Botswana Financing RevolutionJuly 28, 16
“US GOV’T GUARANTEES LOANS TO DIAMOND MANUFACTURERS”
New OPIC Approved Lending Criteria
History was made this week at a breakfast signing ceremony in Botswana. Barclays Bank Botswana signed a $125-million credit guaranty agreement with the Overseas Private Investment Corporation (OPIC), through which the United States government will share 75% of the credit risk in financing diamond beneficiation in Botswana. Barclays is taking a first tranche out of a total available guarantee of $250 million.
Together with the $83-million matching banking partner share, this guarantees an availability of $333 million of credit for Botswana’s manufacturers – only for manufacturing – which is well above the industry’s foreseeable requirements. Eventually, it is expected, other banks in Botswana will join the program, providing a new rationale to diamond manufacturing in that country. Botswana’s main attraction will be credit – not just rough diamonds!
At a time when several banks are exiting the diamond manufacturing and trading sector (the “midstream” in the diamond value chain), or reconsidering their exposure to it, the US government’s commitment to both Botswana and its diamond sector could hardly come at a more critical moment. In some ways, this agreement may be far more important psychologically than financially. In the current market recession, with diamond prices falling and demand slackening, many diamond companies will have to rethink their business models and their way of operating.
A “Fresh” Direction: Financing Certainty
The Botswana manufacturing option now has an added factor, a new dimension, in any diamond company’s long-term planning. Lazare Kaplan International’s (LKI) Chairman, Maurice Tempelsman, whose company acts as the statutory required US private party in the OPIC Guaranty Framework Agreement, clearly hinted to this when he said at this morning’s signing that “this facility will not on its own resolve the many challenges the diamond industry faces, but it does point in a fresh direction.”
“It is fitting that this new direction should be signaled here, in Botswana. For it is Botswana that has set the global standard for responsible stewardship of mineral resources. It is Botswana that has championed the principles of accountability and transparency that our industry needs. And it is Botswana that has faced up to the test of sustainability, through development of secondary and tertiary economic sectors that can remain even after the primary diamond deposits begin to wind down,” said Tempelsman earlier today.
These are inspiring words. However, we are not deluding ourselves. With possibly a few exceptions, most southern African beneficiation partners have yet to find a long-term formula for sustainable manufacturing. While guaranteed access to rough remains a cornerstone of the beneficiation rationale in Botswana, the risks of protracted periods of raw-material mispricing and a virtual absence of margins are not mitigated by the implementation of the OPIC agreement.
OPIC Advances US Private Interests
What motivates a remote US government agency to put hard money behind Botswana’s diamond beneficiation? On the broadest level, OPIC supports US foreign policy objectives. The United States considers Botswana a model for stability in Africa. The bilateral relationship is strong and grounded in a shared commitment to democracy, good governance and human rights.
The United States views Botswana's deepening economic diversification and its promotion of regional economic growth and development as a distinct and vital US strategic foreign policy interest. In many ways, Botswana represents a rare exception on its continent. The bilateral relationship covers many spheres, including the military arena. Admittedly, these are political objectives.
Because OPIC works with the US private sector, it helps US businesses gain footholds in emerging markets, catalyzing revenues, jobs and growth opportunities both at home and abroad. OPIC achieves its mission by providing investors with financing, political risk insurance, and support for private equity funds.
OPIC officials point out that decades ago, private capital flowing into developing countries was a small fraction of US aid dollars. But in recent years, that ratio of aid to investment has flipped, and the amount of investment flowing to the developing world far exceeds aid dollars. As a development finance institution, OPIC was created on the premise that the resources needed to address major world challenges far exceed the resources of the public sector, and that private businesses and investors have an essential role to play. A few months ago, for example, it provided a $45-million loan guarantee to the African Banking Corporation of Botswana for the purpose of expanding its small and medium enterprise (SME) and financial inclusion loan portfolio in Botswana. However, De Beers’ sightholders are not considered SMEs; the diamond needs are quite different.
Click here for the full Diamond Intelligence Brief: Botswana Financing Revolution