Jonathan Oppenheimer Repeating Great-Grandfather’s Subsidy Demands

“He is so sweet, this kid, that he’ll get De Beers into deep trouble.” These words accompanied an e-mail I received recently. Attached to this email was an article in which De Beers Director and heir to the diamond dynasty, Jonathan Oppenheimer, was quoted as calling the government of Botswana its “own worst enemy” in dealing with the issue of relocating the Aboriginal bushmen out of the Central Kalahari Game Reserve (CKGR).

For years, De Beers had faced a barrage of accusations tied to its Gope diamond mine property in Botswana where, reportedly, Bushmen needed to be relocated to facilitate exploration and mining. De Beers recently sold that mine to Clifford Elphick’s Gem Diamonds – thus coming out of the controversy relatively unscathed.

That was, of course, until Jonathan spoke out. Without any apparent reason, Jonathan upset the Bushmen, the Botswana government, and De Beers all at the same time. That requires remarkable skills. It all happened when Jonathan was questioned about the thorny relocation issue after giving a speech at the Gordon Institute of Business Science in Johannesburg.

He was asked to justify De Beers’ stated commitment to caring for near-mine communities in light of “what was happening to the Koisan, the Bushmen,” a reference to their controversial relocation out of the CKGR. In response, Jonathan reflected that “any offence on individual rights and small-community rights is very uncomfortable for a larger society.” He continued, “But we need to understand the history of Botswana in the first instance, and that since its independence in 1966, the constitution reserved all mineral rights to the government as the custodian. No community, whether Koisan or otherwise, had any rights to the natural below-ground resources.”

Though the young Oppenheimer was quick to remind the Botswana Bushmen that after 1966, “they didn’t own” the minerals, he actually forgot that in South Africa the law was changed in 2002. From that date on, the historical owners of the mineral wealth had to cede the formal rights to the people of South Africa. According to the law, “Mineral resources are the common heritage of all the people of South Africa and the State is the custodian thereof for the benefit of all South Africans.”

After De Beers has successfully avoided taking an anti-Bushmen position for many years, Jonathan has now basically declared they have no rights to the diamonds. According to newspaper reports, Jonathan understands the economic position that the government put forward, namely that it was costly to meet the constitutional obligations of providing services to every citizen of Botswana when they were in far-flung areas, and that the government would like to concentrate its citizens more in order to curtail costs. “I can intellectually understand that argument, though I don’t necessarily agree with it,” he said.

Jonathan minimized this very sensitive issue by adding that the land mass of the Gope diamond mine represented a miniscule 0.001 percent of the large total land mass of the CKGR.

Puzzled why the young Oppenheimer decided to lash out into all directions, one London source conjectured that he may have been angry. “It is because of the Bushmen issue that De Beers was forced to sell Gope – and to no one else but Clifford Elphick. Insiders know that Jonathan and his wife, Jennifer, were largely responsible for Elphick’s departure from managing the Oppenheimer family companies. The outburst may have reflected a deep personal bitterness and frustration. That’s only human.”

If this wasn’t enough for one week, Jonathan then succeeded in infuriating the South African Minister of Minerals and Energy.

Oppenheimer Calls for Government Subsidies to Cutters
“South Africa’s attempts to boost a local diamond beneficiation industry would not work unless there was a sufficient subsidy to compensate for the higher costs involved,” said Jonathan, speaking at the Johannesburg university business school. He cited that polishing costs in sub-Saharan Africa were $70-$100 a carat compared with $6-$8 a carat in India, a country with roughly one million people in the industry.

"Unless the government is determined to subsidize that difference, the net benefit of selling those diamonds locally has to be measured against the net loss," he said.

De Beers had traditionally opposed the beneficiation in the producer countries for various reasons, the economic disadvantages being one of them. However, in recent years, De Beers’ Gareth Penny and Varda Shine have embraced domestic beneficiation as part of realizing and accepting the legitimate political aspirations of the producer countries to obtain a greater share of their diamond mineral wealth. Penny and Shine have agreed to make all efforts to support the establishments of viable industries in Botswana, South Africa and Namibia.

Penny and Shine had earned the Minister’s trust and the latter believed that De Beers was genuinely committed to advancing domestic beneficiation. It also awarded De Beers with the management contract for operating the State Diamond Trader, the government marketing arm that will sell up to 10 percent of the nation’s diamond output.

Minerals and Energy Minister Buyelwa Sonjica immediately retorted that she was seriously concerned about Jonathan’s comments on the costs of beneficiation. "One moment De Beers commits to beneficiation in this country, next moment they are sending this message. Beneficiation is going to be law in this country," she said, according to a statement from her ministry.

 “We thought that our relationship was open enough for De Beers to approach us if they had these concerns about beneficiation,” Ms Sonjica said, stressing that “government would not back-track on its commitment to promote beneficiation as it played an important role in government’s efforts to create jobs.”

Quoting his Great-Grandfather
Jonathan was probably unaware that exactly 80 years ago, in 1927, when De Beers also faced a five percent export tax on rough diamonds and the government demanded preferential rough supplies to the domestic industry, his great-grandfather Ernest Oppenheimer also called for subsidies.

 “If the government are really anxious to have a diamond cutting industry established in South Africa, the only way to do it is with the assistance of the Treasury, and by giving a subsidy to any diamond cutters in Amsterdam or Antwerp for the first 200,000 or 500,000 carats of diamonds actually manufactured in the Union. That subsidy must be on a sliding scale, increasing in the case of the cutting of small diamonds. Only by actually assisting to cope with the cost of cutting can we establish a diamond cutting industry in South Africa, but we never can do it on an ad valorem [export duty] basis,” thundered Ernest in Parliament.

The subsidies weren’t granted, though the government did “import” some Belgian cutters to help establish a cutting industry. The export duties didn’t help. Very little has changed in 80 years in the South African cutting industry – except that the country is now truly democratic. It is also “pay-back time,” the moment in history at which, for the first time, the black majority will be afforded an opportunity to become part of the industry.

Jonathan may be worried that the producers will end up paying for making domestic beneficiation a success. It may be reflected in either lower selling prices or even higher export duties – in both instances, the mines will pay. By questioning the economic basis of beneficiation and by calling for subsidies, Jonathan underscored the need for appropriately priced rough allocation in the southern African countries. That’s the only alternative to subsidies and protective export duties – and, indeed, it will come from the bottom line of the producers. That clearly couldn’t have been the intent of his speech – and it makes one wonder who, if anyone, in the De Beers Chairman’s office had approved the text of the prepared address.

The young Oppenheimer shouldn’t forget that his father, De Beers Chairman Nicky Oppenheimer, is the richest person in Africa and that he is the sole heir to that wealth – a wealth accumulated mostly when the people of South Africa had no chance to share in the diamond and mineral wealth. Since it is “pay-back time,” it is not wise to tell government that beneficiation and subsidies is their responsibility.

Undoubtedly, the De Beers board meeting today in Luxembourg will debate the various “damage control” options and, undoubtedly, at Friday’s press conference, Nicky will reiterate De Beers’ strong support for domestic beneficiation in all of southern Africa. The board is unlikely to place a gag-order on Jonathan, but don’t expect a torrent of additional speeches any time soon either. In his defense, Jonathan can truly say that he simply followed in his great-grandfather’s footsteps, and that he didn’t utter anything that wasn’t part of heralded family tradition – albeit eighty years ago.

That might just be the problem.      

Have a nice weekend.