Botswana's diamonds are fast losing their shine

The recent near-collapse of global diamond sales bodes ill, not only for Botswana's mineworkers and diamond cutters, but also the country's economy as a whole.

For several years the Botswana government has asserted its independence from the world's biggest diamond producer, De Beers, and in the process become (like Chile) an oft-cited example of a mineral-dependent state which has successfully challenged the "resource curse."

However, as pointed out by one author last year: "It should surely be of some concern that, to date, Botswana has been virtually a one-mineral state...It possesses, carat for carat, the world's most valuable diamonds and the government has so far been able to call the shots in negotiations with De Beers ...But this will not protect its citizens from a future slump in global diamond demand..." [Roger Moody, "Rocks & Hard Places, Zed Books, London, 2007,page 48].

Now the government hopes to "recapitalise" its 50% state-owned diamond corporation, Debswana. However, De Beers - its 50% partner in the company - is highly reluctant to commit any funds to such a venture; private investors are hardly likely at this stage to provide a bail-out; while raising the government's own stake may well burden it with substantial debt.

Of course, a lot depends on perceptions of the future of the diamond industry. The Botswana government expects (or at least is projecting) a fairly swift recovery. But, for its part, De Beers doesn't know when (or even if?) the market will recover.

Meanwhile, 7,000 miners - not to mention many thousands of family members and associated workers - find their livelihoods in jeopardy.

Government and De Beers headed for a showdown over Debswana

SUNDAY STANDARD (Botswana)

26th January 2009

Strains were this week beginning to emerge between the Government of Botswana and De Beers, with senior civil servants hinting that the long time partners were poised for a rough showdown over how best to rescue the embattled Debswana Mining Company.

Insiders say Botswana government is prepared to go it alone in recapitalising Debswana so as to avoid retrenchments that could prove economically and socially ruinous.

While Debswana is a 50/50 partnership between De Beers and Botswana government, under the mooted rescue package, there is already talk in the air of Botswana's shareholding going up to 80%.

That, of course, is if De Beers does not want to come to the party by way of pumping in their own money to bailout Debswana.

Thousands of Debswana employees who have been placed on compulsory leave are expected back at work tomorrow (Monday) and with no shareholder deal in sight, workers are likely to be told to go stay home yet again for a few more months.

With the diamond market still in tatters, the future of the employees explicitly lies with the shareholders' ability to come up with rescue packages to keep the mines running.

Which is why workers will be disappointed to learn that divergent views between the shareholders are keeping any solution to their problems at bay.

Sunday Standard has picked information to the effect that De Beers prefers retrenching the employees, while the Government of Botswana would rather go the recapitalization route.

Worried by the political implications of retrenching a significant portion of the 7000 strong Debswana workforce, government wants the mines' operations to continue side by side with stockpiling of the production until the markets recover.

"That option, which is what happened in 1981/2 when faced with a similar situation, can only be achieved if shareholders commit billions worth of their own money into running the Debswana operations," said a University of Botswana economist.

De Beers is, however, said to be wary of committing its money into the Debswana mines, as it is not clear when the world economic recovery will happen, a source inside government said.
"It's clear to us that they are refusing our suggestions out of spite.

De Beers has never forgiven Botswana for the treatment they got during the negotiations for DTC," he said, in reference to government's strong-arm tactics when they demanded that De Beers should relocate its sorting and polishing arm (Diamond Trading Company) from London to Botswana a few years ago.

The Minister of Minerals, Ponatshego Kedikilwe, would not talk much about the options on the table.

Speaking from Lesotho where he is touring the water projects, the minister would only say, "I have just come back from holiday and there are a lot of issues to get through. I cannot as a result give you a definitive answer."