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Botswana’s diamond beneficiation hits a snag

A dark cloud hangs menacingly over the future of Botswana’s nascent diamond beneficiation and the truth must be told and credit given where it is due.  The future of the project hangs in the balance and its failure seems predetermined because of inherent structural problems, choice of the most risky and least profitable part of the diamond value chain, and lack of support and ownership of the idea from those tasked with the responsibility of spearheading it.

Diamond cartel, De Beers, motivated by greed and self-interest and opposed to diamond beneficiation from the onset, seems to have found a perfect opportunity to give Botswana a rope to hang and assured the ultimate demise of Botswana’s attempt at diamond value add.

More importantly, Botswana and other diamond producing countries have missed the boat and been overtaken by events simply because the global diamond industry has changed drastically in the recent past.  Diamond players are no longer content with concentrating their business on a single segment of the diamond value chain.

Diamond producers such as Botswana agitating for beneficiation, should have learned a long time ago that cutting and polishing are very risky segments of the business not without their own fundamental problems. Now best practices globally now are for more consolidation characterized by more vertical and horizontal integration along the whole diamond value chain.

Cutting and polishing segment is globally the least profitable realizing the lowest profit margins with some companies earning as little as 1-2 percent, while by comparison, upstream (mining and exploration) and downstream end of the value chain enjoy the highest profits margins of 16- 20 percent and 11 percent to 14 percent respectively.


Some things just did not add up from the beginning and it has never been difficult to discern that the project was not conceived in good faith. There was a lot of hostility at project conceptualization by and between Botswana government and De Beers who over decades were vehemently opposed to any calls for diamonds beneficiation dismissing them as both unworkable and illusionary and rubbishing everyone who dared advance a contrary view.

De Beers and their supporters in government and sections of the media pushed the anti-beneficiation paradigm with much vigor seeking to lock Botswana permanently relegated as a backward factor driven, and nineteen century mercantilist styled economy selling its diamond raw in the international market while De Beers, trying by all means to keep Botswana in the dark by parroting anti-beneficiation propaganda while it alone participated globally in all stages of the diamond value chain.

De Beers’ motive was clear according to diamond industry expert Chaim Even Zohar because, "historically Botswana provided up to two-thirds of De Beers profits. In all fairness, one can fully understand that the cartel went to any length to protect its interests, though it is hard to approve its methods".



There is therefore,  a dichotomy that that the very staunch opponents of diamond beneficiation have now assumed the responsibility spearheading the very idea they were opposed to all along and even rubbished anyone who dared to advance opposite view. 

There appears to be an unavoidable coincidence between the instability and uncertainty surrounding Botswana's belated and faltering attempts at diamond beneficiation and De Beers' historical opposition and disdain. Diamond beneficiation proceeded without thorough due diligence, choice of suitable, experienced and capable equity partner with a strong track record in diamond beneficiation.

De Beers was deeply conflicted and was never the right choice. Just as any project of that magnitude would require a social and environmental impact assessment, so too was a human resources impact assessment required but omitted in order to determine the number and appropriate skills mix to support the project.

So no concerted training to deliver the necessary skills mix was done nor were any training institutions identified to provide targeted and appropriate training in all aspects of gemology, either locally or abroad. Instead, heavy reliance was put on the benevolence of outsiders and imported workers in critical areas at high cost to the nation rather than the enterprise of citizens.


It is therefore no wonder that the beneficiation was programmed to fail from the onset because of lack of ownership and conviction from those tasked with its implementation and to make the idea work. De Beers derived huge and disproportionate benefits from the status quo and from the Botswana diamond industry in general and it was not surprisingly it had strong interest to keep things that way.

While De Beers globally participates in all stages along the diamond value chain, the greatest share of the value of the world diamond production it handles are derived from Botswana yet the company abused this privilege by seeking to hoodwink its leadership by hook or crook to perpetually  lock her in the relatively inconsequential and less profitable mining and rough diamond aggregation and sales.


By contrast, Paul Rowley De Beers' executive Vice President of global sightholder sales let the cat out the bag recently when he told the Dubai Diamond Conference in April that De Beers was active in throughout the diamond pipeline, through targeted investment in diamond equity at the retail end, midstream in rough diamond sales and distribution and in mining expansion.

"At De Beers, we continue to make investments throughout the value chain that we believe will drive our success in the years ahead and all participants in the diamond industry have a chance to of likewise".



Logic dictates that it is simply unbelievable that those who were so vehemently opposed to the beneficiation of Botswana diamonds, namely De Beers and Botswana government supported by some conservative sections of the media and who thoroughly discredited and rubbished anyone who held a contrary view would now by any stretch imagination be convincingly tasked with the responsibility of spearheading the implementation of the very idea they had thoroughly discredited.

For decades both De Beers and Botswana claimed that beneficiation was not feasible and that Botswana, a world leading diamond producer of the best quality diamonds by value did not enjoy any comparative and competitive advantage other things being equal.



They shied away from the stark reality that the mark-up of diamonds increases exponentially as it passes through the value chain. Beneficiation is the creation of activities beyond mining the natural resource in producing countries as a means of adding value. Out of the ground, rough diamonds move through the pipeline from dealers to diamond cutters and polishers, to jewelry manufacturers, retail stores and finally to consumers.

According to authoritative diamond industry report Bain and Company, the value of diamond increases significantly as they move along the diamond chain from the mine to the final market, nearly quintuple over the course of the journey.

The great value – US$25 billion or more in both cases is added at the jewelry manufacturing and retail stages, Jewelry manufacturing is estimated at approximately 65% of the retail sales based on historic average.

By way of illustration, Bain and Company when rough diamond production generates revenues of $14.8 billion, the revenue will grow to $47.2 billion when the diamonds are manufactured into jewelry and grow again to $72 billion when the jewelry is sold at retail, quoting IDEX; Tacy Ltd and Chaim Even-Zohar and Diamond Value Chain of 2010.

Maximizing return on assets of rough diamonds very valuable but the ending price of diamond jewelry is worth much more, according to mining academic Rudnicka (2010).

The trend in the world is to shorten the supply chain between the rough coming out of the mine and the shop window through vertical and horizontal integration of the production value chain. By way of example, Rudincka says, Lev Leviev, chairman of Leviev Group of Companies, controls the biggest pit mine, is the world's largest polisher and cutter of diamonds, and own Leviev boutique in London and New York.

De Beers owns diamond shops in London, Paris, Tokyo and Los Angeles (Doulton, 2006). Tiffany and Co for the last 172 years avoided cutting and polishing its own diamonds, but has since decided to move backwards in the supply chain.

In 2002, it began opening cutting and polishing plants in Canada, Belgium, South Africa and Vietnam and later adding operations in China and Mauritius (O'Connely, 2009). Harry Winston Diamond Corp, now owns 40% of Davitz Diamond mine in Canada and retail stores in New York, Paris, Tokyo and planned to open others in the United States, Beijing and Hong Kong.


This has given the company access to the more profitable ends of the diamond value chain – the contract wholesale and retail business because the highest potential for profit lies in retail, because as a rough diamond moves from the mines, it increases exponentially by 320 percent at retail (Covert, 2007).

Bains and Company argue that diamond jewelry manufacturing and retail is the highest level of production that many countries aspire to upgrade to and manufacturing centers hold a lot of power in the final distribution of diamonds which has the highest potential for profit. 

Although rough diamond production remains the most lucrative in terms of profit margins estimated at between 16 -20 percent, the only other segment that generates comparable margins is retail, where large chains such as Tiffany and Company and Cartier can archive margins of 11-14 percent. 



Concentrating on mining alone is outdated on the evidence of diamond industry experts and policy makers. To meet the challenges of getting adequate supplies of the right mix of diamond jewelry, some large retailers have extended their operations upstream, investing in mines and in cutting and polishing companies. Tiffany and Company is one retailer who had made such and investment.

Hong Kong Chow Tai Fook, the world's largest vertically integrated jeweler and has responded to the supply challenge by securing long term supply contracts with ALROSA to supplement earlier agreements with De Beers and Rio Tinto. About half of the polished diamonds used in Chow Tai Fook jewelry were produced in-house.

Chow Tai Fook, and Tiffany and Company have already invested in mining operations and integrated backward by acquiring mines and eventually middle market operations. As rough diamond sales are likely to decline, the victim of consolidation will be cutting and polishing firms.

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Business

Gambling Authority tender dangles as a jittery lottery quandary

30th November 2020
SEFALANA MD: CHANDRA CHAUHAN

Lucrative and highly anticipated national lottery tender that saw several Batswana businessmen partnering to form a gambling consortium to pit against their South African counterparts, culminates into a big power gamble.

WeekendPost has had a chance to watch lottery showcase even before the anticipated and impending national lottery set-up launches. A lot has been a big gamble from the bidding process which is now set for the courts next year January following a marathon legal brawl involving the interest of the gambling fraternity in Botswana and South Africa.

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The uncertainty of getting the next meal in Botswana

30th November 2020
uncertainty of getting the next meal

Households representing more than half of Botswana’s population-mostly residing in rural areas- do not know where their next meal will come from, but neither do they take into consideration the quality and/or quantity of the food they consume.

This is according to the latest Prevalence of Food Insecurity in Botswana report which was done for the 2018/19 period and represents the state of food insecurity data even to this time.
The Prevalence of Food Insecurity was released by Statistics Botswana and it released results with findings that the results show that at national level 50.8 percent of the population in Botswana was affected by moderate to severe food insecurity in 2018/19, while 22.2 percent of the population was affected by severe food insecurity only.

According to the report, this translates to 27 percent of the population being food secure that is to say having adequate access to food in both quality and quantity. According to Statistician General, Burton Mguni, when explaining how the food data was compiled, Food and Agriculture Organization of the United Nations (FAO), is custodian of the “Prevalence of Undernourishment (PoU)” and “Prevalence of moderate or severe food insecurity in the population based on the Food Insecurity Experience Scale (FIES)” SDG indicators, for leading FIES data analysis and the resultant capacity building.

“The FIES measures the extent of food insecurity at the household or individual level. The indicator provides internationally comparable estimates of the proportion of the population facing moderate to severe difficulties in accessing food. The FIES consists of eight brief questions regarding access to adequate food, and the questions are answered directly with a yes/no response. It (FIES) complements the existing food and nutrition security indicators such as Prevalence of Undernourishment.

According to the FIES, with increasing severity, the quantity of food consumed decreases as portion sizes are reduced and meals are skipped. At its most severe level, people are forced to go without eating for a day or more. The scale further reveals that the household’s experience of food insecurity may be characterized by uncertainty and anxiety regarding food access and compromising the quality of the diet and having a less balanced and more monotonous diet,” says Mguni.

The 50.8 percent of the population in Botswana which was affected by moderate to severe food insecurity are characterized as people experiencing moderate food insecurity and face uncertainties about their ability to obtain food. These people have been forced to compromise on the quality and/or quantity of the food they consume according to the report on food insecurity.

Those who experience severe food insecurity, the 22.2 percent of the population, are people who have typically run out of food and, at worst, gone a day (or days) without eating. According to the statistics, rural area population experienced moderate to severe food insecurity at 65 percent while urban villages were at 46.60 percent and cities/town were at 31.70 percent. Those experiencing the most extreme and severe insecurity were at rural areas making 33.10 percent while urban villages and towns were at 11.90 percent and 17.50 respectively.

According to a paper compiled by Sirak Bahta, Francis Wanyoike, Hikuepi Katjiuongua and Davis Marumo and published in December 2017, titled ‘Characterization of food security and consumption patterns among smallholder livestock farmers in Botswana,’ over 70 percent of Botswana’s population reside in rural areas, and majority (70%) relies on traditional/subsistence agriculture for their livelihoods.

The study set out to characterize the food security situation and food consumption patterns among livestock keepers in Botswana. “Despite the policy change, challenges still remain in ensuring that all persons and households have access to food at all times. For example, during an analysis of the impacts of rising international food prices for Botswana, BIDPA reported that food prices tended to be highest in the rural areas already disadvantaged by relatively low levels of income and high rates of unemployment,” said the study.

According to the paper, about 9 percent of households were found to be food insecure and this category of households included 6 percent of households that ranked poorly and 3 percent that were on the borderline according to the World Food Programme’s (WFP) definition of food security.

Media reports state that the World Bank has warned that disruption to production and supply chains could ‘spark a food security crisis’ in Africa, forecasting a fall in farm production of up to 7 percent, if there are restrictions to trade, and a 25 percent decline in food imports.

Food security in Botswana or food production was also attacked by the locust pandemic which swept out this country’s vegetation and plants. The locust is said to have contributed to 25 percent loss in production.

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Solid demand for diamonds towards the ‘gift’ season

30th November 2020
Diamonds

Global lockdown have been a thorn in diamonds having shiny sales, but a lot of optimism shows with the easing of Covid-19 restrictions, the precious stones will be bought with high volumes towards festive season. The diamond market is however warned of the resurgence of Covid-19 in key markets presents ongoing risks amid the presence and optimist about the new Covid-29 vaccines.

The latest findings published as De Beers Group’s latest Diamond Insight ‘Flash’ Report, which looks at the impact of the pandemic on relationships and engagements, has revealed that in the US that more couples than ever are buying diamond engagement rings. Bridal sales is mostly the primary source of diamond jewellery demand in recent months, De Beers said.

According to De Beers, interviews with independent jewellers around the US revealed that the rate of couples getting engaged has increased compared with the period when Covid-19 first had an impact in the US in the spring.

“In addition, despite challenging economic times, consumers were spending more than ever on diamond engagement rings – often upgrading in colour, cut and clarity, rather than size. Several jewellers speculated that with consumers spending less on elaborate weddings and/or honeymoons in the current environment, they had more to spend on choosing the perfect ring,” said De Beers.

According to De Beers, a national survey of 360 US women in serious relationships, undertaken in late October in collaboration with engagement and wedding website, The Knot. This survey is said to have found that the majority of respondents (54%) were thinking more about their engagement ring than the wedding itself (32%) or the honeymoon (15%), supporting jewellers’ hypothesis that engagement ring sales were benefiting from reduced wedding and travel budgets in light of Covid-19 restrictions.

When it came to researching engagement rings, online was by far the predominant channel for gaining ideas/inspiration at 86% of consumers surveyed, with 85% saying they had saved examples of styles they liked, according to De Beers. According to the survey, only a uarter of respondents said they had looked in-store at a physical location for design inspiration.

“For many couples, the pandemic has brought them even closer together, in some instances speeding up the path to engagement after forming a deeper connection while experiencing lockdown and its associated ups and downs as a partnership. Engagement rings are taking on even greater symbolism in this environment, with retailers reporting couples are prepared to invest more than usual, particularly due to budget reductions in other areas,” De Beers CEO Cleaver said.

According to De Beers Group, its Diamond Insight Flash Report series is focused on understanding the US consumer perspective in light of Covid-19 and monitoring how it evolves as the crisis evolves. Also, the company said, it is augmenting its existing research programme with additional consumer, retailer and supply chain touch-basis to understand the pain points and the opportunities for stakeholders across the diamond pipeline.

Demand for diamonds is as hard and resilient as the precious stone itself. De Beers pocketed US$ 450 million in its recently held ninth rough diamond sales cycle, and the company says it is more flexible approach to rough diamond sales during the ninth sales cycle of 2020, with the Sight event extended beyond its normal week-long duration.

“Steady demand for De Beers Group’s rough diamonds continued in the ninth sales cycle of the year, reflecting stable consumer demand for diamond jewellery at the retail level in the US and China, and expectations for reasonable demand to continue throughout the holiday season. However, the resurgence of Covid-19 infections in several consumer markets presents ongoing risks,” said De Beers CEO Bruce Cleaver recently.

High expectations are on diamonds being a sentimental gift for holiday season or as the most fetished gift. However the ninth cycle was lower than the eighth which registered US$ 467 million. For the last year period which corresponds with the current one, De Beers managed to raise US$ 400.

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