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Botswana Brings Its Diamonds Back Home.
The London Times today reports of a momentous decision that will have great impact on the Diamond Industry.
In a historic turn for the industry, Botswana, the world's largest diamond producer by value, has broken De Beers' control over the distribution of 50 percent of the world's diamonds by bringing its diamonds back home.
In a move that marks the end of an era in which African diamonds sold to De Beers were marketed in London through a complex sightholder system of privileged clients, the Botswana government on October 27 said that De Beers' supplies would move to Botswana.
An official in the capital Gaborone told Business Day that De Beers had agreed under the new sales contract that resulted in the renewal in 2004 of the lease for Jwaneng and Orapa mines, to move the aggregation of diamonds from London to Botswana.
“We have not completed the total mix, but southern Africa is the basis for the aggregation. We hope Angola and Democratic Republic of Congo will agree as members of Southern African Development Community (SADC),” said the Botswana official.
Assuming all countries agree as soon as possible, the Diamond Trading Company should start moving some of their activities such as training and developing security. A new building for the corporation in Botswana is expected to be completed by 2007.
The Botswana official's comments came after President Festus Mogae on October 26 called on South Africa to allow the aggregation of its rough diamonds at its trading company in Gaborone instead of London. Botswana's president was delivering an address at a joint session of the South African Parliament.
Another reason for the move was the cost of aggregation in London. “We, the producers are not getting enough back in terms of revenues and part of it is investment. If they aggregate everything, you are migrating say $5.9 billion worth of diamonds to a country. That would have a positive impact on the economy and that of SADC countries,” said the official.
Several sightholders with cutting factories in southern Africa have received sights or allocations by setting up manufacturing plants under a series of new guidelines designed by De Beers to meet local demands for beneficiation.
But these guidelines could be modified due to the pressures applied on De Beers by producer countries, declining market share and ongoing antitrust scrutiny. Although nobody knows precisely where the pendulum will swing, the Diamond Trading Company sightholders outside Africa will remain their sightholders.
"South Africa will still have their own sightholders, but they will take the diamonds that are aggregated in Botswana, the same for Namibia," the official said. Sightholders who wished to continue buying their rough boxes or allocations in London could do so.
"But we are encouraging Diamond Trading Company sightholders to come to Gaborone, it will have a positive spin on tourism,” said the Botswana official. De Beers said the details were still under discussion and could not comment further.
Now you understand DeBeers strategy of the last few years in their implementation of their Supplier of Choice Program which is taking them into direct retail.
