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Botswana: De Beers Bows to Country
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Business Day (Johannesburg)
20 March 2008
Posted to the web 20 March 2008
Michael Bleby
Johannesburg
POETS, dancers, choruses and even Botswana's own "Three Tenors" marked the high-profile opening of the Diamond Trading Company (DTC) Botswana on Tuesday night.
The good and great were there to watch as De Beers chairman Nicky Oppenheimer handed over a gilded key to the custom-built facility just outside central Gaborone.
Before the snoek mousse starter , De Beers g roup MD Gareth Penny praised the move as "one of the largest transfers ever of commercial activities from Europe into Africa". Ahead of the pan-fried chicken piccata, Oppenheimer declared "there is no doubt the centre of gravity of the diamond world is shifting".
Only after the unveiling of a plaque did a moment of clarity slice through the hyperbole. In his vote of thanks, Ponatshego Kedikilwe, Botswana's minerals minister, spoke of how the new developments had once been regarded by the diamond company. "Some of the changes were inconceivable or even anathema," he bluntly said.
The opening of DTC Botswana symbolised a big change in the relationship between the government and De Beers. In agreeing to expand its sorting and valuing operations and promote a downstream cutting industry in Botswana, it was giving in to moves it had long resisted. "Whatever De Beers is doing, they've been forced to do. They fought tooth and nail about moving the DTC to Botswana," says Charles Wyndham, a former De Beers director and now CEO of the diamond information site polishedprices.com.
Wyndham, a long-standing critic of De Beers, is not the only one to say that the company plays a different role these days.
"The historical policies of the diamond distributors have consistently resisted beneficiation in Africa, mostly on economic grounds," said Chaim EvenZohar, the principal of Tacy, a Tel Aviv-based diamond consultancy, at the Antwerp Diamond Conference in October last year.
"When pressured, they supported token manufacturing operations -- which were not often very successful."
The turning point in this relationship came over the renegotiation of the 25-year mining lease for the Jwaneng mine . After 18 months of negotiations, De Beers came out with a package of agreements that included new leases for the Jwaneng, Orapa and Lethalakane mines, a reduced profit margin and a commitment to look into moving its aggregation business to Botswana from London.
Sheila Khama, the CEO of De Beers Botswana, says there has been a change. "I'm not arguing the government of Botswana hasn't revisited the dynamics."
But Khama says the needs of Botswana now differ from those of 1969, when the country first went into partnership with De Beers and needed its help for infrastructure and basic development. She says things will change further. "Fifty years from now, when we renegotiate, the image will not be what it is."
Others are reluctant to define the change in such a way. Oppenheimer says the move is because the Batswana "have come to understand the diamond business extremely well."
The negotiations over Jwaneng and Orapa hastened the changes, but these were things the company would have done off its own bat, he says. " The government would obviously like as much of the diamond industry to be in Botswana and put pressure on us to do that. But what we're doing makes good business sense. Would we have done it so soon without as much pressure? Probably not."
Officials play down talk of a change in the relationship. Akolang Tombale, permanent secretary in the minerals department, says De Beers' after-tax profit was cut, but that this was not linked to beneficiation and other concessions.
"We thought this was the time to get into the other facets of the diamond industry."
But getting into these new facets happens at a time when De Beers has a very different attitude from before.
Wyndham recalls a previous attempt to boost beneficiation. Under government pressure, it opened Temene Cutting, a factory at Serowe in eastern Botswana in the early 1990s.
"That factory was not allowed to make money for De Beers. They adjusted the price of the rough going in so it never made a profit."
Penny agrees the factory never became profitable, but denies there was a strategy to undermine it.
While the relationship may have changed, De Beers is looking on the bright side.
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"The relationship is great these days compared with what it was," says Peter Kettle, De Beers' beneficiation manager.
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