Eleventh hour deals and lifetime ‘wins’
Mbongeni Mguni | Monday July 10, 2023 06:00
President Mokgweetsi Masisi was at his oratorical best in Sese on Wednesday, taking a full kgotla down a colourful, idiom-laden journey into the history and the present of the country’s diamonds and the extraction of value from them. The President, fresh from a legacy-building agreement with De Beers, is on a countrywide round of kgotla meetings, which he occasionally conducts to share information and developments with Batswana, while also gathering their views and concerns.
The selection of Sese as the President’s second destination in his planned tour, is significant. The village, lying in the shadow of Jwaneng, is one of the places in the country cited when the question of whether diamonds are benefiting the communities around them, is asked.
According to the last available poverty mapping report by Statistics Botswana, just over a third of Sese’s residents were categorised as poor, or about 830 people in a population estimated at 2,603.
Possibly energised by Masisi’s narration of the events leading up to the De Beers’ deal and having heard more details about the values due to flow from the arrangement, a young man in Sese this week asked Masisi whether villagers could benefit directly from royalties.
“You are getting royalties just that they don’t go into your pocket,” Masisi replied.
“This village was built through royalties. We have been saying the water supply will be increased and that there’s a new school being built, where do you think this money comes from?
“De Beers is paying royalties and that money is split in this way.
“If you want it go get into your own pocket, we don’t have that here. That is seen in countries that are crying, now wanting to look like us. Violent countries of war lords, dictatorships and terrorists.
“Those countries when you are there, there’s nothing like Botswana. If there’s a doctor there, if they haven’t shot him, they charge exorbitantly.
“The police also charge you. On the road, they have roadblocks, you pay to pass, there’s poor governance. “That’s where royalties go into pockets.
“For us, no royalties to any individual, royalties are a public good and they are for all of us.
“The royalties go to government and government takes care of you and others that you may not be personally able to take care of.”
Bad old days
The engagement at the Sese kgotla underlines the challenge facing Masisi and his administration in approaching negotiations with De Beers for a renewal of the sales agreement and mining leases, one of balancing citizen’s desperate developmental needs with tight budgets. By the time he stepped into the presidency in May 2018, Masisi had been a Member of Parliament during the 2009 global recession which forced the suspension of operations at Debswana mines and had also been the Vice President in 2015, when a mining sector-wide slump again caused economic contraction.
In 2020, as President, he watched together with his administration, as COVID-19 set ablaze the manifesto and promises he had campaigned with and won, replacing that hope for Batswana with the second worst economic collapse in the country’s history, the depletion of critical government savings and an embittered population.
A successful renegotiation of the country’s most important economic relationship, the one with De Beers, would deliver not only greater budget revenues, but power the RESET and transformation agendas Masisi’s administration is banking on to evolve the economy from resource to knowledge-based.
One area Masisi has been pursuing, according to statements he made as far back as 2018, when he took office, is for Botswana to secure greater access to the values in the diamond industry’s pipeline, beyond simply being a miner of the precious stones.
“The whole value proposition of beneficiation of diamonds revolves around jobs, the diversification of the economy,” Masisi told Bloomberg in an interview in May 2018.
“Why take them far away?
“So the very things that cause them to be processed elsewhere, we want to get to the underlying reasons for that, the attractions and bring them to Gaborone.”
How values in the diamond industry grow the further down the pipeline one travels is evident in recent data showing that in 2021, the global diamond jewellery industry generated values of about $85 billion, compared to the $15 billion shared by the various countries that actually dig for the shiny stones.
“Diamond jewellery” is a term covering ornaments whose central value is the diamond, but which typically involve other minerals like gold such in the making of the bands of a ring as well as rubies sitting next to the diamonds in the centrepiece.
Early in February this year in a ruling party rally in Moshupa, Masisi lifted the veil on the traditionally top secret negotiations, venting his frustrations on the pace of progress, after several extensions of the initial September 2020 deadline.
“I want to be clear; our diamonds, we realised that we have not been doing the right thing.
“The agreements that we had have not been working for us the way we had hoped.
“We are in talks with them and when we come from there, we want to get something better and we are going to get that.”
A shining centrepiece
According to the publicised principles of the deal unveiled after midnight last Friday, Masisi’s negotiators have been able to secure the diamond value chain progression sought after and necessary to taking the country beyond simply digging for the precious stones.
The agreement reached in principle centres on a new 10-year sales agreement for Debswana’s rough diamond production through to 2033, and new 25-year Debswana mining licences through to 2054. While the partners finalise the implementation of the formal sales and mining agreements, an interim agreement will preserve the terms of the most recent sales agreement which expired on June 30, the two parties said.
The salient points of the
agreement include:
Increased allocation to the Okavango Diamond Company (ODC) from the current 25% to an initial 30% upon signing, moving to 50% by the end of 10 years
The ODC setting aside a portion of its allocation for uptake by Botswana owned citizen entities
Funding arrangements for the expansion of Debswana mines, which include the underground project planned for Jwaneng and deepening of the Orapa open cast
Establishing a Diamond for Development Fund to be funded upfront to the tune of P1 billion by De Beers and further funded up to P10 billion in the next 10 years
De Beers establishing a diamond jewellery manufacturing plant locally for international retail
Jointly processing exceptional or special stones emerging from the mines
Jointly exploring for diamonds across the world
Setting up a talent council where Batswana will be taught diamond grading, pricing etc with an initial intake of 350 trainees
“The signing of the deal is one step of a 1,000-mile journey and the real work is just starting,” Minerals and Energy minister, Lefoko Moagi told journalists on Thursday afternoon.
“We want to be able to pride ourselves that as Botswana, we can export our skills, both upstream and downstream to other countries.
“That is a knowledge-based economy and that is an export-based economy.
“The next generation will negotiate their deal and will push beyond where we are, because this is an evolving partnership.”
Nuts and bolts
Over the years, the long-drawn out negotiations were a tense affair where at various points the two partners butted heads over proposed terms. Moagi and both negotiating teams appear to have spent a largely sleepless night between Friday June 30 and Saturday July 1, finalising the agreement.
“H.E drove us very hard to not relent on this matter.
“It’s important that as negotiators, people can differ but they still come to the table and thrash out those differences.
“Both of us knew the bigger issues in our 54-year partnership and that’s why we had to come to the table and agree to disagree and eventually agree on the bigger picture for us as a country and for De Beers.
Most analysts agree that the deal agreed to in principle last Friday represents the transformation of the Botswana-De Beers relationship, a product or result of design not chance. In its approach to the talks, government was keenly aware that where it had previously leveraged Debswana to secure concessions from De Beers, the declining resources at the various mines meant the 2023 agreement would possibly be the last where the Debswana hand is played to its fullest extent.
Jwaneng, the world’s richest mine, will have to spend billions more on Cut 9 and an underground expansion, while more expenditure is also required at Orapa to extend life of mine. With each renegotiation, the mines expand, deepen, require greater technology and yield less stones while costs climb, weakening the state’s bargaining power.
The power of leveraging the leases can also be seen in the 2023 deal’s predecessors. The talks concluded in September 2011 delivered the historic migration of multi-billion US dollar diamond activities from London to Gaborone. The deal also secured an independent pricing avenue for Botswana, via the establishment of the state-owned ODC, which last year posted record sales of US$1.1 billion.
The agreement before that, in 2006, saw Gaborone secure the establishment of the 45-million carat per annum Diamond Trading Company Botswana (DTCB).
Both deals pale in comparison to the concessions secured for Botswana, which, as Moagi explains, are designed to drive the country towards a future where diamond resources are far lower than they are today.
Essentially, where the previous deal brought international diamond activities to Botswana, the 2023 agreement takes the country onto the international stage with its increased ODC allocation, joint exploration internationally as well as jewellery manufacturing and plans for retail. The agreement takes the country into its non-diamond dependent future with the billions of pula targeted for enterprise development through the Diamonds for Development Fund as well as the planned skills enhancement through the Talent Council.
Handshakes and smiles eventually
This bigger picture is what De Beers CEO, Al Cook, and his team had their eyes on in the negotiations. Speaking to Mmegi this week, he explained that for the diamond giant, the agreement in principle, represents a “win-win,” arrangement, one that supports De Beers’ ambition to partner in sustainable development in each of its partner producer countries.
“We are very pleased with the agreement that we have reached,” he said.
“We always knew that we need an agreement that can work for De Beers but there could never be a win for De Beers, without a win for government.
“Government was very clear with their demands and consistent with the President’s vision, which included a long term partnership, an increase in the diamond value chain in Botswana and government also wanted to see De Beers contribute towards a knowledge-based economy.
“We were also clear in supporting that and we believe this agreement meets all the government’s desires and ours also.”
Cook, who joined De Beers as CEO in February 2023, said the objective of securing a “win-win” arrangement was evident in the principles of the deal, such as the Diamonds for Development Fund.
“That Fund aligns government and De Beers in support of a knowledge-based economy and will help develop smart agriculture, renewable energy and others, which are in the interests of both the country and the company.
“We benefit as well because the greater the development of the private sector, especially the SMEs, the more developed the economy becomes.
“The work on establishing the value chain here in Botswana and the fact that we will be working to develop a jewellery manufacturing plant, is a win-win because our consumers in the United States and Europe, want authentic, responsibly sourced jewellery, where they can confirm where the stone is from, where the jewellery was made and the path it took at every stage.”
This week, most diamond industry analysts welcomed the new deal, the calming of tensions between the two partners and the arrangements towards continued supply in the industry.
The deal in principle now moves to lawyers, technocrats and finally shareholders for approval before it is officially signed and its terms kick into effect.
Cook says that should be “a matter of months, rather than weeks or years”.
“It will take a few months to do, but both sides are highly motivated to do this and get all the benefits that have been pledged.”
He adds: “This is a win for everyone and it will stand the test of time.
“When people look at the agreement in 10 years’ time, they will see that it was the right agreement that met the interests of everyone.”
The man from Sese, chided over his demands for individual royalties, can take heart.