A lackluster fantasy

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It was meant to be Botswana’s final victory in her economic fairy tale. The excitement around last year’s historic relocation of De Beers’ Diamond Trading Company was almost palpable and heralded  as the  first public private partnership that set an example of how major corporations should conduct their business in the developing world, particularly in Africa, the last investment frontier.

It was a story whose tale began as an unlikely love story between two partners: De Beers; a mining giant that had made its name as the end all be all in diamonds,  and Botswana; at the time the second poorest nation in the world. Over the next  forty year the relationship would blossom and the fortunes of the once poor nation were reversed over a generation. It seemed like a true fairy tale, except  for one thing, the fact that the trade itself was built on one of the biggest marketing falsehoods in the history of mankind. The reality was that behind closed doors the diamond trade was not really about about a rare gem, but an elaborate system of hoarding, monopolization and unprecedented spin which at its best brought prosperity to an emerging  African democracy and at its worst fueled some of the worst atrocities committed  on the continent. To the average Motswana, a diamond had reached a sort of deity status. Growing up,  the mere mention of a diamond sent  shivers down our spines. Diamonds were never seen and the most immediate reaction of their mention was the fear of reprisal from the authorities. This has historically been our relationship with the stone. We mine them, sort them, and ship them off to De Beers. In return we derive money, I should add, “money by the truck loads”, if you look at through the eyes of a gullible Botswana Government negotiator.

Fast forward to the new millennium  and an opportunity presents itself. The Oppenheimers want to sell their stake in De Beers. Botswana now has a chance to be a major player in the game. We only purchase a fifteen percent  stake in the over priced company,  secure  in the knowledge that we control the source and walk away with a deal that stipulates that in order for sight holders to secure rough diamonds they have to set up cutting and polishing shops in Botswana. This was the panacea to the ever elusive jobs for Batswana.  The rest of the lion’s share is bought up by the Anglo American conglomerate. What could be a better deal; a stake in our former partner’s enterprise and an agreement that the stones will finally come home and be beneficiated? Well, this was the story sold to us when the first sight holders moved to Botswana in 2013. There would be jobs for all, would make dizzying fortunes from servicing and supplying the industry, and we would finally have a say in how our diamonds were sold. It’s now only a year later and our fairytale is crumbling before our eyes. Five sight holders who have been part of the De Beers value chain for generations  have risked exclusion from secure supply of cheap primary market rough diamonds from the company by closing shop because for the first time in years,  the diamond trade is not profitable. So we can sell to anyone else, you might think. Someone will replace them, right? Not really. We might be in more trouble than you think. Unfortunately, it’s not that simple. At the moment the market is flooded with expensive rough diamonds, which unfortunately sell for less once polished making it hard for the sight holders to make money. And the diamond industry bankers do not the same level of optimism of the sightholders, so they are holding their money closest to their bosoms. And why is this so? Anglo American has pressed De Beers to hike up prices to recoup its US$6 billion investment in record time. Couple that with a now cash strapped Russia cutting its own deals and ignoring the gentleman’s agreement to keep prices at bay,  as well as an American consumer market that grows ever weary of diamonds and you have a potentially catastrophic shift in the industry. This is an over simplification of the quagmire that is the international diamond trade, and caught in the middle is Botswana.

At the moment things have snowballed out of control and the dream that was sold to Batswana is crumbling. And who now does the average Motswana on the streets blame? You can’t really blame Mark Cutifani at Anglo for doing what any corporation would do; look out for shareholder interest. Neither can you blame De Beers, the owners have demanded. And it is currently laying the golden eggs, suffice it to say, to the detriment of sightholders. When Botswana  became a ‘major’ player in the value chain, they should have intervened when Anglo put pressure on the market instead of smiling at board meetings, just exhilirated at having made the company of the ‘big boys’. That has always been our problem, lack of courage. We have never pushed our weight around to show the industry who’s boss. The sad reality is that De Beers no longer controls the value chain and we can sit here and count our missed opportunities. Even the idea of beneficiation is years behind the game.  What is most disheartening is that forty odd years later the people who are in power are just as clueless about the trade as when we first started. We don’t influence  the sales, the supply and  certainly not the technology to mine. All we really are is a country with two giant holes in the middle of it, with a belief that the world will play fair.