De Beers annually ships out billions of Pula in profits from Botswana diamonds and payments to foreign based companies from the procurement budget while locals scramble for the crumbs. As a clear sign of conceding to the failed theory of diamond beneficiation without saying so, government is happy to redeem itself with having reduced the number of expatriate employees at the global mining giant, write KEABETSWE NEWEL and TLOTLO KEBINAKGABO
It is widely believed that the Government of Botswana is being cheated out by De Beers in their secretive Sales Agreement Contract and Mining Licence, which are coming to an end next year.
A 2017 report by the Natural Resource Governance Institute (NRGI) ranked Botswana 68 out of 89 in value realisation, with a score of 40 out of 100 points, arguing that the country’s weakest point is value realisation. Additionally, “the government does not require the disclosure of ultimate beneficial owners of extractive projects and public official interests in extractive projects – important anti-corruption protections.”
Further, the NRGI said Debswana, which is a joint venture between De Beers and government, does not disclose the transfers of funds to the government and details relating to the sale of diamonds. The report says although Debswana provides information in its annual reports, NRGI researchers could not find the core financial details that analysts require to provide effective independent oversight of the company. There are concerns that the agreement between DeBeers and Botswana is shrouded in secrecy and that Botswana might not be benefitting as it is supposed to from the sale of its diamonds.
A few days before the just-ended general elections, President Mokgweetsi Masisi declined to speak about government’s relationship with De Beers during a televised debate among presidential candidates. He was challenged to reveal it and to say what he would demand from De Beers when renegotiating the sales agreement contract and the mining licence. Although he maintained his composure, President Masisi must have found this the most dreaded question as he answered that government keeps the deal a secret to protect Batswana without specifying from what the nation was being perennially protected.
This week, government technocrats and De Beers officials were also tight-lipped at the recently held Diamond Conference that was thronged mostly by wealthy market players from London and fat cats from Government Enclave. These are the same people who gather annually to talk about diamonds.
HOW SA FIRMS PROFIT FROM DE BEERS PROCUREMENT
The Botswana Gazette spoke to Neo Moroka, the Resident Director of De Beers in Botswana, on the sidelines of the conference in quest of understanding why, after more than 52 years of diamond mining, De Beers’ procurement budget is enjoyed by foreign companies, especially South African firms, even though De Beers mines most of its valuable diamonds here. This publication’s inquiries were motivated by the fact more than half of a total P7.1 billion that De Beers spent on procurement in 2018 went to foreign companies.
Anglo American’s Tax and Economic Contribution Report 2018 reveals that De Beers in Botswana spent US672.8 million (P7.1 billion) in procurement of goods and services in and out of Botswana. Of that figure, the company further announced that US551.8 million (P5.8 billion) was spent strictly on “local procurement,” which would ordinarily mean that the money was spent on Botswana owned companies. However, this is completely misleading and is most probably meant for the purpose. A probe by The Botswana Gazette has established that what De Beers Group means by local procurement refers to both citizen owned companies and foreign companies operating in Botswana. What this actually means is that the money was spent on satellite offices and subsidiaries of South African companies registered in Botswana just so they may qualify for the billions at De Beers Botswana.
In a previous engagement about two months ago, De Beers External Communications Manager, Kesego Okie, could not reveal at least the top 10 companies by value which benefit from De Beers procurement because of what he called contractual obligations. Moroka also bit his lips at the diamond conference last week when the same question was put to him. “The first thing is that the bulk of the goods we get into Botswana come from South Africa,” he said. “It is a fact. Secondly, we as De Beers, it is our objective to empower citizens as much as we practically can. You will recall that about five years ago we introduced the ‘Tokafala project’ whose intention was to build the entrepreneurship of citizens so that we can help them become better businesspeople. We then built a data base of our local entrepreneurs and certain goods and services that we get from them.”
In the main, De Beers procures earth moving machines, mining repairs and maintenance, drilling, plant maintenance, construction, office supplies, general maintenance, security, transportation, catering, IT and Communications. The Botswana Gazette has established that a huge chunk of the procurement budget finances earth moving machines and their repairs, which are mostly supplied by South African-based companies. It is the same companies which have opened subsidiaries and satellite offices here just so they may qualify for De Beers’ so-called local procurement policy. They routinely do, leaving Botswana citizen owned companies to scramble for the crumbs.
De Beers says in the event where local companies do not have the required technical expertise for a service, the company seeks such a service from foreign-based companies and demands that the foreign entity partner up with a local company for skills transfer.
De Beers is owned 85 percent by Anglo American while the Government of Botswana owns 15 percent. De Beers makes most of its money in Botswana’s 50/50 Joint Venture with government. In 2018, De Beers produced a total of over 35 million carats 24 million of which were produced here in Botswana. Since 2010, Debswana’s biggest contract ever, which is worth billions of pula, has been awarded to an Australian company, much to the detriment of citizen controlled companies. Cumulatively, P25 billion has been given to this Australian outfit to-date.
Last year, Debswana Mining Company, the 50/50 joint venture between the Government of Botswana and the De Beers Group, awarded a P15.7 billion to Majwe Mining Joint Venture to commence Debswana’s Cut 9 mining services contract. In 2010, Majwe was engaged for P9 billion. Majwe Mining is actually an Australian owned company. It is owned 70 percent by Thiess, a global mining services provider owned by the Australian based CIMIC Group. The remaining 30 percent is controlled by Botlhakga Burrow, a Botswana owned company.
In a previous engagement, Agatha Sejoe, who is Corporate Affairs Manager – External Communication at Debswana, said for a job as big as Cut 9, there is no Botswana owned company that is fits the bill save for sub-contracting by Majwe. Further, it has also emerged that as in previous ones, local companies benefit the least from the 2019 Diamond Conference. The event management budget commitment for this glittering jamboree is estimated at somewhere between P15 million and P30 million per annum. However, stinting Botswana companies is in contravention of the Mines and Minerals Act which provides that mining companies should be biased towards citizen owned companies.
According to the Act, the holder of a mineral concession shall, in all phases of his operations, give preference in employment and procurement to citizens of Botswana to the maximum extent possible consistent with safety, efficiency and economy.
The law has been existence since 1966 is disregarded by De Beers in the conduct of its operations, prejudicing Batswana in thousands of jobs and billions worth of economic output that are exported to South Africa and elsewhere abroad.
TAXES AND ROYALTIES
In 2018, De Beers paid the Government of Botswana US874.8 million (P9.3 billion) in total taxes and royalties. Corporate tax amounted to US448.8 million (P4.7 billion), royalties and mining taxes amounted to US326.6 million (P3.4 billion) while other taxes and payments totalled US99.4 million (P1 billion).
THE FAILED DIAMOND BENEFICIATION
When DTC relocation was done, the idea was for Botswana to benefit from the value chain. However, it appears that De Beers only relocated the DTC offices because the diamond value chain is still rooted in London. Cutting and polishing companies were opened here in Botswana but they collapsed because of pricing monopoly by De Beers which suffocated the local cutting and polishing industry. Only a few companies remain operational. Botswana’s cutting and polishing industry having failed to really take-off, it means Botswana still exports these diamonds without exploiting the value chain. “We bring them here sort them out, then re-export them as they are, which messes up your current accounting. So the value-add is still not happening here,” a banker who asked to remain anonymous commented.
Before 2013, Botswana’s diamonds were sold by De Beers through its Central Selling Organisation (CSO) in London in a process that completely omitted Botswana as the source of the stones. But an agreement was struck between the government and De Beers which saw Diamond Trading Company International (DTCI) relocate its sights and sales operations to Gaborone. Government thought it was the way to tap into the manufacturing side of diamonds – the cutting and polishing where refining is done before the final product is made for retailing. The diamond and polishing industry employed roughly 4000 Batswana when commodity prices were favourable. However, more than half of these have been laid off in the past two years when several other polishing companies closed shop.
De Beers Resident Director Neo Moroka says the relocation of Diamond Trading Company from London to Gaborone must be seen as a journey, not an event. He insists that since the relocation, DTC has made strides in catering for Botswana and its citizens in that DTC is no longer dominated by expatriates. “When we started off we had lots of expatriates,” said Moroka on the sidelines of the diamond conference. “In our Global Sightholder Sales, we have less than 20 percent of staff as expatriates.”
He added that some Batswana have been sent to work abroad to gain exposure. DTC is the rough diamond sales and distribution arm of the De Beers family of companies. De Beers, on the other hand, is owned 85 percent by Anglo American while the Government of Botswana owns 15 percent.