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Botswana’s Real Diamond Story Starts Now

Q&A with Onkokame Kitso Mokaila, Botswana’s Minister of Minerals, Energy and Water Resources

Sep 21, 2014 1:03 AM   By Avi Krawitz
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RAPAPORT... Botswana has evolved to become one of the most important diamond centers since De Beers shifted its sorting and sales operations from London to Gaborone and the state-owned Okavango Diamond Company (ODC) launched its auctions of a portion of Debswana rough diamond production. The government’s Diamond Hub program, under the umbrella of the Ministry of Minerals, Energy and Water Resources, aims to diversify activity in the diamond sector and, as a result, reduce the economy’s dependence on diamond mining.

Onkokame Kitso Mokaila, Botswana’s Minister of Minerals, Energy and Water Resources, is spreading the idea of Botswana’s “positive African story,” to jewelry retailers around the world. Following his presentation at the Rapaport Breakfast at JCK Las Vegas in June, Mokaila recently met with Rapaport News at his office in Gaborone to discuss some of the challenges facing the country in its next stage of development:

Rapaport News: At what stage are we in Botswana’s diamond development story?

OKM: For me, it’s really just the beginning of the story. It’s been a journey to get to where we are, making sure that the basic infrastructure is there, that we have the people with the right experience and knowledge to facilitate our development and that we have the right technology to enable growth. Now it’s a question of how rapidly we can grow to become the diamond trading center that we wish to be.

Rapaport News:
What diversification has already taken place in the industry and what’s being done to reduce the economy’s dependence on diamonds?

OKM: Firstly, we can’t lose focus on further development of the diamond industry. We want to increase the level of rough trading in the country and we want to move into jewelry manufacturing. We also want to develop additional clusters of economic activity around the diamond industry in order to get more of our citizens to participate in the diamond story.

We believe there is a real opportunity for the country in jewelry manufacturing. We have established a cutting and polishing diamond sector and are improving these skills, and now we want to replicate that success with jewelry. That was one of the goals of my recent trip to New York. We met with various big jewelry companies to understand what it would take to bring them to Botswana.

In other areas of activity, the increase in rough trading has allowed us to grow our hospitality industry in terms of building new hotels, and also from the food production side. Within the government, we are pushing for growth in the agricultural sector in order to cater to the needs of all the visitors coming to Botswana.

We’re also making sure that we improve our information technology infrastructure and we’ve already made some improvements to our transportation networks.

Regarding other minerals, we are looking at setting Botswana up as a metallurgical hub. We recently hosted a conference that recognized the opportunity to work with base-metal miners on copper, zinc and the other resources available in Botswana.

Rapaport News: What added value does Botswana offer jewelers to set up jewelry manufacturing in the country?

OKM:
It’s a discussion that we have to hold. I realized when I was in the U.S. that jewelers never saw Botswana as an option, so I asked them what it would take to move their manufacturing to Botswana. Obviously, we can’t bring everyone here, but we can select a few to work with as part of a pilot and we are already receiving proposals.

Rapaport News: What incentives are you offering them?

OKM: The incentive depends on the business plan. For us to offer an incentive we have to understand what the other party is bringing to the table so we are waiting for business proposals. The Botswana government doesn’t just offer incentives for the sake of it. It depends on what the company might bring to Botswana for us to make sure that they are not put at a disadvantage by being here.

The jewelers have options and I would start by assessing the conditions that they require versus the value it could add to the economy. Then we could make a call and say what we will do to ensure they set up their operations here.

Rapaport News: Is ODC having a fiscal impact on the economy yet?

OKM: I would say that ODC is starting to show promise and growth. Don’t forget that our initial strategy with ODC is to make sure that we appreciate and understand the diamond pricing side of the business. ODC will soon try something different and possibly introduce contract sales to compliment the auction sales. So indeed, it is starting to show growth.

Rapaport News: What do you mean by appreciating diamond pricing?

OKM:
It’s a matter of gaining intelligence on how one consistently values diamond assortments and how one can forecast the right pricing of diamonds from a government point of view. Every company has its own price book and understands what is required to ascertain a certain price. That’s something that we still have to learn. It’s important to know that we can do this business ourselves.

Rapaport News: Do you envisage ODC having access to a greater portion of Debswana’s production?

OKM: ODC currently gets 13 percent of Debswana’s run-of-mine production. From 2016 until 2020, when the current agreement expires, ODC will receive 15 percent of Debswana’s production and De Beers will get 85 percent. Moving forward you never know what the decision may be. It’s that pricing intelligence that will inform us what the right decision will be moving forward.

Rapaport News: Is there a mechanism in place to ensure that ODC will also gain supply from other mining companies operating in Botswana, notably Gem Diamonds’ Ghaghoo mine and Lucara Diamond Corp’s Karowe mine?

OKM: We are not forcing them to do so at the moment, but we are in discussions to enable them to conduct their sales in Botswana. Currently, their goods are exported to and sold in Belgium.

Under the Mines and Minerals Act, the Botswana government can buy up to a 15 percent stake in any company. We recently set up the Minerals Development Company in Botswana that will be looking at such possibilities and assess which companies to invest in.

That way, we may have an influence [on the production of other companies]. We have to look long term in order to increase government revenue. By taking a stake in any company we can ensure that our share [of production] is available no matter what.

Rapaport News: How great is the diamond resource in Botswana? How many years of mining remain for the country?

OKM: In terms of the mines that are currently operating, we have a resource that will last at least until 2050 with stable production of around 22 million carats a year, as we have at the moment.

Raising production levels is really a supply and demand issue and a decision that is dictated by price. You don’t want to push too many diamonds into the market at once and devalue them.

Rapaport News: Does ODC present new branding opportunities for Botswana to tell its diamond story through a purely Botswanan product?

OKM: We would obviously want to do that and it’s a logical step to take. We have a positive African story to tell so we believe that diamonds that are identified as ‘Botswana diamonds’ should sell better.

The individual retailers have their own brands but an association with Botswana in itself would add value. I think it needs to be presented in a subtle way because we wouldn’t want to encroach on existing brands, but our story could complement them.

Rapaport News: What additional employment opportunities do you foresee in the diamond manufacturing sector?

OKM: We are in discussions with groups such as the Indian Diamond Institute to make sure that we have the right people to help develop cutting and polishing skills and then jewelry manufacturing in Botswana. We want to encourage more participation from our citizens, and that’s why we are going to invest more in training.

We have about 4,600 people employed in diamond manufacturing. Moving forward, we want to create different type of jobs with higher skillsets. As we develop as a diamond trading center we want more people that can deal with technology and provide a more in-depth analysis of the diamond.

We already see that development with more managerial positions being filled by locals and effective training in the government diamond valuator positions.

Rapaport News: With the national election coming up in October, is this the position that you want to continue in?

OKM: It’s a position that I’ve thoroughly enjoyed and continue to enjoy. I was previously the minister of environmental affairs and in October it will be two years that I have been in this current position. If I had my choice, it’s the role I would continue to fill.

Rapaport News: What is the central issue that Botswana’s public will be voting on in October?

OKM:
The people of Botswana want a better life; essentially they want jobs. We have a very high unemployment rate and the government’s core function and emphasis is to create jobs. We see great opportunities in the next five years within the Diamond Hub program, and coming as a result of exploiting our coal and base metals resources.

In the coming five to 10 years, this country will be a different place in terms of economic growth and new job opportunities that lower the unemployment rate. We’re a small population in a large country, with approximately 2 million people spread over 582,000 square kilometers. We have people everywhere and the cost of infrastructure is huge because of the distances.

Rapaport News: Does the average citizen see the opportunities that the diamond industry has afforded them?

OKM: I felt it because I didn’t have to pay fees to go to school. We also don’t pay to go to hospital, our electricity is subsidized and so is our water. So I would say that yes, every Botswanan benefits from the impact of the diamond industry. The infrastructure that is building, the fact that we can develop water pipes from the north to the south and continue to expand it to areas where there is generally no water, that is all on the back of diamonds. Diamonds are honestly everything to Botswana.
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Tags: Avi Krawitz, Botswana, Debswana, diamonds, Okavango Diamond Company, onkokame kitso mokaila, Rapaport News
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