the much-needed jobs, while also bringing in citizens in the diamond value chain. However, the uptake has been slow, and the benefits of the DTC move to Botswana are not immediately apparent. At the moment, there are about 21 cutting and polishing companies in the country, mostly foreign owned, and employing roughly 2,400 people.
“Citizen participation in the industry, especially in cutting and polishing, remains a challenge,” Moagi Lefoko, the minister of Mineral Resource, Green Technology and Energy Security, said in parliament on Monday.
The local diamond cutting and polishing firms were supplied with $530 million of rough diamonds from De Beers, which was lower than the $824 million of rough diamonds received by the local firms in 2018. The supply to the local industry declined sharply in 2019 in contrast to the steady growth experience in the past years, $733 million in 2016 and $760 million in 2017, the minister said.
“The diamond cutting factories utilised about 30 percent of the supplied goods against the set target of 80 percent due to poor demand for polished goods. Besides the existing challenges, the government is committed to creating an enabling environment that will catalyse and sustain diamond beneficiation initiatives beyond the current life of our mines,” said Moagi.
He revealed that the mineral resources ministry completed the diamond beneficiation strategy last year, and the findings from the strategy work have shown that diamond beneficiation is economically viable. Botswana’s cutting and polishing sub sector accounts for about 2 percent of the global cutting industry output, placing Botswana at number four after India, Israel and Belgium.
The government is currently locked in negotiations with De Beers over a new sales agreement, with the current one expiring in 2020, as well as a Master Agreement, which expires in 2029. With Botswana responsible for about 70 percent of De Beers’ diamond production, the government negotiators are expected to leverage on that to extract another deal which will put beneficiation at the centrepiece of the new deal.
Already, the minister says plans are at an advanced stage to develop diamond beneficiation cluster in order to further consolidate and focus beneficiation initiatives, giving a hint on what to expect when the negotiations are concluded later this year.
“The process will involve development of a cluster around the different segments of the diamond value chain, forging partnerships with diamond companies to develop local entrepreneurship through incubation, unlocking access to markets and new business opportunities, as well as investment in infrastructure development.”
