Botswana is a diamond country, but one cannot see it even with binoculars. There is no sign of the even distribution of wealth, nor anywhere in Botswana, contrary to propaganda fed to the international community, except the theoretical numbers of GDP per Capita, and all those scientific technicalities which don’t reflect the growing disparities between the wealthy and the poor. What is visible is poverty and unemployment that exceeds 20 percent of the population. Only a handful of less than 400 000 people are employed, while the rest including degree holders are jobless. For a diamond rich country, it is concerning to read Statistics Botswana announcing (a questionable) P5000 as the average pay for Batswana, despite high cost of living.
It would be miracle to drive 5 kilometres around the diamond capital of Gaborone and not hit a pothole. Batswana still struggle with basics, such as water and power, yet their government has pocketed billions annually since independence from its partnership with De Beers.
The opaque way the Government of Botswana negotiates its dealings with the diamond giant De Beers raises more questionable concerns- the role of the diamond giant as a puppeteer with government at the other end of the strings. Government transactions with the mining giant happen behind closed doors. The foreign diamond deals are a close kept secret.
This week Government Enclave turned into a panic station, when it emerged that The Business Weekly & Review had become privy to the secret moves to bring forward all diamond rights negotiations in time to pre-empt President Ian Khama’s departure.
The sales agreement contract between De Beers and Botswana expires in 2020, while their mining licenses at Letlhakane, Orapa, Damtshaa and Jwaneng all expire in 2029. However, The Business Weekly & Review has learnt that President Ian Khama has re-opened negotiations with De Beers to discuss the contract as well as the licenses.
Khama’s presidency ends in 2018 April, two years before the main sales agreement contract between De Beers and Government expires. According to sources, Khama wants to oversee and conclude new contracts before he leaves office next year. It emerges that Khama does not want his successors to negotiate with De Beers though Vice President Mokgweetsi Masisi, who takes over next year April could have negotiated such contracts with De Beers, as he will be President.
Sources reveal that, with Botswana going for general elections in 2019 and the ruling BDP for the first time in its 50 years history, facing a united opposition under the Umbrella for Democratic Change (UDC), coupled with BDP’s waning popularity, a marked decline in overall national votes, the party is currently in panic mode after securing power at the 2014 elections with 43 percent of the vote. Though Khama could let a government that takes over in 2019 to negotiate its deals, the concerns raised is that in the event of the opposition winning the elections, contract negotiations will prove to be more difficult.
In response to the revelations of the early negotiations, President of the UDC Duma Boko said it is important to know which party between government and De Beers asked for the negotiations, and for what reasons. He says that it is important to also examine the validity of the decision to renegotiate and also the people empowered to call for such negotiations.
The nature of discussions between De Beers and Government have historically been a closely guarded secret. Sources, fearful of repercussions against themselves, have however revealed that Khama wants to leave a contract in place that is suitable for De Beers. Khama’s Presidency, according to available information, was supported by De Beers, in a quest to keep BDP stable and in power, so as to secure its fortunes in diamond mining.
It has emerged that Khama, before he leaves, wants to leave in place a contract that will ensure the continued relationship between De Beers and the current BDP led government. De Beers earns around $6 billion annually in diamond mining, with over 60 percent of such revenue originating from Botswana, meaning that the London based company’s survival is pinned to the exploitation of Botswana diamonds, and it would vociferously seek to maintain the status quo.
The diamond monopoly has been linked to the BDP in the past, with suspicions that De Beers bankrolled BDP, to help it stay in power, while BDP in return keeps De Beers happy.
Previously, Wikileaks, an international non-profit organization that publishes leaked information, published that according to a confidential cable, Debswana financed a De Beers selected consultant to determine the internal structure of the BDP, including the presidency. “The BDP first contracted Schlemmer after the 1994 election… Although Schlemmer wrote that report for the BDP… then Chairman of Debswana Louis Nchindo paid for the study personally… The 2005 study was paid for by a mining firm with significant interests in Botswana ‒ i.e. De Beers. Schlemmer recommended that President Masire retire early and that the BDP bring Ian Khama into politics to unify the Party. The BDP scrupulously adhered to his recommendations.”
There has been so much secrecy in respect of Botswana’s diamond deal with De Beers, and many analysts believe that De Beers survival is hedged to the BDP while the latter’s financial muscle is guaranteed by De Beers. Both have denied this in previous media publications.
The diamond dealings are kept a secret, ostensibly on the pretext of national security with the effect of concealing the value derived from diamonds, as well as controversial beneficiaries like the BDP. Batswana have no information concerning the diamonds transactions, with even Parliament being denied access to the last lease renewals under Mogae. Everything is kept in the shadows.
So is the price of that diamond, or the diamond itself. All Batswana can get are a few figues published by the diamond mining conglomerate De Beers. There are no cross checks to establish if those numbers are real or not. There is no transparency, as required by other countries, of Botswana’s greatest national resource. No one knows how many exceptional, special stones, or ‘rare gems’ De Beers has actually mined here through Debswana, a 50/50 joint venture with government of Botswana.
Government does not reveal details of their proceeds from Debswana. No one has ever seen a Debswana Audited Financial results, save for the two partners, Government and De Beers. It is hard to know how much government gets from Debswana in tax, royalties and dividends. So much secrecy. No register is kept of exceptional diamonds, which limits stakeholders’ ability to identify the volume and value of rough stones sold, or the subsequent sale tax and royalties that should be paid.
Taxes, royalties and diamond valuation formulas are usually documented in mining agreements rather than in sales agreements. In Botswana, mining agreements are confidential. That has always been the nature of the agreements between De Beers and Botswana.
In negotiating with De Beers, government has never involved Batswana. Only top government officials get flown to London, where De Beers would choose the law firm and government officials oblige by signing on the proverbial dotted line. Insofar as the public is aware, at no time has the BDP government engaged local corporate lawyers to sit in on these negotiations, learn the diamond trading dynamics and advise government in future, so as to ensure Batswana do not get cheated.
In his criticism of government negotiations on the contract renewals, Boko said that government appoints a team that is weak and unqualified to handle delicate negotiations in the national interest negotiations when negotiating the terms of such diamond transactions.
The President of the Botswana Congress Party (BCP) Dumelang Saleshando has also raised questions as to the secrecy in these major deals, “Secrecy means there will be no accountability,” he said, adding that when government signs these deals as an executive arm of a democratic state, parliament should act as an oversight and be consulted on these deals, so as to scrutinize them and ensure they are fair to Botswana.
Saleshando and Boko stated that should the UDC take power in 2019, they will scrutinize all major contracts in place, and terminate such contracts that are found to have been motivated for corrupt purposes.
The last contract that Government entered, a ten year diamond mining deal with De Beers which comes to an end in 2020, has derived no tangible benefit for citizens of Botswana who continue to be subjected to a widening gap in wealth distribution.
On the eve of the end of his term, the then President Festus Mogae negotiated a deal which ought to have been one of the most significance in the history of diamond mining, in both economic value, from its shift in diamond ownership, and national economic diversification. At the centre of the transaction were provisions that compelled all De Beers operations, the Diamond Trading Centre (DTC), to relocate from London to Botswana, in its capital Gaborone. The decision was well intentioned, considering that the world’s best diamonds by value, were mined here in Botswana. Mogae’s Presidency ended before the deal was signed, and his successor, President Ian Khama signed the agreement in 2010. However, government was not in any rush to facilitate the relocation of the DTC to Gaborone. It emerges however that it took key players within the diamond mining sector to pressure on government to implement the policy, arguing that it was high time that diamond trading took place in Botswana where the diamonds are mined. Under pressure, government had no choice but to relent and facilitate the relocation, despite the displeasure of De Beers, London, which preferred to continue trading from there.
Two major benefits were expected from the relocation of DTC from London to Gaborone. Beneficiation, or rather increased participation by citizens in the rich diamond sector as a result of the value chain benefits, as well as increased employment and development of supporting services, which would feed from the sector.
The big money makers in the diamond market are the diamond dealers. These are the specialised few, who receive special invitations from De Beers to come and buy their stones.
De Beers handpicks these diamond dealers, who are only accredited by De Beers. Since 1966, when De Beers started mining in Botswana, these diamond dealers are primarily from London. De Beers empowers their own. Despite having been a 50 percent partner in this diamond mining business, the Government of Botswana, where De Beers digs for diamonds, has not sought to empower Batswana, to have Batswana diamond dealers like De Beers, or to have sight holders who are citizens of Botswana. That would have been a proper empowerment.
Government, then headed by Coordinator Mmetla Masire painted a picture of glamour, that would result from the relocation. Botswana would become a diamond hub, where anything to do with the diamonds will be done from Gaborone. From the sale of a rough diamond, its polishing and cutting up to the manufacturing of a complete diamond ring. That never happened, it was all just talk. In fact, De Beers affiliated diamond sorting companies moved to Botswana, as well as one or two jewelers, creating a perception among Batswana that beneficiation was occurring. The beneficiation that government spoke of, became a figment of the imagination.
To start with, De Beers sight holders after the relocation would only hold their sight sales here in Gaborone. In reality the majority of sight holding companies continue to be based in foreign lands, while all companies operating in Botswana are also owned by foreign corporate empires to the detriment of local entrepreneurship empowerment, which has failed to materialise. Every 5 weeks De Beers Global Sight holder Sales (DBGSS) holds auction sales to 21 registered local sight holding companies while 85 more come from the international market. But these 21 are also subsidiaries of the international sight holders.
The diamond dealers, jet in from London and then jet out. The relocation, government intended was that the moneyed Western diamond traders would have to spend nights in Hotels here in Gaborone, eat, party, at the same time spending their US Dollars and Pounds here, which would benefit Botswana economy.
That never happened, if it had, it would have been under rare conditions. It emerged that sigh holders only flew in and out of Botswana, and one would argue that either they were using chartered private jets or used foreign airlines, save for the embarrassingly incapacitated Air Botswana. They flew in, got the Botswana diamonds and flew out.
There never has not been a time where the four star Lansmore Hotel in the posh CBD was fully booked by diamond sight holders, or the Grand Palm Hotel, because all sight holders preferred to jet in, buy Botswana diamonds and then go spend their cash in Johannesburg, where they partied, ate and slept. But who could blame them, because Botswana’s infrastructure is still decades away from a country that has benefitted over P400 billion in diamond proceeds.
Under the beneficiation, Botswana was supposed to become the hub for diamonds from all over Africa, process them here and manufacturer jewelry, then export them in high value to countries like China and the USA. However due to the process of aggregation, rough diamonds from South Africa, Canada and Namibia where De Beers operates are shipped to Botswana, where De Beers then re-sells them to the briefcase sight holders, who come from London, the difference made by the DTC relocation is that rough diamonds from all De Beers operations pass through Botswana, but they end up in London where they create more than triple the value, for De Beers, money that Batswana could be making.
The relocation was supposed to provide a boost to the economy. Diamonds have always accounted for a third of Botswana’s GDP, and they still do, even after the relocation. The lack of vision, when the relocation was implemented failed to drive and give impetus to the economy as it was intended.
Stakeholders within the private sector have been the brains behind this relocation, so much that the vision, post relocation lied with the private sector, and not the Botswana Democratic (BDP) led government. Those who supported the idea of relocation, wanted Botswana to strike deals with countries like Nigeria, which is the biggest consumer of Jewelry in Africa.
Through the 21 sight holding companies in Botswana, the diamond industry had employed just around 3000 individuals, but over half of them have been retrenched due to uncertainties in the cutting and polishing industry. The companies collapsed because of lack of finances, influenced by downturn in commodity prices. Commercial Banks refused issuing credit facilities to them. Economic analysts believe that government ought to have done more to ensure that banks loaned players within the local diamond sector to create employment and diversification.
De Beers published what they called the first study “to quantify the economic value generated by the partnership in Botswana in any one year”. They disclosed a figure of $6.9 billion in revenue. The largest proportion, about $2.3 billion, was invested in rough diamond imports from South Africa, Namibia and Canada. But this figure is not an accurate reflection of “any one year” as it was affected by the relocation of De Beers’ sorting centre in 2014, and the resulting inflow and outflow of diamonds. Therefore, the full figure does not represent the value that remains in Botswana but rather the portion that flows in and out of the country. The $6.9 billion, which was supposed to circulate in Botswana banking system, consequently does not, which raises questions as to the value made by diamonds to Botswana, together with so much secrecy over the critical exploitation contracts.
Recently, the World Bank, in line with the criticisms raised by Boko and Saleshandro, questioned the secrecy surrounding Botswana’s big diamond deals, saying it is a loophole that can give rise to improper corporate governance and even lack of accountability. The current secrecy in the early renewals and the lack of transparency in their negotiations does not allay the concerns raised by the World Bank, but rather compounds them.