Masisi shifts gears for G7 face-off
Mbongeni Mguni | Thursday February 8, 2024 10:15
The process of consulting with the Group of Seven on how to successfully clamp down on Russian diamonds while not harming innocent producers such as Botswana, has been likened to handholding an elephant through a china shop.
Diamond sector veteran, Martin Rapaport, used the analogy recently when discussing the steps the G7 is taking to stop Russian diamonds from entering its market.
“We have an elephant in a China shop. It’s a nice elephant and we are trying to show it how to walk around the shop,” he said in a webinar on the state of the diamond industry.
As early as April last year, De Beers, whose partnership with Botswana produces the world’s most diamonds by value, met with the US State Department, after picking up reports that tighter sanctions were due from the G7 against Moscow’s stones.
At the time, De Beers’ executive vice president for diamond trading, Paul Rowley, revealed that the discussions were focused on ensuring that any further steps against Russian rough diamonds did not inadvertently affect production from countries such as Botswana or trade in areas that are not under sanction.
The possibility of unintended consequences seemed remote at the time, but in hindsight was highly probable. As Rapaport cautioned at the recent webinar, governments should not be expected to act outside of their interests.
Part of the tighter G7 action states that from September all polished diamonds should be routed through Antwerp for certification that the stones are not of Russian origin. The G7’s move, however, represents a swing back to Europe for global diamonds at a time when Africa and Botswana specifically is positioning itself as the centre of the global diamond industry.
Government has said the move will involve back and forths to Antwerp, higher costs and logistical nightmares at a time when the industry is reeling from a downturn in demand that has depressed prices and rocked producers, polishers, jewellers and diamond-dependent economies such as Botswana.
Of all the countries in Africa that could be negatively impacted by the Antwerp single node, Botswana is the most vulnerable as its economy relies on diamonds for the bulk of foreign currency receipts and a healthy share of budget revenues.
Senior officials from the Office of the President and the Ministry of Minerals and Energy recently hosted a technical team from the G7 which said it was in town to consult on the planned sanctions against Russia.
The senior officials took the team to the world-famous mines and state-of-the art cutting and polishing facilities in Gaborone, showcasing the world-leading certification and traceability systems that literally track even the smallest of stones from mine to finger. The officials showed and explained the importance of diamonds to Botswana’s development and how even the smallest and most fleeting of disruptions could harm critical sectors such as education, health and others.
The bull was walked through the china shop, but the G7 team left without giving any assurances.
Making his first public remarks on the situation recently, President Masisi, the country’s chief diplomat, struck a noticeably restrained note in outlining his engagement strategy.
“We are a small almost single commodity-based economy but we have diplomatic relations with all the G7 member states and as always with friends, you listen to one another and manage the risks for both.
“So we will continue talking,” he said in Kasane last week.
By comparison, last year, as negotiations for a new diamond deal with De Beers dragged on, Masisi moved towards the stick-end of the “carrot and stick” system of negotiating. Clearly exasperated after five years of talks, the president adopted a firm posture in the top-secret talks, a position later publicly confirmed by members of government’s negotiation team as well as De Beers’ executives.
“I refuse and I refuse on your behalf this agreement of slavery; we have to throw it away.
“Even if we are litigated against for it, we refuse because the truth is that the returns from these diamonds must be for Batswana.
“You cannot engage a shepherd for your cattle for his expertise and he says the cattle are his. He’s still a shepherd,” Masisi said at a traditional meeting in May.
Known as “big stick diplomacy” the negotiating approach popularised by former US president, Theodore Roosevelt, involves “negotiating peacefully but also having strength in case things go wrong”.
At face value the powerplay was balanced as De Beers is the most important economic actor in the country, but Botswana is equally De Beers’ most important economic entity at global level.
The talks with the G7 are decidedly different and will require Masisi to dig deeper into his diplomatic arsenal.
The G7 appears to hold most of the cards as the world’s richest nations represent not only the market for diamonds but also the mechanism through which value is assigned to them. Unlike a commodity like oil, diamonds are not essential to consumers in the G7 and those governments could wait out an impasse over the Antwerp node longer than Botswana could.
Going by his comments, Masisi’s appears to be leaning towards a “soft power diplomacy” approach in resolving the G7 issue. Defined by political scientist Joseph Nye J in the 1980s, soft power is the ability to influence other countries without resorting to coercion or force, by appealing to their interests and values.
Masisi, a renowned orator, picked his words carefully recently but hinted at the soft power approach he would use in the battle against the superpowers.
“We essentially educated the G7 technical team and demonstrated the prolific sanctity and absolute security of our diamond sector.
“It’s important to point out to yourselves (the media) and the G7 to appreciate that you can’t ever develop assured provenance by locating elsewhere.
“We also hold the view that if you can fight as a G7 on the side of Ukraine for its democracy and sovereign integrity, the same should apply to us, if we are friends.
“All this is about our sovereignty, our integrity as a nation-state and as a people, including our rights,” he said.
Masisi has said he will escalate the matter to “political level,” another weapon in his diplomatic arsenal. Although he gave no details on the political strategy, analysts have said Botswana has room to leverage its long-established bilateral relations with individual members of the G7 to push for better considerations in whatever certification the group finally settles on.
Any move in this direction would of necessity revolve around engaging the US, which is possibly Botswana’s strongest ally in the G7 and also the world’s primary market for diamonds. Powerful partners there such as Signet, the world’s largest retailer of diamond jewellery which sells approximately 40% of Botswana diamonds, are reportedly ready to lend their weight as well.
Additionally, authoritative voices within the US are questioning the wisdom of signing up to a Euro-centric certification scheme that could, inadvertently, squeeze small and medium American jewellers either through reduced supply or heightened prices. Industry expert, Rapaport, says he’s ready to sue his country’s authorities should that happen.
“The US imports over 50% of the world’s diamonds today and who the hell should tell us how to run our business,” he said at the webinar.
“Who is Antwerp? Who is India?
“It’s our responsibility as the US to control the legitimacy of the US diamond trade.”
He later added: “Belgium wants to try and control the market and that’s not going to happen.”
As he considers the negotiating route to take, Masisi has equally drawn a line in the sand.
“The diamonds here, we own them until we sell them,” he said in Kasane.
“We have the most of them and the nicest of them and consistent with our determination to generate a knowledge-intensive economy, any data accumulation, any regulatory intention or actions that would have an impact on our total economy, will have to be done with our participation including even the construct of how it’s done and core location.
“We hold firm to that view.”
The elephant may yet be led through the china shop.