Developing a Diamond Hub

RAPAPORT... Botswana is increasing its efforts to become a diamond hub but faces a long journey if it is to realize its ambition of competing with the likes of Belgium, Israel and India. Long entrenched as the world’s largest producer of diamonds, and having established a viable polishing and cutting industry during the past few years, the country is making plans to ramp up its services and become a center for all diamond and jewelry activity.

“We believe there is a strong future for diamonds in Botswana, not only from a mining and manufacturing viewpoint, but also for dealers,” said Mervin Lifshitz, chairman of the Botswana Diamond Manufacturers Association (BDMA).

With this goal in mind, the government in April appointed former Debswana Diamond Company Chairman Akolang Tombale as Diamond Hub Coordinator to head the “hub” initiative. Since then, Tombale explained, he has focused on defining a strategy to guide the move forward.

Defined Goals

The resulting proposal outlines four key areas to work toward: improving the conditions of the polishing and cutting sector, setting up a diamond exchange for trading rough and polished diamonds, promoting jewelry manufacturing in Botswana and enhancing auxiliary services associated with the industry, such as financial, technical and security services. Having defined its goals, Tombale said the diamond hub initiative is now ready to start scaling up.

Lifshitz is of the opinion that the next phase should be to focus on introducing small-scale jewelry manufacturing to the country, and concentrating on how to attract buyers to purchase polished diamonds in Botswana. Some, however, are skeptical at the prospect of developing a viable polished and rough dealing industry in Gaborone in the near term.

“The main obstacle is logistical,” said Jacques Claes, director of local sightholder Zebra Diamonds, which is part of the IGC Group. “If you want to develop a center here, there must be efficient access to other markets and to supplies. A center needs a critical mass of players and merchandise to trade, easy travel accessibility, it needs cost- and time-efficient import and export logistics and, last but not least, a tax-wise competitive environment.”

Lifshitz agreed that logistics is a real challenge but noted that there were discussions underway to bring more direct flights to Gaborone from Europe and added that “diamond people tend to go where the goods are and will travel for them if the goods are right and the service is right.”

Enhancing the Economy

Diamond people have already proved a valuable asset to Botswana, and the hub initiative comes as part of a broader ambition for the country to add value to its diamonds beyond mining, which is in line with the general beneficiation trend in southern Africa. With annual diamond production at around $3 billion, diamond mining accounted for more than one-third of the country’s gross domestic product (GDP) and about 70 percent of export earnings in 2007, according to the CIA World Factbook.

That figure is expected to grow since Diamond Trading Company Botswana (DTCB), a joint venture between De Beers and the Botswana government, in March launched its new sorting facility with a capacity to sort 45 million carats of diamonds. DTCB also started hosting sights in Botswana, supplying goods to 16 cutting and polishing companies that have set up factories in the country.
Tombale reported that approximately $300 million worth of diamonds a year are currently being polished in Botswana, which is expected to ramp up to $550 million by 2010. The additional boost from diamonds will certainly be welcome to Botswana, which, despite having maintained one of the world’s highest economic growth rates in the past few decades — slowing to 4.7 percent in 2006-2007 — still had unemployment officially at 23.8 percent in 2004. With a population of just 1.8 million people, other concerns, such as having the second highest HIV/AIDS infection rate in the world, threaten prospects for maintaining the high levels of economic growth.

Investor Friendly

Most are confident, however, that the right conditions exist for the diamond industry to prosper and continue to uplift the country. While there are no real tax incentives in place to encourage large-scale investments in Botswana, the government has earned a reputation for being very investor-friendly and recognizes the important role diamonds play in the country.
“You are dealing with a very investor-friendly administration here that is willing to listen and learn and do what is necessary to develop the industry,” Lifshitz said. “There will be a time when Botswana will be seen as a full-service center more important than many others around the world.”

The Marketplace
In South Africa…
• Trade is starting to pick up in Johannesburg in preparation for the summer season
and tourist buying.
• Minimal polishing is going on due to the shortage of rough supply.
• Polished dealers have stepped up their importing of polished because of the
supply shortage.
• There is an oversupply of melee good.

Article from the Rapaport Magazine - October 2008. To subscribe click here.