Botswana
Diamonds
Letsema Mbayi
MMCP
March 2010
Hypothesis
Diamond Beneficiation will enable
Botswana to make the most of its
remaining diamond resource if it results in
downstream linkages that enhance and
broaden the local economy’s benefit from
diamond mining
Research Aims
a.the determinants to developing downstream
activities with output from the diamond mining
industry in Botswana;
b.the key challenges to the developing
downstream activities in Botswana’s diamond
industry; and
c.the policies and strategies that can be
formulated to address these key challenges
and enhance downstream linkages.
Specific Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
What was the role of policy and ownership in creating and supporting downstream
linkages?
To what extent is Botswana managing to create a diamond cutting and polishing
industry and its related activities?
What problems are being faced in Botswana’s cutting and polishing industry and
its related activities?
What role is the national system of innovation (NSI) playing in enhancing
downstream linkages?
How are local skills being created and can these skills being transferred within the
downstream linkages?
How does the global political economy of the diamond supply chain affect
Botswana cutting and polishing industry and its linkages with local economy?
To what extent will the current financial crisis affect downstream linkages in
Botswana’s diamond industry?
How will the depletion of Botswana’s current diamond reserves affect downstream
linkages? What are the possibilities for new diamond deposits that can increase
the time-path to depletion?
What are the policy implications of the above findings?
Methodology


Desktop research
Department of Minerals and the Diamond Hub


Goal to interview all the key players in the existing downstream
value chain,





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first point of entry into the industry.
the critical supplier (DTCB),
the manufactures (Sightholders),
the service providers (ancillary companies)
the institutions both public and private.
Challenges
Interviews were semi-structured and took from 30mins to 2 hours.
Interviews were conducted in English and Setswana
The data collected was overwhelmingly qualitative.
Exploration
Mining
1960s
1970s
Upstream
Linkages
Sorting and
Valuing
Aggregation
Rough Trading
Cutting and
Polishing
Downstream
Linkages
Polished Sales
Jewellery
Manufacturing
Retail Sales
Fig 1.1: Diamond Pipeline
1970s
End 2010
2006
2006
End 2010
Supplier

DeBeers





Cutting and polishing industry



Exploration
Mining
Sorting and Valuing
Rough Sales
1st attempt in the 1980s
2nd attempt 2006
Diamond Trading Company Botswana (DTCB)

15% of supply
Aggregation
India & Others
Botswana
South Africa
South Africa
Canada
Mixed Parcels
London Mix
Namibia
Canada
Namibia
Botswana
Open Market
Fig. 2.1: Current Aggregation Process
India & Others
South Africa
South Africa
Canada
Mixed Parcels
Gaborone Mix
Canada
Namibia
Open Market
Botswana
Fig. 2.2: Future Aggregation Process
Namibia
Buyers
Population (16)
Leo Schachter
Country of
Origin
Israel
Respondents (7)
Person Interviewed
Motiganz Diamonds
Botswana
Production Manager
Diamond Manufacturing Botswana
Belgium
Belgium
Suashish Diamonds
Botswana
Managing Director
Teemane Manufacturing Botswana
Eurostar Botswana
Belgium
Leo Schatcher Botswana
Production Manager
SAFDICO
RSA
Steinmetz Diamonds
Botswana
Managing Director
Suashish
India
Eurostar Botswana
General Manager
Lazare Kaplan Botswana
Israel
Lazare Kaplan Botswana
Managing Director
Steinmetz
Israel
RSA
Diamond Manufacturing
Botswana
Managing Director
Rand Diamonds Botswana
Pluckzenic Botswana
Belgium
Dalumi
Israel
Yerushalmi
Israel
Zebra Diamonds
Belgium
Sherenuj
India
Motiganz
Israel
H&A
Thailand
Piofine Tools
Botswana
Institutions
Respondent
Botswana Export
Development & Investment
Authority (BEDIA)
Sector
Government Parastatal
Person(s) Interviewed
Director: Business
Development
International Financial
Services Centre (IFSC)
Government Parastatal
Business Development
Executive
Citizen Entrepreneurship
Development Agency
(CEDA)
Government Parastatal
Director: Structured Finance
Government Parastatal
Director: SMME
Environment
Botswana Institute for Policy
Analysis (BIDPA)
Government Parastatal
Executive Director
Diamond Hub
Government Department
Coordinator & Business
Innovation Hub
Government Parastatal
Principal Project Officer
Department of Minerals
Government Department
Minerals Officer
Grant Thornton
Advisory Services
Partner
Prof. Happy Simphambe
University of Botswana
Professor in Economics
Bringing Opportunities to
Market
Private sector
(Intermediary between GoB
and foreign investors)
Consultant
Peter Kettle
Private Sector (Ex-Head of
Beneficiation: Africa at
DeBeers)
Consultant
Local Enterprise Authority
(LEA)
Karen Henry
Consultant
Private Sector (Gemmologist
(Daughter of one of the
pioneers of the C&P
industry))
Pre-identified constraints
Skills
2. Assess to Finance
3. Assess to Technology
4. Business environment
1.
Service Providers
Population (12)
Gemmological Institute of America (GIA)
Malca-Amit Botswana
Brinks Botswana
ABN ABRO Bank Botswana
Stanbic Bank
Standard Charted
I Hennig & Co
Rotheschild Diamond
BONAS
Marsh
AON
G4S
Activities
Gemmology
Logistics
Logistics
Financing
Financing
Financing
Brokers
Brokers
Brokers
Insurers
Insurers
Security
Respondents (6)
Gemmological Institute of America (GIA)
Malca-Amit Botswana
ABN ABRO Bank Botswana
I Hennig & Co
Marsh
AON
Linkages

Linkages within the Botswana’s downstream diamond industry have
recently been developed and are strengthening overtime.
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
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Cutting and polishing industry is working to a large extent
Local cutting and polishing skills have grown from nearly non-existent
and are growing over time but will continue to be a constraint for years
to come
The Sightholders are well financed by their parent companies and
access to finance and technology are not major constraints.
Quantitative data is not readily available and magnitude of the industry
is yet to be determined.
All specialised inputs imported from major diamond cutting and
polishing centres
None specialised inputs are imported from South Africa.
All Botswana offers the buyers is the availability of rough diamond
supply and unskilled labour.
Linkages

All the factories interviewed:


imported their technology from the major diamond cutting and
polishing centres such as Belgium, Israel and India.
None saw access to technology as a problem
• “..if you have the money you can import the technology you need”

maintenance of the specialised equipment a constraint
• lack of local technicians
• cost of bringing in foreigners too high
• visa process is a hassle.

existing servicing contracts with technology suppliers.
• State-funded technician
• Industry penetration
Linkages


The linkages between the downstream diamond industry and local
economy are not extensive.
‘enclave industry’


capital is controlled by foreigners resulting in few linkages with the rest
of the economy.
Local participation in knowledge intensive services is very low



companies relocated/expanded from South Africa’s cutting and polishing
industry
set up front offices in Botswana to service their new clients
locals lack knowledge and understanding on the downstream activities
• ill-equipped to take advantage of knowledge intensive opportunities in
downstream industry.
• high barriers to entry in the industry make it difficult for locals to become
service providers
Supplier

marketing contract between DeBeers and the GoB,

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
the DTCB has the full distribution license to all of Debswana’s output.
the sole supplier of diamonds in Botswana.
6 buyers of gem stones and one buyer of industrial stones.
market structure
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supplier power
supplier driven value chain where the
governance structure of the value chain is controlled by one supplier
current marketing contract expires at the end of 2010
•
•
•
•

renegotiated
to change the current structure of the value chain.
independent marketing channel outside of the DeBeers distribution channel
new producers African Diamonds and DiamonEx will be able to market their diamonds outside of the
DTCB arrangement.
captive governance structure where

DeBeers sets rules
•
•
•
•
•
Price of rough diamonds
Quantity
Selling dates
Number of manufactures
Manufacturing companies
Buyers
Country of
Origin
Ownership
Est.
Pre-Crisis
Employ.
Post-Crisis
Employ.
Ave. Salary
DMB
Motiganz
Steinmetz
Eurostar
Suashish
Belgium
Israel
Israel
Belgium
Family
Business
1982
206
Family
Business
2007
293 (33)
Family
Business
2007
170
103 (10)
226 (46)
Other
Operations
Israel, India
(jewellery)
China, India
& Israel
Sizes of
stones
Small ( 2.5 –
4) & big (4 to
8)
Antwerp
Cubes
Israel
Own
No
Export
destination
Own or
Rent
Property
Located in
DH?
LKI
India
Leo
Schachter
Israel
Family
Business
2004
550
Family
Business
2007
90 (18)
Family
Business
1990
360
Family
Business
2007
n/a
125 (6)
318 (15)
60 (12)
201 (20)
n/a
P900 –
P3000
South
Africa,
Namibia,
Mauritius,
Geneva,
New York
& Antwerp
Small &
big
P1000
P1500
n/a
Israel
China
India
Thailand,
(South
Africa)
Israel
Small
Big
5 to 14.5
carats
Europe
Belgium
India
All sizes,
prefer 4
carats
Israel
Rent
Own
Own
Rent
Own
Own
No
Yes
No
No
No
Yes
Buyers

Vertically integrated

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Rough and polished dealers
distribution offices
sales arrangements with jewellery manufacturers/wholesalers
own jewellery manufacturing factories
Design component of the manufacturing process
Technical abilities are critical

DTC Sightholder license
•

Sightholder advantages

Branding
•

ForeverMark
Rough supply security
•

The best at the type of stones that they manufacturer.
supply arrangements with jeweller manufactures.
Relationship between DTCB and the Sightholder




chosen out a potential 79 Sightholders (140)
supplier has a lot power
buyers need the supplier
“Headmaster/Student” relationship.
•
•
“Yes sir”
Threat of losing license
Buyers

Diamond industry


secretive
trust is critical

Production Information is not easy given out
 Compete globally



Production figures valuable to the competition
Unable to determine each Sightholders production levels and capabilities.
All the Sightholders agreed that the biggest constraint


Hassle of doing business in Botswana.
Time is crucial
• internet connectivity problems
• or power cuts make a real impact on their timelines or turnaround times



Slow service delivery in general
Getting anything done is a real hassle
Reason for being in Botswana



availability of supply
strategic decisions still made by the parent companies
local operations focusing on production.
Service Providers

New ancillary services providers


Set up especially to meet needs of the new buyers
Reputation is everything in the industry

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All the major service providers operate branches in all major
diamond cutting sector
Recognised by the Sightholder
Already work with Sightholders in other cutting and polishing
centres.
Barriers to entry very high.
Head offices located
• South Africa
• Major diamond cutting and polishing centre

Botswana
• Front offices that focus
• Servicing local clients
Major Changes

recession




production level.
3300 jobs pre-recession
2200 jobs post-recession
Survival mode
• DDA Botswana did not survive the recession

license was taken over by Shernuj Diamonds
• Botswana Diamond Manufactures
• Botswana’s ‘diamond story’ branding campaign
• Expansion halted

training more locals
• retrenchments.



plan to rehire retrenched workers
rid of mediocre cutters and polishers.
Trading Platform in 2010


Price discovery
Impact on Sightholders
Ownership
Key factor to determining the breath and
depth of linkages from the mining sector
• Supply
• Manufacturing
Ownership: Supply
Diamond Trading Company
Botswana

ownership structure


interests of the GoB and interests of
DeBeers are difficult to separate.
GoB interests
•
•
50 % DeBeers Groups
of Companies
50% Government of
15% Government of
Botswana

DeBeers shareholders
•
•
Botswana


45% Anglo America


GoB’s 15% shareholding
needs of the private sector vs. public
sector.
threat of corruption
public servants
•

benefit from advancing the needs of
DeBeers
Tombale
•

1% benefit from DeBeers arrangement
“Suicide” of former Debswana MD
•
Fig. 3: Ownership structure of the Diamond Trading Company Botswana
short-term
profit-driven
conflict of interests

40% Oppenheimer
family
long term
welfare-driven
Leadership questioned
Ownership: Manufacturing

Thailand (1)
Diamantaire families


RSA (2)


Belgium (5)
Israel (6)
•
•
•
Diamantaire
Family

•
•
•

Listed in
Major Stock
Exchange
International
Sightholder
Local
Sightholder
Fig. 4: Typical Ownership Structure of Buyers
GVC chain
operations of their parent company.
strategic decisions



Local
Shareholder
very limited knowledge
•
•

limiting this knowledge transfer by
focusing locals on local production only
not the global aspects of the downstream industry
local production managers

License from
DTC Botswana
investment in Botswana was long term
recover their initial investments majority of
Own property
limiting breadth and depth of linkages in the industry
in knowledge intensive services
License from
DTC London
Indian (2)
foreign capital
holding companies/parent listed in major stock
exchanges
maximise profits
take advantage of the supply
parent company
operations in Botswana only focus on production.
foreign owners do not stay in Botswana
•
•
Sight weeks
important industry events like the Town Hall meeting.
The GoB wants to create local expertise in the
downstream diamond industry but the ownership
structure is
Infrastructure

Infrastructure does not appear to be a major
factor in determining the breath and depth of
linkages in the downstream diamond industry.
 Lack of some infrastructure currently being
addressed by the GoB.
 Industry started necessary infrastructure was not
in place



Informal exported
P40 million diamond security transfer facility
high security road connecting the airport and the
diamond hub has also been built.
Skills Spillovers

Skill spillovers are not a major factor determining
linkages in the current and polishing industry



some skill spillovers public servants trained in the
mining industry
now working in the cutting and polishing industry
Industry specific skills
 Piecemeal skills
 Greatest potential in knowledge intensive
services
NSI

Currently the NSI is not a major factor
determining the breath and depth of linkages in
the downstream diamond industry but in the
future it is expected to become a more important
factor.

The Innovation Hub
•
•
•
•
•

Knowledge intensive economy
Science and Technology Park
downstream industry
Oodi School of Technology
Courses that will provide skills for the downstream industry.
The importance of the NSI is determining the breath
and depth of linkages is expected to grow over time.
Links with regional hubs

Links with the South Africa’s diamond industry
play a factor in determining the breath and depth
of linkages in the Botswana’s downstream
industry.


inputs.
Two issues
• Prices 15% to even 100% inflated in Botswana
• time it took to get goods delivered

Service providers (AON, Marsh, ABN AMRO) with
parent companies in South Africa and
• employ South African labour
Policy

Policy is a key factor in determining the breath and depth
of linkages in the downstream industry




Political will
Industry specific policy is not yet available
sensitive to the negotiations.
Incentives:






15% corporate tax for manufacturing industry vs. 20% for the
other industries
No export duties on polished diamonds
No import duties on equipment
No training levy
Training rebates
Tax on profits vs. tax on turnover (as in common practice in other
cutting and polishing centres)
Additional MMCP Issues
 Unavailability
 Diplomacy
of quantitative data
Still to do
 Refine
questionnaires
 Complete interviews
 Get more quantitative data
 Understand traditional and untraditional
cutting and polishing centres
Thank you