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Anglo American hints anxiety in talks such as ‘Renewal of Vows with Botswana’

Publishing Date : 23 March, 2020

Author : TSAONE SEGAETSHO

President Mokgweetsi Masisi has coined the De Beers 50/50 partnership with Botswana Government as a “marriage” and at the last Diamond Conference he spoke of “renewal of vows” referring to talks between the two parties.


The Botswana-De Beers diamond sales deal was renewed into a 10 year union in 2010, it lapses this year in September. However there is a widespread concern that ever since the ongoing talks began, the talks have been taking place in secrecy in Gaborone and London boardrooms. But a lot of public curiosity is about the two parties publicly appearing to be diplomatic about their negotiations and promoting an unbreakable five decade bond.


Masisi borrowed all the metaphors of a long standing and flourishing love or romantic relationship while De Beers group CEO Bruce Cleaver last year, brandishing a huge smile before reporters at the Diamond Conference, spoke of not even dreaming of “any better partner than Botswana.” Antagonist see this with an eye of scepticism, some just sense a lot of flattery by lovers who would not talk about what happens when alone in private, in bedroom. Some observers or the opposition see this as just sweet nothings on public display, while a lot is happening behind closed doors.


Owner of De Beers, Anglo American, has recently indirectly released a hint red flagging on how dicey it is for the company to be in a business partnership with governments, like the deal with Botswana through their subsidiary. Anglo American owns 85 percent of De Beers while the Government of the Republic of Botswana owns the remaining 15 percent. On the other hand De Beers has a 50/50 venture with Botswana government which resulted in the birth of Debswana. 


Another offspring of the partnership is Diamond Trading Company Botswana (DTCB), also a 50 -50 venture, DTCB avails 85 percent of their sorted and valued diamonds to De Beers Global Sight holder Sales (DBGSS) and 15 percent to Okavango Diamond Company (ODC) which is wholly owned by Botswana Government. In its recently released annual financial report and notice of AGM, Anglo American hinted that in a deal with Botswana through De Beers there could be, “uncertainty over future business conditions leads to a lack of confidence in making investment decisions, which can influence future financial performance.”


Anglo American wanted to highlight “principal risks” that come with the company’s business and political and regulatory concerns were in the basket, with a worry that a deal with government may bring unexpected and uncalculated future changes. There could be, “uncertainty and adverse changes to mining industry regulation, legislation or tax rates can occur in any country in which we operate.”


“The Group has no control over political acts, actions of regulators, or changes in local tax rates. Our licence to operate through mining rights is dependent on a number of factors, including compliance with regulations,” said Anglo American. Anglo American will be watching the De Beers-Botswana talks with hope that it does not end up in what many predict as “to bring shocking changes.” Masisi has told journalist last year that he wants more for Botswana in this deal, sitting next to Cleaver who maintained a diplomatic PR esque grin.


What is reported by those who eavesdropped the De Beers-Botswana talks from a distance are saying there has been a possibility to discuss the issue of Botswana being ripped off along the way as the stones leave Debswana operations crossing borders to diamond trading centres around the globe. Another issue expected inside the talks is the increase in percentage volume of ODC‘s uptake from DTCB. The argument has always been that Botswana as one of the largest diamond producers in the world has the capacity and ability to develop its own price book through its own independent window outside De Beers’ channels. It has been said that currently ODC rakes in sales in the region of $500 Million annually (approximately P5 billion). 


The 2011 negotiations were seen to have brought the positive being the relocation of DBGSS from London to Gaborone, transferring De Beers’ operations consolidated rough diamond sales into Gaborone, bringing alongside professionals, skills, and the world’s biggest rough diamond transactions to Africa. The year 2011 also gave life to ODC which found its feet to move a year later in 2012.


Debswana is also expected to start investing in other sectors outside its core business of mining diamonds. Some see Masisi to be playing hard-ball on the deal despite his diplomatic talks with Bloomberg in May 2018 of, “we have had a wonderful relationship with De Beers and we expect that relationship to be even more cemented, there is a way of actually achieving a win-win for both, we want to participate more on cutting, polishing and retail.”


Veil of secrecy

Tax Justice Network -a tax watchdog- in its 2020 report portrays Botswana as too secretive and the country’s dealing with De Beers was attributed as “highly secretive.”  Tax Justice Network quoted a recent Open Society Initiative for Southern Africa (OSISA) study titled ‘Botswana’s Diamond Deception’ which says, “Botswana’s paper success does not translate to the kinds of gains the country should be receiving. Disclosure of key information and removal of De Beers’ monopoly would liberate the economy and its democracy.”


The study said initially Botswana held a 15 percent share, but several years later when exceptional diamonds were unearthed, Botswana’s share was increased to 50 percent. “De Beers wanted to ensure it could keep its monopoly and control production so this find would not disrupt market prices. Then in 2004, Botswana acquired a 15 percent share in De Beers itself, an unprecedented entangling of a sovereign country with a single private company.”


According to the OSISA paper, the exact structure of this deal between Botswana and De Beers is complex and confidential in a few key places, but it promises Botswana continued revenue while handing power of the diamond industry to De Beers. OSISA study alleges De Beers has “a relationship with the ruling BDP. “De Beers and the BDP have knit the political and corporate structures together in such a way that they undermine accountability and regulatory systems with a culture of secrecy (framed by De Beers as “confidentiality”).


As a private entity, De Beers’ dealings are largely protected from scrutiny. Unlike the EU and U.S., where governments once banned or prosecuted De Beers for price-fixing and other anti-competitive activities, Botswana’s government and its ruling party have been direct collaborators.”


Anglo American further uncertainties in politics staining a sparkling diamond business

In last year’s divisive national polls this country could have been dragged into what looked like a civil shake up with the former President fighting with his successor, the diamond industry was watching with crossed fingers. Anglo American in its recent annual financial report says: “Political instability can also result in civil unrest and nullification or nonrenewal of existing agreements, mining permits, sales agreements or leases. These may adversely affect the Group’s operations or performance of those operations.”


In the run-up to elections Botswana opposition was also posing serious threat, with an influential figure like the former President throwing his weight behind the block, this could have scared De Beers mother Anglo American as her child (De Beers) is only used to the red interior designs of the ruling BDP 53 year old walls. Opposition could have painted the walls with a different colour and worse enough chased away Anglo American’s De Beers. A new party might change laws and policies to be closer to its political ideology.


Anglo American in that situation envisage possible change in laws which might be unfavourable like; increased costs can be incurred through additional regulations or resource taxes, while the ability to execute strategic initiatives that reduce costs or divest assets may also be restricted, all of which may reduce profitability and affect future performance. This could lead to, “uncertainty over future business conditions leads to a lack of confidence in making investment decisions, which can influence future financial performance.”


Anglo American also explained of a scenario where global economic conditions can have a significant impact on countries whose economies are exposed to commodities, placing greater pressure on governments to find alternative means of raising revenues, and increasing the risk of social and labour unrest. These factors could increase the political risks faced by the Group, says Anglo American


According to the mining giant, as mitigation to deal with political uncertainties that may hamper the company’s progress, Anglo American has an active engagement strategy with governments, regulators and other stakeholders within the countries in which we operate, or plan to operate, as well as at an international level.

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