De Beers, Botswana sales agreement: Will there be any changes?

| Friday November 26, 2010 00:00

Some analysts say Botswana is keen to break the DTC 'monopoly' as it wanted an alternative diamond market system, which will give better value to its diamonds. So if that is the case what sort of an impact this will have on De Beers? Rough & Polished's MATHEW NYAUNGWA from Namibia caught up with De Beers Group's Head of Media Relations LYNETTE GOULD to find out the diamond giant thinks about this possible shake-up

De Beers group executive director, Stephen Lussier, was earlier in the year quoted as saying '(De Beers) have a long term relationship with government (of Botswana) which resulted in us investing $83million for the DTC Botswana. So I don't think the negotiations should be about undermining the DTC Botswana, which we have set up together. If we do that then I am sure De Beers will lose out in one way and government will also lose out in another way'. How will both parties lose if the status quo is changed?

I think what Stephen was talking about is the partnership between the Botswana government and De Beers which has been acknowledged as being among the most successful Public Private Partnerships in the world. US Secretary of State, Hillary Clinton, said in Abuja last August:

'Botswana, as you may know, has a very vibrant democracy. . . and it has used the revenues from its natural resource, which, in its case, happens to be diamonds, and put it into a fund, protected that fund from exploitation by foreigners and exploitation by citizens. So for example, when you buy a diamond from De Beers, part of that money still today goes to help build and maintain roads and clean water systems in Botswana. You can drive anywhere in that country and you can see services that have been paid for by a legal framework, strong regulations, and a national consensus that the money from the earth and its riches should be spent on the people of Botswana.'

The effectiveness of this model has been underwritten by Botswana's exceptional record of economic good governance and the sustained investment of diamond revenues in education, infrastructure, healthcare, training, welfare, poverty reduction and economic development to benefit all Botswana.   Roughly four of every five dollars of cash generated by Debswana goes into Government coffers. The income from diamond mining has enabled Botswana to achieve its unique record of development success.  This is surely worth preserving and nurturing further.

Some analysts say De Beers has not always acted with the intention to ensure maximum value for Batswana for its diamonds. What is your take?

We disagree.   It surely makes absolute commercial sense for De Beers and for Botswana to get maximum value for the diamonds we sell as this is fundamental to our success as a business and to Botswana's economy. The more successful we are as a business, the greater the ability of Botswana to achieve its development goals.

Over 80 percent of all income realised by Debswana goes into government revenues, making it the single most important source of financing for Government-led development efforts in Botswana. In fact we are unaware of any similar public-private partnership that has delivered similar value anywhere in the world.

Do you see an alternative distribution, further access to cut more diamonds, more employment or higher platform to trade emerging from the talks as the deadline approaches?

It would be wrong to pre-judge potential specific outcomes of our discussion with our Government partners in Botswana, but De Beers fully understands Government's desire to develop a sustainable, local downstream diamond industry; indeed, this is the exact goal we have pursued together over the period of the current marketing agreement.

Whilst we believe that our current distribution model derives the maximum benefit to our producer partners and to ourselves, we are, of course, open to discuss any issues that might be mutually beneficial. I am sure these will be raised in our forthcoming discussions and am confident the two parties will have constructive engagement on how to find the best solution to meet all of our objectives - many of which are of course shared goals, given the nature of our relationship.

De Beers' Lussier was also quoted as saying 'we go into the negotiations with a mind to strike a balance between the government achieving all of its goals and us still being able to make a profit because that's why we are here'. How can this balance, he referred to, be achieved?

Firstly, it's important to remember that many of the objectives of De Beers and Government are shared anyway.

Botswana is not only a 50 percent shareholder in Debswana and DTC Botswana but, more importantly, has a 15 percent shareholding in De Beers itself. We have always found a balance before, and we are confident that we will again as the partnership involves two committed and skilled partners. Government doubtless has social as well as financial objectives but De Beers shares Government's desire to see Botswana continue to grow and succeed and we have always found ways to achieve this in the past - we have a partnership with over four decades of success under its belt.

The DTC price book has been condemned by some analysts for its 'failure' to give maximum value to Debswana diamonds.

Our view is that this opinion is based on a poor understanding of the DTC's pricing philosophy and the way the DTC price book works. The excellent financial returns enjoyed by Botswana over such a long period are evidence of the success of the DTC pricing approach. We have an excellent track record of achieving the best long term, sustainable price for our diamonds and it is of course entirely within De Beers' commercial interests to achieve the best prices for the products it sells.

We always work to achieve the best price for the diamonds sold through the De Beers channel as this is fundamentally important to De Beers' profitability, as well as to the Government of Botswana.

Botswana's government is said to be trying to break the DTC monopoly and create an alternative diamond market system, which analysts believe will give better value to Botswana diamonds. Do you share the same view?

As I said before we fully understand and support Botswana's desire to develop a downstream diamond industry and we will work with our partner government to achieve this in such a way that is beneficial to all parties.  The DTC does not have a monopoly in the diamond industry and we are very confident in our distribution approach.

The very fact that Government is a 50 percent shareholder in DTC Botswana is evidence, we believe, of their confidence in our approach.  However, we will of course, look to have full and frank discussions with our partners to ensure that we are all satisfied with how we progress the partnership.

There has been pressure from emerging diamond industry players such as India and China to be considered as third party competitors for Botswana's diamonds. Do you think this will undermine De Beers' negotiations?

No we don't.  We understand of course that Botswana will naturally want to look at all options. However, we firmly believe that Botswana will derive the maximum long term value for its diamonds through its partnership with De Beers.   As a 2007 OECD report on Botswana said

'The partnership between De Beers and the Botswana Government has helped empower the latter to achieve an 'extraordinary record of development success' (UNDP 14) in transforming Botswana from one of the 'ten poorest countries' at the time diamonds were discovered in 1967 to a 'medium development', middle income country by the end of the millennium.' We are proud to have contributed to this success and believe that future cooperation will bring even greater success.