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Botswana Pushes Creation of Diamond-Trading Market

Tombale reflects on changing relationship with De Beers

Nov 30, 2009 6:46 AM   By Avi Krawitz
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RAPAPORT... As the keynote speaker at the World Federation of Diamond Bourses (WFDB) meeting in Antwerp in November, Dr. Akolang Tombale pulled no punches about his country’s ambitions within the diamond industry. Botswana, after all, is the world’s largest diamond producer by value and remains heavily dependent on the industry.

Tombale, whose official title is coordinator of Botswana’s Diamond Hub project, stressed the need for Botswana to ensure that its diamond legacy stretches beyond the realm of mining. “We believe as Botswana, we should venture into the downstream diamond industry both through the current developments and…extend the potential of diamonds to greater propositions,” he told the November gathering of global diamond bourse presidents.
Dr Tombale.JPG
While he was careful not to present Gaborone as a threat to any of the established trading centers, such as Antwerp, Ramat Gan, Mumbai and perhaps most importantly, neighboring Johannesburg, Tombale clarified Botswana's ambitions. “We cannot entrust our national survival on people who, when it makes business sense, can switch their interest any time and do something else that suits them at the time,” he said. “It is simply too important for us to abdicate our responsibility or leave anything to chance.”

Diversifying Diamonds

Tombale, in his own words, has become the unofficial face of the Botswana diamond industry. He is responsible for advancing the industry from its sole dependency on mining through the creation of a beneficiation industry and, in the next stage, the development of a trading platform. 

Given the numbers, it’s easy to understand why Botswana would feel a need to diversify its economy away from heavy reliance on diamond mining. The country produces approximately $3.2 billion worth of diamonds annually, which account for about 70 percent of Botswana’s export revenue, 45 percent of its government revenue and 35 percent of its gross domestic product (GDP). As a result of the global economic crisis, which has seen the country’s diamond production fall by approximately 40 percent, its GDP is expected to fall by about 10 percent in 2009, according to the International Monetary Fund (IMF), after years of consistent growth.

Despite the economic downturn, Botswana has already seen significant progress and investment in developing its diamond industry downstream over the past two years. De Beers, which celebrated 40 years of partnership with the country this year, set up its main sorting facility in Gaborone in March 2008 and established the Diamond Trading Company Botswana (DTCB) to supply diamonds to 16 manufacturers there. To date, Tombale reported, 15 factories are up and running, with the last one due to launch soon. In addition, under the guidance of DTCB sightholder Safdico, the Diamond Technology Park was launched in January 2009 for an investment of $50 million and is being billed as the central hub of Botswana’s diamond-cutting industry. ABN AMRO also recently opened a branch in Gaborone.

Trading Platform

Tombale, however, envisions accomplishing much more and stressed that the time is right to take the next step in building the hub by encouraging third-party trading within the country. He explained in an interview with Rapaport News that the motivation for establishing a diamond-trading platform in Botswana is two-fold.
 
“The idea is to have a window that we can take some part of our production and market it through the platform,” Tombale said. “Secondly, we need to encourage people who are marketing and trading secondary diamonds to set up some of their operations in Botswana.”

As it stands, Botswana’s fate is intrinsically tied to De Beers. The two have joint-venture agreements as equal owners of the mining company Debswana and the marketing company DTCB. The Botswana government also has a 15 percent stake in De Beers. The creation of a trading platform in the country could cause a break in that relationship, although Tombale stressed that this would not spell the end of the Botswana-De Beers relationship. Rather, “moving forward, not all of Debswana’s production will be sold through DTCB,” he explained.

As an alternative, the country is planning to host rough diamond tenders of stones from Debswana mines and other new mines that are expected to come on line in the future and to create a facility for third parties to host tenders. Tombale said he hopes the new diamond-trading platform will be in place by the end of 2010, allowing others to trade in the country, while the independent marketing of Botswana diamonds “will come a bit later, probably in 2011.”

Price Discovery

He added that introducing the tender system for selling Botswana’s diamonds will enable some price discovery for the rest of Debswana's production. “The hope is that Debswana and De Beers and DTC will be able to use the tool to monitor their prices as well,” he said. While De Beers hosts tenders through its Diamdel subsidiary, it has avoided the format for the majority of its production, opting to sell its diamonds through long-term agreements with sightholders.

Tombale stressed that the Botswana tenders should not work against the De Beers format, but rather complement it, though he added that he believes the market will continue to move further away from the “cartel mentality,” whereby “we all need to learn that there is no longer one individual that sets the price benchmark.”

In making this statement, Tombale lent his voice to the tender versus sightholder system debate that surfaced at the Antwerp Diamond Symposium, which preceded the WFDB meeting. This debate was sparked by the news that Rio Tinto has dropped five of its long-term customers and is planning to start hosting tenders for a minor portion of its production.

“The current environment is showing us that things are not the same anymore,” Tombale said, referring to both the producer-manufacturer relationship and rough price dynamics.

A Matter of Survival

As a result, and as Botswana seeks to secure a more independent role in the industry, its relationship with De Beers seems on the verge of changing, forty years after the two first forged their partnership. As a spokesperson for the country and the face of Botswana diamonds, Tombale couldn't emphasize the importance of the move to the country and his fellow ‘Motswanans’ enough. 

“We don’t want to be left at the end of the day without any diamonds when mining ends, so we are trying to build an industry that goes beyond producing,” Tombale said. “That’s an objective far bigger than the relationship with De Beers. It’s a matter of our survival.”

LH
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Tags: De Beers, Debswana, Diamdel, DTC, Economy, Government, International Monetary Fund, Production, Rio Tinto, Safdico, Sightholders, Tenders, World Federation of Diamond Bourses (WFDB)
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