Botswana’s cutting and polishing industry exists in large measure because the government has permitted the import of high-value rough diamonds to supplement local supply. With new, capital-intensive cutting and processing techniques, Botswana can now cut and polish higher-value diamonds despite its high production costs.
India, the world leader in the cutting and polishing of diamonds, uses traditional, labour-intensive techniques. If Botswana used these methods, its industry would collapse. The country cannot compete with India, where pay levels are lower and productivity is higher. Although wage levels in the diamond industry are notoriously difficult to ascertain the world over, industry insiders estimate that in Botswana a cutter earns between $300 and $400 per month, significantly more than cutters in Surat and Mumbai.
India’s diamond industry
But is Botswana’s diamond-cutting industry viable in the longer term? The answer may lie in looking at the history of India’s cutting and polishing industry.
Until the early 1970s most diamonds were cut in Amsterdam, Antwerp, New York and Tel Aviv. Even in the 16th century, when India was the world’s only source of diamonds, most of its diamonds were cut in Europe to European tastes.
Soon after India’s independence from Britain in 1947, European cutters began training Indians in modern cutting and polishing techniques. In the 1970s India, much as Japan and Korea did in manufacturing, kick-started its cutting and polishing industry by emphasising that its labour costs were lower than those in Europe or Israel. In addition, the subcontinent developed expertise in cutting poor-quality diamonds traditionally rejected because they were too costly to cut.
It was not long before the comparative advantage India gained from low wages extended to higher-value diamonds. It is now globally dominant. In 2012 India processed 80%-90% of the world’s diamonds, according to a 2013 report from India’s Ministry of Commerce and Industry. Diamonds were responsible for 14% of total exports, or $43bn in the 2011-12 financial year, according to the report.
Diamond production is one of India’s leading growth sectors, providing an estimated 1m jobs in Surat and Mumbai alone. The lessons Botswana can learn from this are complex. While India had diamond mines and was able to develop a cutting industry, this process evolved over centuries. By the time India became a dominant player in diamond cutting, it had long ceased to have a significant mining industry.
India’s historical entry point in adding value to diamonds – low-cost workers and materials – is not commercially viable in Botswana.
But a crucial lesson, often forgotten, is that comparative advantage can be acquired. If Botswana’s government works closely with the private sector it can locate productivity bottlenecks and target cost-raising inefficiencies, a move which it needs to make urgently.
Nevertheless, even if Botswana does not succeed in competing with India, this still does not mean the World Bank’s and the OECD’s blanket criticism of beneficiation is justified.
Botswana is likely to continue mining diamonds into the 2040s. The country can use the next two decades to refine its cutting and polishing industry through training and developing talent, entrepreneurial know-how and linkages in both directions of the value chain. When diamonds run out, these skills and capacities can be transferred to other sectors.
However, without concrete policies to capitalise on the benefits the industry could create, beneficiation in Botswana will indeed fail. The government needs to assist local entrepreneurs to develop connections with suppliers, and assist skilled workers without imposing ever-higher costs on the industry.
Will beneficiation succeed in Botswana? The answer is a conclusive maybe. Its realisation lies in the hands of policymakers.
This article was first published by Good Governance Africa.