DTC acts to boost Sightholders' viability

Brian Benza
Staff Writer | Wednesday April 6, 2011 00:00

 

This comes on the backdrop of concerns about the viability of the local diamond cutting and polishing firms, reportedly operating below break-even due to high labour costs and other factors such as productivity and infrastructure.

In an interview with Mmegi, DTC international CEO Varda Shine said that the company has engaged manufacturers in discussions centred around making their business in Botswana more economical. 'Normally in the diamond industry, labour cost should represent about 10 percent of the rough costs. So as the DTCB is trying to beneficiate as many rough diamonds as possible, we have gone into discussion with manufacturers to try and supply them with more suitable goods. With labour costs higher in Botswana, the manufacturers will need to buy rough that is of appropriately high value as well,' she said on the sidelines of the Beneficiation Pitso held in Gaborone this week. However, Shine said the challenge they have faced in deliberately supplying the higher value goods to local manufacturers is trying to strike a balance between making the business run sustainably and creating employment.

'The difficulty we have faced is that the higher the prices the less Debswana produces of these goods and this threatens employment. So we are finding ways of trying to find economic solutions for manufacturers but at the same time create employment. We are also aware of the fact that this will, in some instance, limit the amount of rough they process but our first priority is to make the businesses run profitably before they can expand,' she said. Using its leverage as the world's largest diamond producer, Botswana sucessfully negotiated for some of the diamond industry down stream activities to be carried out in Botswana five years ago. The diamond manufacturing industry blossomed in 2006 with the licensing of 12 new polishers and cutters, creating 3,000 direct jobs and ancillary sectors like banking, security and transport.

However, experts say that viability has been a major concern for those industries with average labour costs between $65 and $100 per carat in Botswana while costs in places such as India can be as low as $15 per carat.

Analysts say skills shortage, low Internet and telecommunication connectivity, poor work ethic and productivity constraints have also weighed in heavily on the manufacturers but the companies, most of which are subsidiaries of international companies, have been willing to forego profit to ensure supply in a sector where new mines are scarce. Experts say 2011 will be yet another year of poor profitability with the situation further excerbated by the widening gap between rough diamond and polished prices.

The price imbalance, which was triggered by the recession in late 2008, means the firms pay more for rough diamonds than they are able to sell them for to jewellers after they cut and polish them. During a presentation at the Pitso, analyst Chain Even-Zohar explained that while the recession dropped both rough and polished prices, the former had recovered faster and to higher levels than the latter, eroding margins and pushing firms into the red.