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29 march 2012

The transfer of De Beers Diamond Trading Company (DTC) from London to Gaborone is well under way and couldn’t come sooner for Botswana, Avi Krawitz writes in his analysis posted on www.diamonds.net. The move marks exciting times for the southern African nation and is set to be a catalyst for much-needed economic diversification and, hopefully, significant job creation.

 Often considered the darling of the region, Botswana is not without its problems. A high HIV rate, although on the decline, is one of them, as is high unemployment, estimated at nearly 20 percent out of a population of only 2 million.

While DTC’s move will initially only create approximately 40 local jobs at the company, most of them part time, it is hoped that the auxiliary services associated with the development will spur job creation. Tourism and retail will be the obvious beneficiaries.

Paul Rowley, acting chief executive officer (CEO) of DTC Botswana who is overseeing the move, stressed that it’s about more than just jobs. 

“The idea is that we want to be an international organization here so I don’t think the intention is to just localize everything,” Rowley told Rapaport News. “It’s really about bringing a broad set of skills to Botswana, broadening the country’s horizons, and what those jobs will create beyond DTC and the industry that is more important.”

Phasing In

DTC is moving in stages. A company has been registered in Botswana, currently named ‘De Beers Aggregation Company,’ to incorporate DTC’s international business that will take place there. Rowley noted that the name will inevitably change to better reflect the scope of its proposed function. “It’s not just aggregation being relocated but DTC’s sales and trading activities as well,” he stressed. “The whole idea is that the London sight will disappear and whatever we currently operate out of London we will do out of Botswana.”

The move will culminate in the so-called “London sight” taking place in Gaborone for the first time at the end of 2013. Before then, the quality assurance team of about 20 is set to relocate this May, followed by DTC’s aggregation activities – the blending of goods from various De Beers mines into one stockpile according to categories – with the October 2012 sight scheduled to be the first with goods aggregated in Botswana.

From then until the move is completed over a year later, the sight boxes will essentially be created in Gaborone and forwarded to the UK for distribution to the 66 London sightholders and two Canada sightholders. The appropriate boxes will be sent from Gaborone to Johannesburg for the 10 South Africa sightholders, to Windhoek for the 13 DTC Namibia sightholders and the remaining in Gaborone for DTC Botswana’s 21 sightsholders.

The behind-the-scenes work, as Rowley puts it – “the number crunching and instructions on how to create the boxes” – will be sent via IT networks from October until the rest of the planning and logistics staff move over, which is expected in the first half of 2013. The final group to relocate will be the sales team – as well as DTC CEO Varda Shine – when the ‘London sight’ is launched in Gaborone around November-December 2013.

Restructuring

In total, about 80 DTC London employees have committed to moving to Gaborone with three-to-five year contracts, after which they will be nationalized if they stay on, or their jobs will be localized – as is expected to be the case in most instances. DTC will initially hire another 40 local Motswanans to bring the full employee count to 120. That is in addition to approximately 430 people, mostly local, currently employed by DTC Botswana.

“Over time there will be shifts in those dynamics, but for now we want to make sure that we move a business that is operational and that we have a seamless transition,” Rowley said. “That’s why it’s so important that we bring the skills over from London where appropriate because we don’t want any hiccups in the process.” DTC’s pricing and research and development activities will remain in London at the De Beers group headquarters.

The structure of DTC’s activities in Botswana will therefore be split between the newly formed company overseeing the international operation – aggregation and sorting activities and sales to the London and Canada clients – and DTC Botswana, which will concentrate on its core function of sorting and valuing production from the local mining company Debswana.

Much of the preparation work involves refurbishing the DTC Botswana building to accommodate the two companies. The three-story structure, which was opened in 2007, has a capacity of 50 million carats of diamonds, but until now has handled less than half of that amount. Infrastructure and logistical adjustments therefore need to be made.

DTC Botswana’s Role

DTC Botswana, which is an equal joint-venture company between De Beers and the Botswana government, will be servicing both its parent companies, as the government is expected to launch its independent sales of un-aggregated Debswana production later this year.

Under the recently signed marketing contract between the government and De Beers, Debswana’s production - which, at 22.9 million carats in 2011 accounted for just over two-thirds of De Beers total output - will be sorted and valued by DTC Botswana. Subsequently, in 2012, 11 percent will be sent to a newly formed government entity - recently named Okavango Diamond Trading Company - which will conduct the proposed government tenders, while the rest will be sent to DTC for aggregation and then distribution to sightholders.

Rowley noted that DTC Botswana still needs to determine how the government’s entitlement will be handed over since the supply cannot reflect DTC boxes or selling assortments due to laws regarding competition. “Once the government has established its trading organization, we will form a workshop and working group to determine how to hand over the goods at DTC Botswana,” he said.

The government’s share of Debswana’s production, 10 percent of which was available retroactively from January 2011, will increase by 1 percent per year until it stabilizes at 15 percent anticipated in 2016. The goods will be supplied in a 10 sight cycle, to mirror the one used by the DTC. Rowley explained that if the government refuses to take its entitlement, as it has until now, DTC gains the first right of refusal to those goods.

Becoming a Hub

The refusals are not expected to continue once the government launches its tenders. The whole point is to incentivize more of the diamond industry to come to Botswana and the government rough tenders will certainly do that. And so will the DTC’s massive shift of continents.

Motswanans should therefore brace themselves. Once everything is up and running, at least 300 new visitors will be coming to Gaborone on a regular, almost monthly basis. At the same time, the DTC staff is moving in, many with their families, and additional cutting factories are being set up as a result of the shift.

In a global sense, the numbers are not big, but Gaborone is a small place. The diamond trade’s presence will be felt and the numbers will almost certainly grow - possibly exponentially if the experiment works. The new-comers and visitors, and their families and friends, will not only spend on diamonds, but on food, accommodations and sightseeing, creating commerce and employment along the way.

And that’s what it’s all about.

In truth, the decision to relocate DTC from London to Botswana doesn’t make business sense for De Beers. The move is complicated, costly, and possibly unprecedented in scale. However, Botswana is where the rough is, and the country has effectively leveraged that fact as it needed to. Botswana’s dream of creating a diamond hub may finally be within reach in only a few months. And so its journey beyond diamonds may just be starting.