Talks to cushion diamond cutters reach business end
Brian Benza | Friday May 22, 2015 15:06
Due to depressed polished prices set against high rough prices, cutting and polishing companies globally, are facing difficulties with the local industry’s situation exacerbated by the comparatively higher labour costs.
In an interview with BusinessWeek yesterday, Coordinator of relocation & opportunities at the Diamond Hub, Mmetla Masire said while the major forces affecting the industry were external global factors, collective efforts to find local solutions are being pursued. A high level meeting between representatives from De Beers, Diamond Hub and manufacturers is scheduled for today. The meeting is expected to be the final round of negotiations, which began in February, between the three parties.
“Government is going into these meetings with an open mind on how they can assist the industry. We are welcome to listen to any suggestion they have on how De Beers or ourselves can assist or incentivise the high performers. But we are not going to have a knee jerk reaction to try and save job losses and just provide subsidies without a justifiable and sustainable proposition,” he said.
About 700 workers have already lost their jobs in recent months, with companies such as Teemane, Diamond Manufacturers Botswana, Eurostar, Diarough, Moti Ganz and Leo Schachter having already laid off workers or have closed altogether. Government has already suspended royalty payments for the equally affected copper mining industry in a bid to minimise job losses.
According to Masire, De Beers has managed to replace the two companies that closed shop, although it would be some time before the new firms operate at full capacity.
However, another school of thought is that if the local cutting and polishing firms were to be supplied with suitable rough diamonds to buy, the industry would be viable.
Commenting in his Diamond Intelligence Briefing (DIB), renowned Industry analyst Chaim Even–Zohar last week argued that if Botswana cutting and polishing firms were supplied with the economically viable and domestically suitable stones as in the agreement, the local industry could become competitive and job losses could be avoided. This would require supplying more expensive rough in categories in which the labour cost element would become quite insignificant. “We believe a correct implementation of the De Beers – Botswana marketing agreement, both in letter and in spirit, could have resulted in a flourishing local industry by now. Allowing sightholders to make workers redundant because there are insufficient economically viable goods supplied to them may, prima facie, imply failure to meet contractual obligations, even though there may not be a direct penalty imposed for such a situation. It “certainly seems like an issue Botswana’s government ought to look into,” Evan-Zohar wrote in the DIB.
Masire however explained that local sightholders are in 70 to 80 percent of the times supplied with the type of stones they would have requested. “Sightholders apply for the type of stones they need and in most cases De Beers supplies them with the suitable type of rough diamonds. This is the reason why we have allowed only a maximum of 20 percent of allocation to be exported as rough,” he said.
Figures availed to BusinessWeek show that due to the non-availability of ‘suitable’ stones, the local sightholders have now resorted to exporting the rough diamonds they are allocated by De Beers instead of cutting and polishing. Indications are that local sightholders are also importing rough acquired from other supply sources and thus end up beneficiating non-Debswana rough. In 2014, it is estimated that from the $940 million worth of rough diamonds supplied to the 20 local factories by De Beers, only about 40% ($400 million) was cut and polished in Botswana, a development that has contributed to redundancies.
This translates to factories exporting 60 percent of their supply uncut against an officially ‘tolerated’ limit of 20 percent.
Masire admitted that there was an unusually high amount of rough exports by local sightholders. In response to the recent layoffs in the industry, De Beers’ spokesperson Lynette Gould last week told BusinessWeek that while the company is committed to beneficiation, focus should be on creating an industry characterised by efficiency and best practice, not artificial measures.
“We see employment as an output rather than an input to the beneficiation process – and as we develop a more sustainable sector, this will improve the employment opportunities created over time, even if there are unfortunately ebbs and flows in employment levels in response to shorter term external factors,” she said.
De Beers targets to supply $850 million worth of rough diamonds to local sightholders in 2015.