13 March 2009
Members of Botswana's fledgling diamond cutting and polishing industry have expressed confidence in the future of the sector in Botswana in spite of the slide in prices and drop in short-term viability of the precious stones.
The country's 16 sightholders, as they are called, are among the diamond sector's hardest hit in the global financial crisis.
As at October last year, 2 500 Batswana were employed by the cutting and polishing firms, with the figure expected to rise to 3,300 by the end of 2010. But the onset and entrenchment of the global economic turmoil has resulted in retrenchments, industrial unrest and operational logjam in the sector, raising fears that some of the sightholders could reverse their decisions to establish in Botswana.
Operating costs for cutting and polishing stones in Botswana are significantly higher than in competitor countries such as India and China which employ 800,000 and 25,000 polishers respectively.
However, the Chairman of the Botswana Diamond Manufacturers Association (BDMA), Mervin Lifshitz, says the sightholders remain "absolutely committed" to the business and its value in the medium- to long-term.
"There's absolute commitment to the commodity in the ground and 100 percent commitment to the country and the polishing industry here," Lifshitz told BusinessMmegi this week. "Companies would have taken tough decisions long back if this was not the case. This country is very investor-friendly, and while we have problems at the moment, going forward there's still value."
Lifshitz said rather than focusing on "quick fix" solutions to the crisis, BDMA was looking for long-term solutions. He said his organisation and the Diamond Trading Company Botswana meets with the government every six weeks to discuss matters of importance relating to the survival and prosperity of the diamond manufacturing business.
"We engage with Government to seek ways and means for all parties to find solutions that are sustainable and realistic," he said. "We are, for example, seeking ways and means to reduce the bureaucracy related to the industry to make us more efficient."
Lifshitz explained that more efficiencies could be found in removing blockages and delays in the import and export regulations governing the diamond industry in general and the diamond cutting and polishing sector in particular.
"If you have a blockage that stops you from exporting quickly, the cost of that can be massive," he said. "In the past, it has been the case, and that's one point where we can be more efficient."
Asked what the government's response to the diamond manufacturer's constraints has been, Lifshitz said the government's attitude has been positive and that it was "trying to do what it can".
The government recently announced plans for a long-term strategy to ensure the survival of the country's mining sector. The strategy, which will run alongside current government interventions to stabilise the mining sector, is due for implementation next month. Other government interventions include government guarantees on bridging loan finance to mining houses, deferral of royalties and of some levies.Lifshitz said he was also meeting with banks "on an extremely regular basis" in order to keep them fully informed about developments and changes in the world diamond industry. Media reports recently indicated that local commercial banks were no longer willing to extend credit to miners or their employers due to the impact of the global financial crisis on the sector. Reports also said cutting and polishing firm DDA Botswana was in operational turmoil because of overdue bank loans and an industrial dispute.
Commercial banks are keeping an eagle eye on sightholders' outstanding loans because they are considered to be at the knife's edge of the global financial crisis. This is how the Managing Director of Debswana, Blackie Marole, explained the diamond manufacturers' position: "All of Debswana's production is sold through De Beers, which sells it to sightholders. Sightholders usually raise bridging finance from banks in order to purchase rough diamonds. When the crisis hit, they already had bank debt.
"Due to lack of further funding from the banks, sightholders have not been able to purchase rough diamonds at the normal rate and have had to correct their inventory levels and thus having a negative effect upon their ability to further purchase rough diamonds."
Lifshitz said the local banks, working with the diamond manufacturing industry, had been "understanding in these difficult times." He added that there was middle ground to be found in the current crisis.
"The diamond industry worldwide is going through much change," he said. "The challenge is to meet the change head on and adapt to new conditions. By being flexible and working together toward a common goal, the Botswana industry will not only survive, but ultimately will thrive. However, change implies reorganisation and a rethink of procedures and the status quo; Botswana's diamond industry will rise to the challenge."
BDMA represents 15 diamond manufacturers in Botswana. A key criterion for membership is that the company must be a holder of a valid diamond manufacturing licence in Botswana.
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