Monday, July 15, 2024

Lower value of diamonds polished in Botswana could be stalling negotiations

The negotiations between Botswana government and diamond mining juggernaut De Beers over the sale of rough diamonds is not only shrouded in secrecy but it appears to be taking long to complete, with the current sales agreement extended to July 2023 as the two parties figure how to structure the 10 year sales contract. However, new developments might offer insights on the protracted negotiations.

Last week, the Minister of Minerals and Energy Lefoko Moagi, disclosed to parliament that over the last five years, the value of diamonds supplied for cutting and polishing in Botswana as a percentage of the total value of diamonds mined in the country was 25 per cent in 2017; 23 per cent in 2018; 17 per cent in 2019; 16 per cent in 2020 and 16 per cent in 2021.

“The decline in the percentages of the diamonds polished in the country over the years was due to a number of factories closing or scaling down operations in the country citing the high costs of manufacturing in Botswana attributed to inter alia, the reliability of power which necessitated investments and backup power systems, skills and productivity levels. The scaling down of production was further noted at the height of the outbreak of the COVID-19 pandemic,” Moagi said.

Despite the fall in the amount of diamonds polished in the country, the minister said there number of factories opening in the country increased from 25 last year to the current 33 operational factories, with another five licensed but still setting up their operations to commence operation before the end of the year.

“What we are seeing now especially the new factories is the adoption of new technologies which accelerates skills development, as well as improving efficiencies and productivity. With this new approach by the companies, coupled with the increased number of new factories, we expect the percentage of the total value of diamonds mined in Botswana and polished in the country to increase substantially. The recent improvements in our power supply situation should also further assist in terms of production costs containment.”

The current diamond sales agreement with Botswana was concluded in 2012, with Botswana flexing its muscle to relocate De Beers’ diamond sorting and sales unit to Botswana, as part of efforts to make Gaborone the leading diamond hub in the world. While the deal was expected to unlock immense economic values for the country, especially for citizens who have been closed off the diamond value chain, the results have been slow to show, prompting criticism that government can do more to beneficiate from its diamonds, which account for nearly 70 percent of De Beers’ supply and 30 percent of the global supply. Botswana is the biggest producer of diamonds by value, selling billions of rough diamonds every year and accounting for over 90 percent of the country’s export revenue.

The current sales agreement with De Beers should have elapsed this year, but the postponement to 2023 could be a sign that the government wants to extract more from the deal like it did in 2012, but this time around, ensuring that citizens will benefit. Already, the Minerals and Energy ministry in 2021 presented two Bills related to the diamond industry.

The Diamond Cutting (Amendment) Bill pushes for further diamond beneficiation, with the intent to stimulate employment generation, skills development, industry development, citizen empowerment and transform Botswana into a world class diamond centre.

The Precious and Semi-Precious Stones (Protection) (Amendment) Bill also aims to strengthen diamond beneficiation, stating that diamonds should be sorted, valued, processed, sold, bought, marketed or otherwise dealt with in Botswana. Further, stiffer penalties have been introduced to enhance protection, and integrity of the Botswana diamond industry and to curb the illicit trade in diamonds.

While the Minerals and Energy minister revealed that the number of diamond cutting and polishing factories has increased, almost none of them are owned or controlled by citizens. The benefactors have largely been Indian companies, with about 20 of them having set up their polishing and manufacturing units in Botswana, accounting for almost 70 percent of present diamond factories in the country.

To lure Indian diamond manufacturers, which have dominated the global diamond polishing business, Botswana is offering perks including supplying natural roughs in quantities as required. In return, Botswana expects investment as well as training and employment of citizens.

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