Clock Ticking for De Beers and BotswanaJune 01, 23
Twenty per cent of the world's diamonds are up for grabs.
The clock is ticking on the De Beers rough sales agreement with the government of Botswana. And both sides are under increasing pressure, with less than a month before it's due to be renewed.
The deal, currently covering almost 25m carats a year, dates back more than half a century and has underpinned Botswana's economic success, relative to many of its African neighbors.
But nothing, even in the diamond world, lasts forever and the government of Botswana has, of late, made no secret of the fact that it wants a bigger share of the pie.
It was geologists from De Beers who first discovered diamonds at Jwaneng and Orapa - both in the Top Five of the world's biggest mines, and responsible, between them, for over 75 per cent of De Beers total output.
It was Botswana's first government - following independence from Britain in 1966 - that responded pragmatically to those discoveries, persuading disparate tribal leaders to relinquish their mineral rights for the common good.
It negotiated mining and sales agreements with De Beers that have lasted, in their various forms, until today, and that have seen Botswana flourish as one of the wealthiest nations in Africa.
Its GDP has been higher than South Africa since 2019 and it has been ranked as the continent's least-corrupt country (according to Transparency International). Rough diamonds account for over $8bn of its annual revenue.
But all is not so rosy in Botswana, despite its relative wealth and freedom from corruption.
Inflation may have dropped from a 15-year high of 14.6 per cent last August, but unemployment is running at almost 25 per cent, two thirds of the country survives on less than $5.50 a day, and tourism - second only to diamonds as a source of revenue - took a huge hit from Covid.
President Mokgweetsi Masisi has repeatedly threatened to walk away from the deal unless De Beers agree to more favorable terms, a move that could be part strong-arm negotiating tactic, part vote winner, ahead of next year's general election.
But whatever his motives, there's certainly an anxiety that the way diamond business is conducted in the future could be very different from the way it's been for the last half century.
The government upped the ante last month, buying a 24 per cent stake in the Belgian manufacturer HB Antwerp, sending a strong signal that De Beers is not the only game in town.
Masisi described the purchase as heralding "a new era for the diamond industry in Botswana". The country's mineworking union said the government had been blinded by over-promises and was "mortgaging the economy".
Incidentally, Canadian miner Lucara, which operates the Karowe mine, in Botswana, already has a 10-year deal for HB to sell all its special stones.
The original De Beers agreement in 1969 was that it would sell 90 per cent of the country's diamonds and the government would sell the remaining 10 per cent.
In 2020 the split was adjusted so the state-owned Okavango Diamond Company(ODC), established in 2011, now gets 25 per cent.
Botswana has not disclosed what it sees as a fair share of diamond sales, but a figure as high as 50 per cent, double its current allocation, has been widely reported.
Masisi's latest comments, made this week, show no sign of him softening his position.
"It is either we accept the situation as it is and continue getting leftovers, or we dig in and, no matter how tough it is, demand what is ours, even if we lose through litigation," he said.
He also criticised the existing agreement, which restricts Botswana to trading rough diamonds only. Masisi says expanding his country's activities across the value diamond chain could generate billions of extra dollars.
The current deal has been extended several times in recent years, rather than renegotiated. It runs out on 30 June.
Can Botswana really afford to walk away from it? A press release from the Botswana government earlier on Monday (29 May) struck a more conciliatory tone, hitting out at newspaper claims that it was planning to ditch De Beers.
"These pronouncements will not derail GRB (Government of the Republic of Botswana) from pursuing what it believes is in the best interest of the country.
"The negotiations between GRB and De Beers are ongoing and we are confident that they will result in a deal that will benefit both parties."