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Economist warns Botswana of risks in global diamond industry

Keith Jefferi

Renowned economist and Senior Policy Advisor in the Ministry of Finance, Dr Keith Jefferis has warned that the economic sanctions imposed on Russia by the western powers is not necessary good news to the diamond market, warning that the development could bring other risks detrimental to Botswana’s economic interests.

The United States, the United Kingdom, the European Union and other western countries moved to impose economic sanctions on Russia in February following the country’s invasion of its neighbour; Ukraine.

The sanctions have major impact on the diamond industry as Russian is the world’s leading diamond producer by volume. Through Alrosa, a Russia state controlled diamond company with 33 percent of federal government ownership, and another 25 percent held by local authorities, the diamond industry is losing supply from the company.

Alrosa accounts for about a third of global supply of rough stones, about the same level as De Beers, which had a monopoly until the start of the century.

While De Beers — which jointly owns Debswana Diamond Company with the Government of Botswana – is generally expected to benefit from the Alrosa setback, Jefferis warns of unexpected negative developments.

“Potentially, if diamonds [Russia] are outside the market, maybe that will benefit Botswana; Debswana and Lucara. The problem is that at the moment it is very difficult to distinguish diamonds in terms of where they come from, and there is a lot of resistance in the US in particular, which is the biggest market, to Russian diamonds,” Jefferis told WeekendPost following his presentation at Absa’s Economic Forum held this week in Gaborone.

“And the danger is that because diamonds are not distinguishable, they may just be anti-diamonds as a whole. The whole value chain does not make it easy to keep diamonds of different origins separate; cutting, polishing, jewellery manufacturing, so there is a danger that despite the sanctions, the Russian diamonds mix with other diamonds including Botswana.”

Jefferis, the one-time Bank of Botswana (BoB), Deputy Governor, indicated that the second problem is that because Russian diamonds are restricted, and there is supply issue, it may cause the price of diamonds to go up, and inadvertently create opportunity for synthetic diamonds in the market.

“In the short term that is good for us, we benefit. It may also see competition from synthetic diamonds as natural diamonds become more expensive, we may find that lab grown diamonds penetrate more and more of the market, and that is not good for us in the long term,” he said.

“Those are the main risks, but if we can clearly distinguish our diamonds from Russian diamonds, there is also an opportunity there.”

Alrosa has continued to supply its diamonds to Indian, for cutting and polishing, which then allows Indian to sell the diamonds to the rest of the world including the US. Indian diamonds are not sanctioned by the US and other western powers. Substantive processing, which diamonds undergo in India, changes the country of origin under the World Trade Organisation (WTO) rules.

Jefferis fears that the technicalities that allow Russian diamonds to eventually reach other market through India are still not enough to prevent anti-diamond sentiments because the diamonds are still of “Russian origin.”

It is, however, reported that diamonds have stopped flowing from Russian mines to Surat — the world’s diamond-cutting epicentre — because Indian banks are unable or unwilling to process payments.

Buyers across the big trading centres, Bloomberg reported, in Antwerp and Dubai and manufacturing hubs in India have spent the past two weeks consulting lawyers to determine what the US sanctions on Alrosa PJSC mean and how they can continue to buy.

According to reports, rough diamond prices have surged in the past year as US consumers, by far the most important market, bought a record amount of jewellery. That created a boom for the companies that trade, cut and manufacture diamonds.

The opportunity has opened for De Beers, as it is likely to reclaim its spot as the biggest producer of diamonds by volume and value. De Beers will be the primary beneficiary of the status qou as the major alternative being to supply the global market with ethical, clean and natural diamonds.

De Beer is also in the space of lab grown diamonds, following its investment in 2018. De Beers launched a new company called Lightbox Jewelry that markets laboratory-grown diamond Jewellery under the Lightbox name.

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Over 2 000 civil servants interdicted

6th December 2022

Over 2,000 civil servants in the public sector have been interdicted for a variety of reasons, the majority of which are criminal in nature.

According to reports, some officers have been under interdiction for more than two years because such matters are still being investigated. Information reaching WeekendPost shows that local government, particularly councils, has the highest number of suspended officers.

In its annual report, the Directorate on Corruption and Economic Crime (DCEC) revealed that councils lead in corrupt activities throughout the country, and dozens of council employees are being investigated for alleged corrupt activities. It is also reported that disciplined forces, including the Botswana Defence Force (BDF), police, and prisons, and the Directorate of Intelligence and Security (DIS) have suspended a significant number of officers.

The Ministry of Education and Skills Development has also recorded a good number of teachers who have implicated in love relationships with students, while some are accused of impregnating students both in primary and secondary school. Regional education officers have been tasked to investigate such matters and are believed to be far from completion as some students are dragging their feet in assisting the investigations to be completed.

This year, Mmadinare Senior Secondary reportedly had the highest number of pregnancies, especially among form five students who were later forcibly expelled from school. Responding to this publication’s queries, Permanent Secretary to the Office of the President Emma Peloetletse said, “as you might be aware, I am currently addressing public servants across the length and breadth of our beautiful republic. Due to your detailed enquiry, I am not able to respond within your schedule,” she said.

She said some of the issues raised need verification of facts, some are still under investigation while some are still before the courts of law.

Meanwhile, it is close to six months since the Police Commissioner Keabetwe Makgophe, Director General of the Directorate on Corruption and Economic Crime (DCEC) Tymon Katlholo and the Deputy Director of the DIS Tefo Kgothane were suspended from their official duties on various charges.

Efforts to solicit comment from trade unions were futile at the time of going to press.

Some suspended officers who opted for anonymity claimed that they have close to two years while on suspension. One stated that the investigations that led him to be suspended have not been completed.

“It is heartbreaking that at this time the investigations have not been completed,” he told WeekendPost, adding that “when a person is suspended, they get their salary fully without fail until the matter is resolved”.

Makgophe, Katlholo and Kgothane are the three most high-ranking government officials that are under interdiction.

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Masisi to dump Tsogwane?

28th November 2022

Botswana Democratic Party (BDP) and some senior government officials are abuzz with reports that President Mokgweetsi Masisi has requested his Vice President, Slumber Tsogwane not to contest the next general elections in 2024.

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African DFIs gear to combat climate change

25th November 2022

The impacts of climate change are increasing in frequency and intensity every year and this is forecast to continue for the foreseeable future. African CEOs in the Global South are finally coming to the party on how to tackle the crisis.

Following the completion of COP27 in Egypt recently, CEOs of Africa DFIs converged in Botswana for the CEO Forum of the Association of African Development Finance Institutions. One of the key themes was on green financing and building partnerships for resource mobilization in financing SDGs in Africa

A report; “Weathering the storm; African Development Banks response to Covid-19” presented shocking findings during the seminar. Among them; African DFI’s have proven to be financially resilient, and they are fast shifting to a green transition and it’s financing.

COO, CEDA, James Moribame highlighted that; “Everyone needs food, shelter and all basic needs in general, but climate change is putting the achievement of this at bay. “It is expensive for businesses to do business, for instance; it is much challenging for the agricultural sector due to climate change, and the risks have gone up. If a famer plants crops, they should be ready for any potential natural disaster which will cost them their hard work.”

According to Moribame, Start-up businesses will forever require help if there is no change.

“There is no doubt that the Russia- Ukraine war disrupted supply chains. SMMEs have felt the most impact as some start-up businesses acquire their materials internationally, therefore as inflation peaks, this means the exchange rate rises which makes commodities expensive and challenging for SMMEs to progress. Basically, the cost of doing business has gone up. Governments are no longer able to support DFI’s.”

Moribame shared remedies to the situation, noting that; “What we need is leadership that will be able to address this. CEOs should ensure companies operate within a framework of responsible lending. They also ought to scout for opportunities that would be attractive to investors, this include investors who are willing to put money into green financing. Botswana is a prime spot for green financing due to the great opportunity that lies in solar projects. ”

Technology has been hailed as the economy of the future and thus needs to be embraced to drive operational efficiency both internally and externally.

Executive Director, bank of Industry Nigeria, Simon Aranou mentioned that for investors to pump money to climate financing in Africa, African states need to be in alignment with global standards.

“Do what meets world standards if you want money from international investors. Have a strong risk management system. Also be a good borrower, if you have a loan, honour the obligation of paying it back because this will ensure countries have a clean financial record which will then pave way for easier lending of money in the future. African states cannot just be demanding for mitigation from rich countries. Financing needs infrastructure to complement it, you cannot be seating on billions of dollars without the necessary support systems to make it work for you. Domestic resource mobilisation is key. Use public money to mobilise private money.” He said.

For his part, the Minster of Minister of Entrepreneurship, Karabo Gare enunciated that, over the past three years, governments across the world have had to readjust their priorities as the world dealt with the effects and impact of the COVID 19 pandemic both to human life and economic prosperity.

“The role of DFIs, during this tough period, which is to support governments through countercyclical measures, including funding of COVID-19 related development projects, has become more important than ever before. However, with the increasingly limited resources from governments, DFIs are now expected to mobilise resources to meet the fiscal gaps and continue to meet their developmental mandates across the various affected sectors of their economies.” Said Gare.

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