Monday, August 15, 2022

Government must ensure integrity of beneficiation aspirations

The Botswana government has skillfully negotiated a ?new order? in the diamond industry. It hopes to secure benefits from its newly defined role ? but, and that has never been stressed publicly, it has also assumed distinct obligations. The first commitment, of course, is to itself and the people of Botswana. However, by making the diamond manufacturing sector a regulated industry by law, subjecting companies to various conditions before issuing cutting licenses, the government owes it both to itself, and to the foreign investors who are risking their capital by trusting them, to ensure a fair and positive enabling environment.

In any regulated business there may be a natural tendency for those subject to specific regulations to test the limits on how much one can bend the rules and cut corners, and see whether it is possible to ?get away? with violating the rules of the game. A regulator must have some flexibility, and must never overreact, but it also must clearly establish red lines. Certain things must not be tolerated.
Establishing a US$500 million a year industry is a mammoth undertaking and, understandably, the Botswana government is in uncharted territory. It may not (yet) be able to distinguish between a minor infringement or a fundamental threat to the very future of its local industry. We believe that in recent weeks the red lines have been passed ? and the government has failed to act.
Let?s be specific. New entrants into the business submit a business plan to the government in which they make specific undertakings. The training of Batswana, the skills transfer to widen the number of skilled cutters and polishers, is an integral part of the conditions for getting a license.
When a new entrant ?steals? the experienced workers from established factories, this sets a variety of undesirable results in motion. First of all, the ?stealing? company is not meeting his obligation to the government to train new workers.

He is reducing his effective investment by
shortening the (multi-year) period before breaking even or becoming profitable. Companies acting in this way are willing to pay substantially higher wages because they save enormous amounts. If tolerated, this will become a practice among all players, raising the wage levels for all companies without substantially widening the total labor force, while at the same seriously impairing the international competitiveness of cutting in Botswana.

But there is much more to this. De Beers and the Botswana government have agreed to the establishment of a DTC Botswana. Although this may not be generally known, the agreements call for sharing in the decision making process on rough diamond allocations to specific cutting plants. There is going to be competition within Botswana among the diamond plants, even though they enjoy preference over non-Botswana sightholders. Yes, there is a scoring system. Fifty percent of the score will be awarded by DTC International, based on the (amended) Supplier of Choice criteria and 50 percent will be awarded by DTC Botswana, based on a client meeting the specific local scorecard. For local rankings and scoring, the single most important weight is direct and indirect employment (about half of the score), while the remaining weighting depends upon progress on beneficiation and value added producing.

The government must realize that a company stealing experienced workers from a well-established factory means that the new entrant is ?gaming?, which is a euphemism for saying that he is trying to improve his weighting scores through improper means.
Thus the practice involves more than just a violation of a factory?s undertaking to train workers, etc. It is also an attempt to score better. Such a factory doesn?t create ?added value? ? he simply moves it from another plant that is then faced with starting training all over again.
None of this is new to the diamond industry. We have seen this in Thailand and in other places.

Inevitably the excuse is given that an employer doesn?t know that a worker came from another plant, or that in a free country, workers are mobile and may freely move from one place of employment to another. The first part of the argument is patently false. Any manufacturer will discover in about three minutes of watching a new worker if she or he has held diamonds in her/his hands before. In fact, three minutes can
be considered a long time, because you know it immediately. The argument that people are free to move is a more serious one. Yes, family circumstances may require a relocation to another village or town. But there is a big difference between an occasional worker moving places and active recruiting among the workers of another plant. That is simply not the done thing.

No, I must qualify that: it IS being done in Botswana. It is something both the DTC in London and the Ministry of Minerals in Gaborone is aware of ? but, as far as I know, nothing visibly has been done.

The government of Botswana must understand that nobody is going to invest in training and educating local Batswana if they are not going to reap the fruits of an investment in training and skills transfer. The government must further appreciate that this practice is directly linked to the scoring process on which its rough allocations will be based. It manipulates and distorts that process.
This will have legal implications. No company will sit idle and allow the regulator to be willfully used to allow the manipulation of the scoring system and thus the allocation process.

The new Minister of Minerals P.H.K. Kedikilwe was previously Botswana?s Minister of Education. He, more than anyone else, must recognize the investments required by the investor and the benefits such education will generate not just for the individuals involved, but for the national economy at large.

Some months ago, at the initiative of manufacturer Mervin Lipschitz, the Botswana manufacturers established a Manufacturers Association and, as its first point of business, agreed that members would not steal workers from other members. Self-regulation is always commendable, though the individual members have no power of enforcement. They lack the tools to deal with violators.

This is matter for the Minister (or for the government) and he must realize that this strikes at the heart of the viability of the entire beneficiation process. It also provides an opportunity for the government to demonstrate that it recognizes it has a responsibility.

I am not an advisor to the government, and it is not for me to say how it should act. However, if I would have been asked I would have suggested that this practice has such extensive negative implications for the entire beneficiation dream, that the government should not blink, nor hesitate, nor be intimated, nor think twice.

This warrants the cancelling of a cutters license and forfeiting the right to a domestic rough allocation. Such dramatic action would not only remove a rotten apple, but would also encourage many others to consider setting up a business in Botswana. It is the only way to ensure the integrity and the future of Botswana?s diamond cutting industry.

Let?s hope and pray that the government has the political will and the business acumen to do the right thing.
(Diamonds Intelligence)


Read this week's paper