Botswana to become major diamond trading hub

Botswana, the world’s largest producer of diamonds, is transforming into a leading diamond trading and manufacturing hub. The country announced last week a new 10-year agreement with De Beers. The deal will see De Beers move its rough diamond sorting and trading division from London to Gaborone by the end of 2013, thus stripping London of the aggregating, valuing and selling of diamonds and placing these roles firmly on African soil.

The agreement, backdated to January 2011, will effectively end a 100-year tradition of sending African diamonds to London. Consequently, Botswana’s government now expects the value of its diamond trading to reach US$6 billion in the next few years. In addition, the number of businesses set up by diamond cutting and polishing firms is expected to increase. The Botswana government will secure 10% of the annual output of its diamond mining joint venture, Debswana, which will then rise to 15% over five years.

De Beers will basically transfer its London-based rough diamond sales operations to the southern African nation by the end of 2013. Diamonds produced by Debswana will be aggregated in Gaborone with those from De Beers’ mines in South Africa, Namibia and Canada to be sold to the company’s 70 clients. In the past, Debswana’s diamonds were sold to De Beers’ Diamond Trading Company, which mixed them with stones from its other operations and sold them at sights in London.

“We were prepared to move here in exchange for a 10-year agreement,” said Bruce Cleaver, executive director for strategy and business development at De Beers, who was the chief negotiator for the company. “We’ve got an arrangement where we’ve got what we want and the Botswana government has what it wants,” he said.

De Beers produced 33 million carats in 2010 and lowered its forecast for this year to 35 million carats. At full capacity, De Beers is capable of producing 45 million carats.

The agreement will definitely deliver tangible outcomes and enable Botswana to achieve its aspiration to be a major diamond centre engaged in all aspects of the diamond business. We also expect this development to bring more employment opportunities to Botswana. In fact, the terms of the agreement stipulate that the Diamond Trading Company will support the domestic cutting and polishing industry in Botswana, by making more diamonds available for manufacturing businesses in Botswana, where the impressive Diamond Technology Park is in the process of expanding to accommodate rising demand.

Meanwhile, Mining Weekly also reports that Zimbabwe wants 10% of all diamonds mined in the country to be cut and polished locally. According to Mines Minister Obert Mpofu, a diamond policy is currently being drafted and will incorporate a beneficiation strategy encouraging investors to add value in the country. Despite being listed as the number-seven diamond producer globally, geologists have recognised that Zimbabwe holds the largest diamond resource before exploration.

Generally, Zimbabwe’s diamond industry has been badly soiled by allegations of human rights abuse over the last couple of years. In 2009, all diamond exports were suspended after allegations of murder were brought against the security forces at the Marange fields. In March, the Kimberley Process gave the green light for Zimbabwe to resume diamond exports. Experts in the industry have estimated that the Marange fields could yield $2 billion a year in diamond sales.

Overall, we expect the commodity price-rally to drive economic growth in most Sub-Saharan African economies. Initiatives aimed at supporting local industries will also ensure spill over effects thereby stimulating growth across a multitude of sectors.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.