Botswana is threatening to end a five-decade sales agreement with diamond producer De Beers, unless the company offers a greater share of rough diamonds to the state’s gem trading company, Okavango Diamond Company (ODC). The move follows Botswana’s acquisition of a 24% stake in Belgian diamond processing firm HB Antwerp last month, seen by analysts as an attempt to loosen De Beers’ grip on the country’s diamond sector, a significant source of employment and tax revenue.
Botswana and De Beers have a long-standing partnership. They jointly own Debswana, which mines almost all of the country’s rough gems, making Botswana the second-largest diamond producing nation after Russia.
The partnership has been mutually beneficial, with Debswana’s diamond sales hitting a record $4.6 billion in 2022, compared to $3.4 billion in 2021. The arrangement has helped Botswana become one of Africa’s fastest-growing economies, while supplying De Beers with 75% of Debswana’s rough diamonds, which are sorted and sold to sight holders around the world.
However, President Mokgweetsi Masisi is seeking to renegotiate the agreement to give Botswana a larger share of Debswana’s output for marketing outside the De Beers system. The government has not publicly stated what share it seeks, but it is believed to be as high as 50%, double its current allocation.
Masisi wants more locals employed in the diamond sector, which accounts for a fifth of the country’s gross domestic product.
De Beers has said that the arrangement must make economic and strategic sense for both parties, adding that it is committed to supporting Botswana’s aspirations to grow its diamond industry.
The stakes are high for both sides, as they seek to secure their future in a volatile and competitive industry that has been hit by the COVID-19 pandemic, changing consumer preferences, and ethical concerns.
Rafael Papismedov, co-founder of HB Antwerp, told the Financial Times that a revised deal would help Botswana break free from the current model of being “stuck in a box that says you can only dig and wash the diamonds.”
Papismedov added that De Beers’ operating model carries on “colonization” principles, acting as if Botswana was incapable of building midstream capabilities for polishing diamonds.
The diamond industry in Botswana
The diamond industry is a significant contributor to Botswana’s economy, with the country’s mines producing over 20 million carats of diamonds annually. According to the World Bank, diamonds account for approximately a third of Botswana’s GDP, with revenues from the sector largely used to fund social programs, infrastructure development, and healthcare services.
Botswana’s diamond industry has been managed by De Beers since the discovery of diamonds in the country in the 1960s. De Beers, then under the control of Anglo American, signed a sales agreement with the Botswana government in 1969, and together they established Debswana in 1971. The partnership has been crucial to the development of Botswana’s economy, with Debswana accounting for up to 80% of the country’s foreign exchange earnings.
Over the years, Botswana has sought to increase its share of the diamond industry’s profits. In 2011, the country renegotiated its agreement with De Beers, increasing its share of the profits from 15% to 50%. The deal was seen as a significant milestone in Botswana’s efforts to gain greater control over its diamond industry, and to ensure that it benefited more from the country’s diamond wealth.
Under the agreement, De Beers moved its diamond sorting and marketing operations from London to Gaborone, the capital of Botswana. The relocation created thousands of jobs in the country and helped to transform Botswana’s economy.
Botswana’s success in the diamond industry is largely due to its partnership with De Beers, which has invested heavily in the country’s mining operations and infrastructure. De Beers’ involvement has also helped to build Botswana’s reputation as a reliable source of high-quality diamonds.
However, Botswana’s government has long been concerned that De Beers is taking too large a share of the profits from the country’s diamond industry. The government has been pushing for a larger share of the rough diamonds produced by Debswana, as well as more control over the marketing and sales of the diamonds.
The acquisition of a stake in HB Antwerp is seen as a major step towards achieving this goal. The deal will give Botswana’s state-owned diamond company, Okavango Diamond Company (ODC), access to HB Antwerp’s cutting and polishing facilities, allowing it to increase its share of the value chain.
Botswana’s push for greater control over its diamond industry comes at a time when the global diamond market is facing a range of challenges. The covid-19 pandemic has had a major impact on the industry, causing demand for diamonds to plummet and disrupting global supply chains.
In addition, the industry is facing growing competition from lab-grown diamonds, which are becoming increasingly popular among consumers who are concerned about the environmental and ethical impacts of diamond mining.
Despite these challenges, Botswana’s diamond industry has remained resilient. Debswana’s diamond sales hit a record $4.6 billion in 2022, up from $3.4 billion in 2021.
The country’s success in the industry has helped it to become one of Africa’s fastest-growing economies, with a GDP growth rate of 8.7% in 2021.
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