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23 july 2012

Botswana is regarded as the world’s leading diamond producer by value and the second largest producer by volume after Russia.

Of late the economy of the southern African nation had been under pressure given the somewhat poor performance of the diamond industry due to the euro-zone debt crisis and weakening of the Indian rupee against the United States dollar.

Botswana even faced serious economic challenges in 2008 when the world’s economy made a complete volte-face resulting in a slump of global gem prices by about 60 percent.

Some of Botswana's diamond mines were closed for the first time, resulting in lower export receipts and revenues for the government.

Botswana’s budget deficit blew up to 15 percent of GDP, a move that forced the government to seek an emergency $1.5 billion loan from the African Development Bank to sustain its operations.

Diamonds contributed over 30 percent to the country’s GDP and over 50 percent to the government’s revenue.

Although, Gaborone was fully aware of the need to diversify the economy, it thinks that diamonds still had a big role to play towards the country’s economic development.

Rough & Polished’s Mathew Nyaungwa spoke to Botswana’s Minerals, Energy and Water Resources minister Ponatshego Kedikilwe who said that the new sales agreement reached with De Beers last year, was as an economic boon for the country.

He said there would be economic gains to be realised in tourism, finance, the real estate and transport sectors.

Our African Bureau Editor-In-Chief witnessed a massive infrastructure development in the Gaborone, as the country prepares to welcome the international diamond buyers.

He said new hotels were being built, the Sir Seretse Khama International Airport was getting a facelift and so were the roads.

Below is the full text of the interview.

The Oppenheimer family agreed to sell its 40 percent stake in De Beers to Anglo American last year and I want to find out if Botswana will make use of an option to increase its stake in De Beers by 10 percent to 25 percent?

I think the best point in time; I would want to cross that bridge when I come to it because there are processes and approaches that have to be adopted before one can make a definitive statement. I know exactly what you are talking about and looking for.

Is there no deadline for you to make that decision?

Well, I suppose deadline in a way, but there is lots of room for that. I am deliberately being cagey because am at a stage where I have to be careful as to what move I make and to whom.

What do you say to critics that say Botswana’s economy was too reliant on diamonds as a source of revenue?

Well, I wouldn’t even say it, because if those are considered critics, I am the critic myself; government is the critic of that situation because this is why we are talking about the diversification of the economy to reduce over reliance on diamonds. It is not a good idea. This is why we are doing migration, I appreciate its still part of a diamond base but we are also going into manufacturing, jewellery, cutting and polishing. We want Botswana to be an international diamond centre so that we can use other deposits from elsewhere to be done here that is what beneficiation is all about. We cannot immediately abandon the diamond base but we can insulate the possible dangers of over reliance by going downstream.

Do the local banks have the capacity to deal with $7 billion worth of diamond sales a year?

In 2001, we made sure that the likes of ABN AMRO Bank are here, and currently, I think it is, the Bank of India that should be coming and the local banks such as Standard Chartered backed by their parent banks, will be participating here. We have OPIC (Overseas Private Investment Counsel), the United States investment arm, other participants possibly Lazare Kaplan International. Those are going to be participating here because we did anticipate precisely that possibility, more so for the diamond industry the gestation period between acquisition and sale can be tough on those who do not have a financial muscle, including the banks, some of them do not have the balance sheet to absorb that sort of long gestation period, so we should be geared up for that.

Are there any tangible benefits from the recent new sales agreement that you reached with De Beers?

You mean tangible benefits as of now?

Yes, now and in the future.

Well, I suppose, first we are going to be taking 10-15 percent of the production from Debswana. We are going to be buying not just taking, but buying so that we are able to sell those ourselves, to test the market of the product. To us that leverage is extremely important because we won’t be depending solely on De Beers to do the marketing and then of course the charges that were being made to sell or market the diamonds, that would have been reduced. Those are the issues that come to the fore. Of course we are developing this resource, we will be now be able to…, in fact we have started developing a company that will be managing all of our mineral resources. In other words, managing our investments, taking care of government interests, we have a board in place already, the company will be called the Okavango, in other words, one for marketing and then the Botswana Mining Company that will be taking care of government interest and we are talking minerals generally but at the moment in the board we have our own senior government officials participating that on its own is not enough. The mining industry has now grown to an extent were it has to be fellows who are watching and managing daily what is going on. So the agreement gives us some leverage and of course the migration from London to here (Gaborone), in terms of employment, in terms of other opportunities in finance, security, transportation (this even goes to the level of a taxi fellow), the real estate management, these are fellows that can provide appropriate accommodation, catering and food industry. As government we are making arrangements for those benefits to be derived.

There is a De Beers official that was once quoted in the media as saying that that Botswana had not claimed its share of diamonds from Debswana under the sales agreement.

Yes, so far we have not.

Why are you taking long?

Because we are making preparations, we had not set up the board, we haven’t registered the company as yet but we will do that. In any case in the agreement there is room for that to say if we didn’t take the diamonds, the sales we go on as usual, as was the case before.

I am not unduly worried about that. We want to do it but we have set up the machinery, am now going through cabinet to clear that and the company is in the process of being up and running.

When do you think this company will be up and running?

Well, at the moment, we are at the stage where we have an interim board. I would hope possibly before the end of this year, we should be up and running.

Will the current downturn in the diamond industry not affect when you will likely have the first auction?

Whether there is a downturn or not we are determined on that route, in fact that is precisely the reason why we want to have our own expertise to be able to verify, to be able to respond to that kind of thing ourselves without getting a second hand from someone who does the sales on our part. That cannot stop us in any case, even if we were to avoid it now. These things go up and down, so you will have to learn on the ropes as you proceed.

How many carats of diamonds are you expecting to produce this year as Botswana?

At the moment, I have no idea and I think I will be guessing far too much but certainly I will not be expecting 17 million carats that we produced when we had problems in 2008.

Have you ever considered exiting the diamond mining industry as an investor, given that you had at some point used State funds - that should have gone towards other developmental projects – to aid Debswana?

The question is if we didn’t have the participation that we do [which is] 50/50 [with De Beers in Debswana] are there any others that will have the appetite to do what we are doing? And of course we wanted to harness the revenue directly, in terms of the profits arrangement in order to ensure that we have sustainable revenue that we can put into schools, health, houses and other things.

But you are not following that model with other minerals such as copper and coal. Why?

Correct, the Mines and Minerals Act says that we (government of Botswana) deal with diamonds but it does not say that we cannot deal with any other minerals that we think have a sufficient potential to justify the usage of the country’s capital.

Are you saying that the government of Botswana is open to become a participant in other minerals?

Yes, that is correct.

Do you think there will be anything bigger than diamonds in Botswana?

There is no reason why copper and silver cannot be. Similarly coal, we have [a reserve] of 200 billion tonnes.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished