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Botswana presidential hopeful vows to take tough line on De Beers

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Via Financial Times

Botswana’s main opposition leader has vowed to take a tough stance with De Beers in negotiations to restructure the way it operates in the world’s second-largest producer of diamonds if he wins Wednesday’s election, the closest-fought in the country’s history.

Duma Boko, who heads the coalition Umbrella for Democratic Change, told the Financial Times he intended to seek “much fairer and more equitable” terms from the Anglo American-owned company if his party overturns the ruling Botswana Democratic Party’s unbroken 53 years in power.

The aim was to increase Botswana’s share of the wealth generated by the industry, the 50-year old lawyer said, adding: “We have a future with De Beers, but we will need to redefine the terms of that future and make it more equitable and fair.”

De Beers gets about two-thirds of its diamonds from Botswana., and the country negotiates sales agreements with the company every 10 years. The current deal expires in 2021 and President Mokgweetsi Masisi has launched talks to ensure a smooth transition. He has said that he is looking for a “win-win” from a “wonderful relationship with De Beers”.

Diamonds account for about a fifth of the GDP of one of Africa’s fastest-expanding economies and about three-quarters of export earnings. Debswana, a joint venture between Gaborone and De Beers, is the country’s biggest employer outside the government and the largest source of state revenue.

But Mr Masisi’s Botswana Democratic Party is facing its toughest ever electoral test since it took power after the country won independence in 1966. Ian Khama, Mr Masisi’s predecessor, has split from the party and accused it of increasing authoritarianism. Analysts have said the race is too close to call, although polls indicate a lead for the BDP.

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Meanwhile, high levels of unemployment and inequality have led to rising disquiet over the diamond industry, with growing calls for a greater share of sophisticated parts of the business, such as sales and valuations, to be undertaken in Botswana.

Few countries and businesses have histories as entwined as Botswana and De Beers. The company found what would become the world’s richest diamond mine, Jwaneng, soon after the nation won independence.

As well as the 50-year-old Debswana joint venture, Gaborone also holds a 15 per cent stake in De Beers, with the rest owned by Anglo.

“For our people, every diamond purchase represents food on the table,” Festus Mogae, a former president,once said.

But many voters disagree. “These diamonds are benefiting only the top officials,” said a bus operatorin the capital, Gaborone, who declined to use his real name. “I’m 36 years old but I wouldn’t know a diamond by looking at it.”

He said he would vote for Mr Boko’s coalition, which has promised to triple the minimum wage and increase old-age grants.

“We will take a very pragmatic approach. De Beers, Debswana, have been involved with us for a very long time on terms that have not always been very fair and beneficial to us,” Mr Boko said.

A Mining giant De Beers' clerk grades diamonds from Botswana diamonds mines at De Beers office on October 3, 2016 in Gaborone, Botswana. (Photo by MONIRUL BHUIYAN / AFP) (Photo credit should read MONIRUL BHUIYAN/AFP/Getty Images)
A De Beers employee in Botswana grades diamonds. High unemployment and inequality in the country have led to rising disquiet over the industry © AFP

“We will sit with them and work out a much fairer and more equitable arrangement . . . so that we retain them as a strategic partner but that we also derive sufficient benefit for the country.”

De Beers declined to comment on the current negotiations but said that its five-decade relationship with Botswana was based on the “agreement of terms that are fair and beneficial to both partners.”

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“De Beers Group plays a significant role, not as a foreign investor but as a corporate citizen, in building Botswana’s future… for example, four out of every five dollars of revenue generated by Debswana alone accrues to government,” it said.

In the last 10-year agreement, Botswana secured significant concessions from De Beers. These included relocation of the group’s “sights” — gatherings at which prospective purchasers inspect rough diamonds — from London to Gaborone. Cutting and polishing factories were also moved to the country and Botswana set up an independent trader to sell a portion of Debswana’s output separately.

This year’s negotiations take place in a weaker diamond market that has hit De Beers’ bottom line, potentially giving it a stronger position in the talks. Buyers at the sights have struggled to make money trading rough diamonds as prices for polished stones have slumped.

The industry is facing oversupply as well as longer-term threats from cheaper laboratory-grown diamonds. Sales at last month’s sight in Botswana fell to $295m compared with $482m a year earlier.

Activists have in the past pushed De Beers for more transparency over its practices for valuing the diamonds it sells. De Beers said that it sold diamonds “at prices that are fully transparent to government” including checks provided by a state-appointed valuer.

De Beers did not immediately respond to a request for comment on the concerns.

In a televised election debate last week, opposition candidates lined up to criticise Botswana’s relationship with De Beers, including the perceived opacity of the negotiations on the new deal.

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“No one knows about it except a few, even parliament does not know anything about it,” said Ndaba Gaolathe, whose Alliance for Progressives may be a kingmaker for Mr Masisi if the ruling party fails to win a parliamentary majority.

“What Botswana wants is greater participation in the diamond industry,” Biggie Butale, leader of the Botswana Patriotic Front, a breakaway from the ruling party and potential coalition partner for Mr Boko, told the Financial Times. “We want Botswana to be a diamond hub, much like Antwerp [and] Tel Aviv.”

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