Diamond Market Dares to Believe in Botswana’s New President
November 12, 2024By: Joshua Freedman
“It’s hard to analyze politics as it happens, because we see only the tip of the iceberg. Over time, the dealings that occur behind the scenes tend to become clearer. For now, however, it looks as though the election of Duma Boko as the new president of Botswana is mostly good news for the diamond industry.
Relations between the previous administration and De Beers appeared strained. The negotiations over a new sales deal dragged on. While the parties agreed on a basic outline of the deal, including certain points about the allocation of rough, the final contract remains unsigned to this day. Mokgweetsi Masisi, the president until last week, was publicly critical of De Beers as he pushed for the country to obtain the rights to sell a greater share of its rough production.
President Boko’s Umbrella for Democratic Change (UDC) won a shock victory over Masisi’s Botswana Democratic Party (BDP), which had been in power for the 58 years since the country’s independence in 1966. The new leader, a human-rights lawyer who studied at Harvard Law School, struck a conciliatory tone in an address on Friday following his election two days earlier.
“We will try and reach out as quickly as possible to engage with our partners and ensure that the agreement is signed,” he said. “As matters stand, they are even considering walking away [and] not signing at all, which is dire. It is a very dangerous position to be in as a country, especially in the economic climate that we’ve experienced.”
The politician focused on the way the government had conducted the negotiations, which, he argued, might have “adversely affected” the relationship with De Beers and its parent company, Anglo American.
“The first thing one needs to do in these circumstances is to understand, to engage with the other partners and appreciate what their gripe really was, what transpired, what irked you,” he added.
Many in the industry assume De Beers was happy with the election result. Publicly, it is presenting a neutral stance.
“The partnership between De Beers and Botswana is one of the most successful and long-standing public-private partnerships in the world,” a De Beers spokesperson said. “Our partnership with the people of Botswana is a great source of pride for De Beers Group, and we will continue to work with Botswana’s government in support of shared objectives, as we always have.”
Masisi’s conduct also spooked other members of the industry. Botswana’s growing power over De Beers — or at least its attempt to exert it — reduced confidence in the world’s largest diamond miner by value, at a time when Anglo American is trying to sell the business. The successor appears to understand the importance of De Beers in managing the current market difficulties and wants to repair the relationship, sightholders told Rapaport News.
“De Beers is one of the oldest companies in this business, and they know how a brand can be created and a premium product can be sold,” said an executive at an Indian sightholder. “If such a brand vanished, there is no other brand that can support the industry.”
However, one detail of Boko’s agenda might not bode well for those who have invested in Botswana’s diamond sector. He has pledged a rise in the minimum wage to BWP 4,000 (around $300) per month from the current level of approximately BWP 1,500 (around $110) — a move that could place further pressure on the country’s polishing factories, which already operate on tight margins.
While De Beers has incentivized sightholders to open factories in Botswana — part of the policy known as beneficiation — manufacturing in the country is difficult. The costs are high and skill levels relatively low compared with India. They often have to relocate Indian workers to Botswana to help out, at great expense.
Salaries for the most junior workers are around $150 per month, rising to $700 per month or more for more experienced cutters. Raising the minimum wage would be challenging for the employer, according to an executive at a large manufacturing company in Botswana.
“The increase in [the] minimum wage will not help the idea of beneficiation,” the source told Rapaport News this week. “It will put a burden on companies’ bottom line.”
There remains the question of how the new president will approach Belgian diamond manufacturer HB Antwerp, in which Botswana had been planning to buy a 49.9% stake.
This process cannot be divorced from the De Beers issue: Some commentators viewed Masisi’s increasing closeness to HB as a stick to force De Beers’ hand in the negotiations.
The government and HB were in advanced talks before the election and had completed due diligence, HB cofounder Rafael Papismedov told Rapaport News Wednesday.
“We will engage with the new administration and sit with them,” Papismedov said. “Obviously, they need time to study the file. A technical committee was dealing with it. Once they feel ready, we will be more than happy to engage and continue the discussions.”
The new administration has many decisions to make, and there is no escape from the uncertainty.
The Botswana economy remains reliant on diamonds, and diversification has proven difficult. This has left the country in a tough spot during the recent market downturn. The government will continue to negotiate hard for the people of Botswana. The short- and medium-term objective is to protect the diamond industry while it seeks other sources of revenue, said Boko on Friday.
“We’ve got to try and safeguard the goose that lays for us the golden egg,” he commented.”
Source: Rapaport
image credit: www.dsdnews.org