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World Diamond Industry: Botswana

On September 20, 1966, Botswana declared its independence from Great Britain. At the time, the country had a GDP per capita of less than $84, and was one of the poorest and least developed countries on the planet. Just seven months later, in April 1967, geologists discovered the Orapa diamond mine within a cluster of kimberlites in the North-Central part of the country. The discovery set off a diamond rush that eventually led to the discovery of many more viable diamond mines, and elevated the country into one of the most important diamond producing nations in the world. Since that time, Botswana transformed itself into a thriving African nation, with diamonds central to its development. 

However, the future for Botswana has yet to be written, and the country has made many important strides to leverage the benefit of its diamond reserves for its people. With a population of just 2.3 million in a country roughly the size of France, diamond revenues have been responsibly used to build infrastructure such as roads, hospitals, and schools, and to significantly elevate the income of Botswana's citizens. Diamond revenues account for 76% of Botswana's export revenue, 45% of government revenue, and 33% of gross domestic product (GDP), according to diamondfacts.org. In a 2016 report by Transparency International, Botswana was ranked as the least corrupt country in Africa. The government there has sensibly used its diamond income for the betterment of the country, and at $6,788, Botswana's per capita GDP is now among the highest in Africa.

The country recognized that its reserves would eventually be depleted, and that it needed to make efforts to sustain the positive impact from diamonds in its economy. In 2010, Botswana renegotiated its mining and marketing contract with De Beers, which lead to monumental change for both parties, and the diamond industry as a whole. A major outcome of the changes was that De Beers moved its sorting, marketing, and Sightholder operations from its London headquarters to Gaborone, the capital city of the country, in 2013.

Debswana is a 50:50 joint venture between the government of Botswana and De Beers. It operates four diamond mines and one coal mine in the country, and is the largest non-governmental employer in the country, employing approximately 6,300 people, of which 93% are local Batswana. DTC Botswana, the sorting and marketing arm of De Beers, employs approximately 500 skilled diamond sorters and salespeople, most of whom are also locals. De Beers also amalgamates its production from other countries in its offices at Botswana.

The government recognized that moving the Sightholder operations to the country would still mean that its diamonds would be sold to foreign companies and exported from the country for manufacturing abroad. Therefore, it required some diamonds to be sold to local companies in an effort to develop its own cutting and polishing industry. Approximately 20 Botswana Sights were made available to companies that built manufacturing factories and employed and trained local workers. Almost all of these manufacturers were existing Sightholders that established operations in Botswana in order to get access to additional supplies of rough diamonds. This led to the development of the Diamond Technology Park, a sprawling compound nearby the country's international airport.

At the same time, a new government-owned company, Okavango Diamond Company (ODC), was established. ODC now sells 15% of the locally mined rough diamonds using an online auction system. The purpose of the company was twofold: to open up additional supply to support the local cutting and polishing industry, and to provide the government with a price discovery mechanism to ensure accurate valuation of the Botswana rough sold through De Beers. ODC has been a successful and profitable venture for the government, and many other countries are exploring similar concepts.

After the changes announced in 2010, the global diamond media weighed in heavily on the proposed changes. The feeling was almost overwhelmingly negative, and many believed that the shift to Sightholder sales in Gaborone was going to be a complete disaster. However, the reality was far different from the onset, and the transition was surprisingly smooth. The influx of visitors to the country also led to the development of many new businesses, including hotels, restaurants, and entertainment venues. Soon afterwards, other rough miners in Botswana, such as Lucara Diamond Corp, moved their respective sales operations to the country with similar success.

However, after a few years of operations, the initial success has waned. Manufacturers placed the blame on a number of factors, including lower productivity by Batswana cutters, and a lack of technological development within the country. In an executive opinion survey from the World Economic Forum in 2016, 'poor work ethic in the national labor force' was listed as the single most problematic factor to doing business in the country. This has been evident in the cutting and polishing industry, which lags behind other manufacturing centers like India and China. A 2013 study showed that it cost between $60 and $120 per carat to manufacture diamonds in Botswana, compared to $10 to $50 in India. There were less than 4,000 cutters in Botswana in 2013, compared to an estimated 750,000 in India.

The manufacturing industry was later rocked by several prominent companies shutting down their Botswana operations due to lack of profitability. These high-profile factory closures have led many to question the efficacy of the government's efforts. Those that continue to operate reportedly do so with very small profit margins. However, the global manufacturing industry is struggling with the high cost of rough and low value of polished. Perhaps the Botswana experiment has fallen victim to tough times for the entire industry, rather than any inherent failings of their own doing?

Botswana has also attempted to create a trading hub inside the country, to rival other hubs like Antwerp or Dubai. The goal is to make the country an active diamond center long after its mines are depleted. These efforts have been hampered by an abundance of bureaucracy and red tape to establish businesses and obtain work visas in the country. These problems do not appear to be getting resolved, and efforts to bring more foreign buyers and traders to the country have largely stalled.

There can be no doubt that diamonds have been enormously beneficial to Botswana and its population. A quick drive through Gaborone reveals a thriving city with new infrastructure and development happening every day. The population is better educated, healthier, and wealthier than ever before. While the future of Botswana's diamond industry remains unclear, for the time being at least, it serves as a case study in success for the world to learn from.

No one should act upon any opinion or information in this website without consulting a professional qualified adviser.

World Diamond Industry: Namibia
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