Diamonds are forever, but maybe the marriage between Botswana and De Beers is on the rocks

 Michael alternate Thursdays

Gaborone in the early days

When Botswana became independent in 1966, it was a sparsely populated, poor country the size of France, mostly covered by the Kalahari Desert. Before that, Britain had governed it as the Bechuanaland Protectorate. The British had little interest in their "protectorate", and didn't even bother to set up a capital inside the country - it was administered from Mafikeng in South Africa. Gaborone was an insignificant town, and the country was basically a subsistence farming economy.

Kalahari landscape

What changed all that was the discovery of diamonds. There are stories that De Beers knew about the huge resources in Botswana before independence and kept it quiet at Seretse Khama's request, but that may be apocryphal. What is beyond doubt is that the opening fifteen years later of Jwaneng, still the world’s richest diamond mine in terms of gemstones,  completely changed Botswana’s economy and its future. (Jwaneng and its stream of gemstones played a key role in our first Kubu prequel Facets of Death.)

Jwaneng is a huge open pit mine about an hour's drive west of Gaborone. It produces more than 10 million carats of raw diamonds a year. If all those diamonds ended up as jewelry, they would retail for about $150 billion! As a 50% partner in the Debswana joint venture, Botswana earns huge revenue. It also holds 15% of the De Beers company and receives dividends and taxes.

The pit at Jwaneng

However, things have changed. Revenues have fallen with diamond sales dropping during recessions, costs have risen, and politicians are now thinking about where to get more money. The arrangement between Botswana and De Beers is reviewed from time to time, but has always been extended with minor tweaks and a few bonuses thrown in. This time may be different, but it's a high stakes game. Diamonds constitute two thirds of Botswana's exports and 20% of GDP.  However, the net revenue for raw diamonds pales by comparison with the revenue from retail diamonds, and De Beers pockets most of that.

An important factor is that De Beers is by no means as strong as it used to be when the marriage started. There are other big suppliers to the market - BHP in Canada, for example. In the past, De Beers was essentially a monopoly, and if you didn't play by its rules, you didn't get any diamonds. When I worked for their parent company, Anglo American, twenty years ago, one was not allowed to travel to the US on any sort of business related trip because of the anti-monopolies laws there. A business trip could be used as evidence that De Beers was doing business in the US and therefore could be sued for infringing US law.

The current Botswana president, President Masisi, has changed a lot of things. Starting out as Ian Khama's protege, he worked his way up to deputy president and then president. Almost his first act was to dump Khama, essentially accusing him of corruption. Khama now lives in exile in South Africa. Now, De Beers is in Masisi's sights. He has said he's willing to walk away from the agreement altogether, and has fired a warning shot across De Beers bows by purchasing a substantial interest in one of the key Belgian gem traders, HB Antwerp. That could give Botswana a direct sales route to the consumer cutting out De Beers altogether.

Thinking about Kwei's comments yesterday, one can sympathize with Masisi's desire to run his own economy, but in the end, I think they'll make a deal. The diamond mines are central to Botswana and it's not easy to manage and develop a big mine. Botswana and De Beers need each other. On the other hand, politicians worldwide seem less and less concerned about what their countries need and more and more concerned about what plays well for the next election. We'll see.