When the true history of Botswana diamond beneficiation is finally written, the names of Israeli diamond billionaire Lev Leviev and Greek gemologist Yianni Melas will feature prominently as the main architects who provided the initial blue print that formed the basis of the current experiment in diamond value add.
Their business case presented to the Botswana media at Hotel Mondeo on that auspicious day in 2004, enabled Botswana to gain confidence to proceed to negotiate better – but not the best – terms with De Beers which resulted, among others, in the relocation of the Diamond Trading Company from London to Gaborone.
From that day onwards Botswana’s diamond beneficiation debate gained momentum and intensity despite much negative publicity and opposition from both government and De Beers. De Beers and Botswana Government finally somersaulted in their opposition in a rather strange turn of events due to intense public debate and concerted media onslaught in support of diamond value addition.
The change of heart was clearly opportunistic, self serving and mere face saving in the light of mounting public condemnation and debate. The real reason seemed to have been De Beers’ paranoia and the need to block its strongest and most feared and effective international rival billionaire, Lev Leviev from entering Botswana’s diamond beneficiation market.
This was after Leviev had made a compelling business case in support of beneficiation which in turn exposed De Beers and some of its harmful business practices against Botswana. De Beers apparently had not been acting in good faith in its opposition to diamond value add.
Indications are Botswana's diamond beneficiation is a poor and half hearted plagiarism of billionaire Lev Leviev's original business model presented in 2004 at various media briefings in Gaborone through his gemologist consultant, Yianni Melas at a time when Botswana government and De Beers dismissed the idea as nonsense and unworkable. De Beers sought to keep Botswana out of diamond beneficiation for its own benefit.
Leviev was able to demonstrate how Botswana was probably being cheated and not realizing the true value of its rough diamonds because there was no independent way of grading and determining the price at the time. De Beers over decades was conflicted for having had a hand in the appointment of a sole diamond valuer to grade and price Botswana diamonds, which in turn were all sold to its wholly owned marketing arm in London- the Central Selling Organization.
It was a national shock to learn that Botswana’s leadership and the public for long did not know the true price and value of their diamonds in the absence of an independent and competent grading and valuing system as De Beers alone was a player and referee at the same time.
Leviev and his Greek consultant, Yianni Melas recommended for the first time that Botswana should engage the Gemological Institute of America (GIA) to provide an independent and credible grading, valuing and pricing for her diamonds as well as provide training in all aspects of diamond beneficiation as a basis for building a strong foundation for the emerging beneficiation industry.
â€¨â€¨Unable to find a coherent, cogent and convincing reason against Leviev’s proposal, the Botswana government, De Beers and their supporters in the media resorted to mudslinging, conspiracy theories and a smear campaign against Leviev and his supporters.
As a test case for those in doubt, Melas and Leviev had proposed for the first time, that Botswana set aside only ten per cent of her rough diamond production, a basis for a local diamond cutting and polishing segment to support an emerging jewelry manufacturing and retail industry.
Unlike local supporters of beneficiation who tended to appeal to nationalistic sentiments and rhetoric of patriotism, Leviev argued from an informed position as a practitioner with deep gemological knowledge, experience and understanding of the entire diamond value chain.â€¨â€¨
According to Melas, cutting and polishing segments were not meant to be stand alone but to be fully integrated through backward and forward linkages in the entire diamond value to move Botswana diamond industry a step further as a new and emerging diamond jewelry manufacturing and retail center in order to derive maximum returns from rough diamond production.
Melas and Leviev were advocating for branding Botswana internationally as a major diamond producer, by producing locally, "made in Botswana" an assortment of diamond jewelry, in turn creating new synergies and supporting new enterprises and other sectors of the economy such as air transport and tourism.
Leviev’s business case envisaged a scenario where international jewelry buyers would be persuaded through marketing and advertising to travel to Botswana to buy "made in Botswana" branded diamond jewelry at shops set up at major tourism and urban centers in Botswana like Kasane, Maun and Gaborone, at the same time, promoting the country as a premier retail, tourist, wedding and honeymoon destination.
For instance, for sentimental reasons, newlyweds were to be more pursued through advertising and marketing to prefer to travel to buy their piece of diamond jewelry where it is produced and probably wed and honeymoon at one of Botswana's world renowned and unique ecosystems such as various game reserves and the Okavango.â€¨
Other spinoffs of his business model was support for the development of hotel accommodation and bringing the huge investment and budget in marketing, advertising and promotions of diamonds and their transactions to Botswana which is currently done overseas. â€¨
However instead of seriously considering Leviev’s proposal and according him the opportunity to spearhead the new beneficiation industry because he was more competent than most, Botswana missed the boat by making the wrong policy choices by succumbing to the hostility and rivalry from De Beers.
There was no cogent reason for Botswana to have turned down Leviev’s business case since he was more competent and world renowned to deliver because he was already active and successful at participating in all levels of the diamond chain worldwide.
Botswana’s beneficiation model has been overtaken by events, because the trend now is for greater consolidation and integration through backward and forward linkages of the entire segments of the diamond value chain. In fact other African countries and Industry players are no longer content with specializing in mining and selling diamonds raw at low prices but to add value to them and invest in the entire value chain.â€¨â€¨
Because of lack of transparency in the valuation /and pricing of diamonds generally, Leviev also recommended use of other independent authorities to improve transparency and create an electronic trading platforms for diamonds such as IDEX, Guaranteed Diamond Transactions (GDT system, Rapport Net and DIAMDAX, which collects and supplies polished diamonds price data to a number of firms and utilizes online exchange that offers online trading platforms for polished diamonds using real time spot prices.
Leviev has a track record of being De Beers' most feared competitor after pulling the rug under the feet of De Beers on many occasions for lucrative diamond deals in Russia and successfully putting an end to De Beers' pervasive spell, dominance and gridlock hold on Southern Africa's diamond resources in Namibia and Angola.
Leviev called De Beers' bluff by demonstrating that indeed beneficiation was indeed not only desirable and overdue but also feasible as demonstrated by his impeccable track record internationally at all levels of the diamond value chain. Leviev’s proposal to Botswana diamond value add was unprecedented, more detailed, ambitious and innovative than what Botswana and De Beers ultimately settled for.
Unlike Levier's well thought out proposal, a reluctant De Beers gave Botswana a rope to herself by choosing to concentrate not only on cutting and polishing, but in venturing into the equally risky area aggregation and selling of selling rough stones. This is so because every diamond valuation is subjective.
Two appraisers can differ in their valuations of the same diamond by as much as 30%. A key consideration in diamond pricing is a stone's grade – not a monetary value – which is by no means an exact science but a subjective consideration, so that the same diamond often receive markedly different grades from different laboratories, resulting in large variations in the prices of comparable stones. â€¨
Tracing the diamond value chain is not the only way of measuring how African diamond producers lose on revenue and miss vast opportunities to diamond processing countries overseas.
By way of illustration, Botswana produces an estimated 33% of global diamond production and 75% by value of all the global diamond production and profit enjoyed by De Beers. Jwaneng mine in Botswana is the largest diamond mine in the world by value and third largest by carat volume.
In 2015, industry sources reveal that it is estimated to produce 11.0 million carats valued at $2.4 billion. The second largest diamond producer by value and volume, Orapa also in Botswana is estimated to produce 12.0 million carats in 2015 or $1.2 billion worth of diamonds up from 12.1 million in 2013.
Rio Tinto owned Argyle mine in Australia is the world’s largest in terms of production volume and is estimated to produce 17.5 million carats in 2015 up from 9.2 million in 2014 and expected to reach 20 million carats per annum in 2016. But Arygle diamonds, like those in Zimbabwe’s Marange, are of relatively low quality and colour are expected to fetch much less revenue than both Jwaneng and Orapa.
Yet the so called world diamond hubs have no significant diamond mines but where most of the diamonds from diamond producing countries like Botswana are sold and fully beneficiated makes such diamonds producers a laughing stock of the world and a shame to present future generations.
For example there are six major diamond hubs which aggregate a variety of industry activities in a single venue, including diamond trading centers, dealers and sales offices of cutting and polishing companies.
Spot trading of rough and polished diamonds between a buyer and a seller takes place in the sales offices. By contrast, Botswana generates revenues roughly of between US$1-2 billion on average per annum from its massive diamond production, and yet the traditional hub of New York, produces $35 – 40 billion turnover per year, hosts about 2600 diamond businesses.
Dubai with no single diamond mine, makes $40 -45 billion per year, and provides services to more than 500 regional and international diamond companies and is the fastest growing hub in recent years, according to the Bain report and INDEX.
Antwerp generates $50-56 billion per year, hosts four major diamond exchanges and 1500 diamond companies and is the largest diamond hub in the world. Mumbai attracts between $25-30 billion in turnover, is home to 2500 diamond offices and handles 60% of diamond exports from India.
The diamond hubs of Dubai and Hong Kong are luring trade with zero taxes on imports and exports and by exploiting their proximity to the cutting and polishing industry in China and India, while the traditional hubs on Antwerp, New York and Tel Aviv have opted to specialize by focusing on high value stones, well developed infrastructure and favorable tax revenues.â€¨
Botswana's potential to grow into a major cutting and polishing center is therefore limited on the basis of the opinion of Bains and Company report. It argues among others that the country's labour costs are high compared to those of China and India and its cutters lack expertise comparable to that of the craftsmen in Europe, Israel and the US.
The growth of Botswana's cutting industry may well be limited until it is better able to compete on cost with the industry in India and China. Cutting and polishing costs average range from approximately $100 per carat in Antwerp, New York and Tel Aviv, to $20 to $56 in China and Thailand and $10 to $30 in India.
However, Botswana still enjoys much competitive advantages to excel in diamond beneficiation across the entire value chain because unlike other cutting and polishing centers, she has access to secure supplies of rough diamonds and ability to resell.
But cost competition amongst cutters and polishers has intensified, making new investments in efficiency necessary while financing for working capital is growing harder and harder to obtain. Competition for access to key customers in jewelry manufacturing is heating up, while there is a never ending challenge of securing stones at prices that make economic sense.
At the upstream end of the value chain, the key challenges for retailers are to secure a supply of diamonds jewelry appropriate to their customer base and ensure that the diamonds in their jewelry are ethically secured, forcing many firms into more consolidation and integration of the entire value chain, according to the Bains and Company report.â€¨
Moreover, Botswana beneficiation model in aggregation and the sale of rough diamonds has severe limitations because there is no spot market for rough or polished diamonds, which are primarily sold through private contracts, with no public disclosure of negotiated prices.
Diamond producers have a compelling motivation to realize the highest possible price as prices directly affect their profitability. This desire may negatively affect the profitability of cutters and polishers who are in need of secure access to supplies of rough diamonds and ability to resell at competitive prices.
Cost competition among cutters and polishers has intensified naming new investments in efficiency necessary at a time when financing for working capital growing harder and harder to obtain. Competition for access to key customers in jewelry manufacturing is heating up.
There is also a never ending challenge of securing access to stones that make economic sense on the evidence of the Bains and Company report.â€¨â€¨Unlike Leviev's well thought out proposal, a reluctant De Beers has been calculative and seems to have given Botswana a rope to herself by choosing to concentrate not only on cutting and polishing, but in venturing into the equally risky area aggregation and selling of selling rough stones. This is so because every diamond valuation is subjective.
Two appraisers can differ in their valuations of the same diamond by as much as 30%. A key consideration in diamond pricing is a stone's grade – not a monetary value – which is by no means an exact science but a subjective consideration, so that the same diamond receives markedly different grades from different laboratories, resulting in large variation in the prices of comparable stones.
Although a substantial mark- up occurs at the cutting and polishing stages, it is only the countries and firms that are able to find the most cost effective, quality assured and increasingly safest means of doing so that will be globally competitive in the future.
Moreover, says Bains and Company, there is no spot market for rough or polished diamonds, which are primarily sold through private contracts, with no public disclosure of negotiated prices. Diamond producers have a compelling motivation to realize the highest possible price as prices directly affect their profitability.
This desire may negatively affect the profitability of cutters and polishers who are in need of secure access to supplies of rough diamonds and ability to resell at competitive prices. Cost competition among cutters and polishers has intensified naming new investments in efficiency necessary at a time when financing for working capital is growing harder and harder to obtain. Competition for access to key customers in jewelry manufacturing is heating up.
Despite Covid-19 interrupting trade worldwide, exporting companies in Botswana which benefited from the Botswana Investment and Trade Centre (BITC) services realised P2.96 billion in export earnings during the period from April 2020 to March 2021.
In the preceding financial year, the sale of locally manufactured products in foreign markets had registered export revenue of P2, 427 billion against a target of P3, 211 billion BITC, which celebrates 10 years since establishment, continues to carry out several initiatives targeted towards expanding the Botswana export base in line with Botswana’s desire to be an export led economy, underpinned by a robust export promotion programme in line with the National Export Strategy.
The main products exported were swamp cruiser boats, pvc tanks and pvc pipes, ignition wiring sets, semi-precious stones, veterinary medicines, hair braids, coal, textiles (towels and t-shirts) and automobile batteries. These goods were destined mainly for South Africa, Zimbabwe, Austria, Germany, and Namibia.
With Covid-19 still a problem, BITC continues to roll out targeted virtual trade promotion missions across the SADC region with a view to seeking long-lasting market opportunities for locally manufactured products.
Recently, the Centre facilitated participation for Botswana companies at the Eastern Cape Development Council (ECDC) Virtual Export Symposium, the Botswana-Zimbabwe Virtual Trade Mission, the Botswana-Zambia Virtual Trade Mission, Botswana-South Africa Virtual Buyer/Seller Mission as well as the Botswana-Namibia Virtual Trade Mission.
BITC has introduced an e-Exporting programme aimed at assisting Botswana exporters to conduct business on several recommended e-commerce platforms. Due to the advent of COVID-19, BITC is currently promoting e-trade among companies through the establishment of e-commerce platforms and is assisting local companies to embrace digitisation by adopting e-commerce platforms to reach export markets as well as assisting local e-commerce platform developers to scale up their online marketplaces.
During the 2019/2020 financial year, BITC embarked on several initiatives targeted at growing exports in the country; facilitation of participation of local companies in international trade platforms in order to enhance export sales of local products and services into external markets.
BITC also helped in capacity development of local companies to compete in global markets and the nurturing of export awareness and culture among local manufacturers in order to enhance their skills and knowledge of export processes; and in development and implementation of trade facilitation tools that look to improve the overall ease of doing business in Botswana.
As part of building export capacity in 2019/20, six (6) companies were selected to initiate a process to be Organic and Fair Trade Certified. These companies are; Blue Pride (Pty) Ltd, Motlopi Beverages, Moringa Technology Industries (Pty) Ltd, Sleek Foods, Maungo Craft and Divine Morula.
In 2019 seven companies which were enrolled in the Botswana Exporter Development Programme were capacitated with attaining BOBS ISO 9001: 2015 certification. Three (3) companies successfully attained BOBS ISO 9001:2015 certification. These were Lithoflex (Pty) Ltd, General Packaging Industries and Power Engineering.
BITC’s annual flagship exhibition, Global Expo Botswana (GEB) to create opportunities for trade and strategic synergies between local and international companies. The Global Expo Botswana) is a premier business to business exposition that attracts FDI, expansion of domestic investment, promotion of exports of locally produced goods and services and promotion of trade between Botswana and other countries.
The portal also provides information on; measures, legal documents, and forms and procedures needed by Botswana companies that intend on doing business abroad. BITC continues to assist both potential and existing local manufacturing and service entities to realise their export ambitions. This assistance is pursued through the ambit of the Botswana Exporter Development Programme (BEDP) and the Trade Promotion Programme.
BEDP was revised in 2020 in partnership with the United Nations Development Programme (UNDP) with a vision to developing a diversified export-based economy. The programme focuses mostly on capacitating companies to reach export readiness status.
Prices for goods and services in this country continue to increase, with the latest figures from Statistics Botswana showing that in May 2022, inflation rate rose to 11.9 percent from 9.6 percent recorded in April 2022.
According to Statistics Botswana update released this week, the largest upward contributions to the annual inflation rate in May 2022 came from increase in the cost of transport (7.2 percent), housing, water, electricity, gas & other Fuels (1.4 percent), food & non-alcoholic beverages (1.1 percent) and miscellaneous goods & services (0.8 percent).
With regard to regional inflation rates between April and May 2022, the Rural Villages inflation rate went up by 2.5 percentage points, from 9.6 percent in April to 12.1 percent in May 2022, according to the government owned statistics entity.
In the monthly update the entity stated that the Urban Villages inflation rate stood at 11.8 percent in May 2022, a rise of 2.4 percentage points from the April rate of 9.4 percent, whereas the Cities & Towns inflation rate recorded an increase of 1.9 percentage points, from 9.9 percent in April to 11.8 percent in May.
Commenting on the national Consumer Price Index, the entity stated that it went up by 2.6 percent, from 120.1 in April to 123.2 in May 2022. Statisticians from the entity noted that the transport group index registered an increase of 7.3 percent, from 134.5 in April to 144.2 in May, mainly due to the rise in retail pump prices for petrol and diesel by P1.54 and P2.74 per litre respectively, which effected on the 13th of May 2022.
The food & non-alcoholic beverages group index rose by 2.6 percent, from 118.6 in April 2022 to 121.6 in May 2022 and this came as a result of increase in prices of oils & fats, vegetables, bread & cereal, mineral waters, soft drinks, fruits & vegetables juices, fish (Fresh, Chilled & Frozen) and meat (Fresh, Chilled & Frozen), according to the Statisticians.
The Statisticians said the furnishing, household equipment & routine maintenance group index rose by 1.0 percent, from 111.6 in April 2022 to 112.7 in May 2022 and this was attributed to a general increase in prices of household appliances, glassware, tableware & household utensils and goods & services for household maintenance.
The prices for clothing & footwear group index moved from 109.4 to 110.4, registering a rise of 0.9 percent during the period under review. Bank of Botswana has projected higher inflation in the short term, associated with the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices and added that the possible increase in public service salaries could add also upward pressure to inflation in this country.
In the latest June 2022 global economic prospects, released last week the World Bank has warned that low global economic growth and economic activity in global commodity markets such as China and Europe could negatively affect export revenues for Botswana and other Sub Saharan countries.
Recent data from Statistics Botswana show that Botswana’s exports destined to the global markets such as Asia and the European Union (EU) on monthly basis accounts for around 60.1 percent and 20.1 percent respectively.
The World Bank last week lowered its 2022 projections of global economic growth and indicated that the new forecasts could be bad news for countries like Botswana who are dependent on export mineral revenues. The Bank noted that just over two years after COVID-19 caused the deepest global recession since World War II, the world economy is again in danger and stated that this time it is facing high inflation and slow growth at the same time.
In the recent June projections, the bank lowered its forecast of global economic growth from the January 4.1 percent to 2.1 percent. “Our June forecasts reflect a sizable downgrade to the outlook: global growth is expected to slow sharply from 5.7 percent in 2021 to 2.9 percent this year. This also reflects a nearly one-third cut to our January 2022 forecast for this year of 4.1 percent,” a team of World Bank economists noted in the June 2022 Global Economic Prospects.
The World Bank indicated that exports from Botswana and other Sub Saharan countries could suffer from a substantial deceleration of activity in China and Europe. The Bank noted that exporters of industrial metals, crude oil, and ores such as Angola, Democratic Republic of Congo, Republic of Congo, South Africa, and Zambia could suffer from a substantial deceleration of activity in China.
On the other hand a sharp contraction of growth in the euro area could hurt exporters of agricultural products such as beef, coffee, tea, tobacco, cotton, and textiles from Botswana, Ethiopia, Madagascar and Malawi. “The faster-than-expected deceleration of the global economy and increased volatility of commodity prices could hurt many SSA commodity exporters,” said World Bank President David Malpass.
Malpass indicated that subdued growth in the global markets for Botswana and other Sub Saharan exports will likely persist throughout the decade because of weak investment in most of the world.
He noted that with inflation now running at multi-decade highs in many countries and supply expected to grow slowly, inflation could remain higher for longer than currently anticipated. “Even if a global recession is averted, the pain of stagflation could persist for several years— unless major supply increases are set in motion. Amid the war in Ukraine, surging inflation, and rising interest rates, global economic growth is expected to slump in 2022. Several years of above-average inflation and below-average growth are now likely,” said Malpass.