BIG MAR­KET­ING SPEND

CityPress - - Business - DEWALD VAN RENS­BURG dewald.vrens­burg@city­press.co.za

The re­newal of De Beers’ sales agree­ment with Botswana, which is due in 2020, will pro­vide the coun­try with an op­por­tu­nity to use its di­a­monds to fur­ther boost its econ­omy. The part­ner­ship be­tween De Beers and Botswana has un­der­gone ma­jor changes re­cently due to the 2011 re­newal of the sales agree­ment be­tween Deb­swana Di­a­mond Com­pany and De Beers.

The 2011 deal saw De Beers move its global sightholder sales divi­sion from Lon­don to Gaborone, mean­ing that 90% of its di­a­monds are now sold from there, in­clud­ing stones from South Africa, Namibia and Canada.

De Beers sells most of its di­a­monds to be­tween 70 and 80 so-called sighthold­ers – preap­proved buy­ers with long-term off-take agree­ments.

De Beers CEO Bruce Cleaver said: “They all have dif­fer­ent kinds of busi­nesses. Some can deal with big di­a­monds, some can deal with dif­fer­ent shapes and colours, and so on.”

Ev­ery five weeks these sighthold­ers come to “sights” to in­spect and col­lect their spe­cially com­piled boxes of di­a­monds.

In­stead of go­ing to Lon­don, these com­pa­nies now send 150 to 200 peo­ple to Gaborone 10 times a year for sights that last for up to a week.

“The gov­ern­ment was in­ter­ested in do­ing that given the ob­vi­ous eco­nomic spin-offs. The ho­tels, taxis, cater­ing com­pa­nies – all those things that drive growth in a city,” said Cleaver.

An­other de­vel­op­ment from the 2011 deal was the cre­ation of the state-owned Oka­vango Di­a­mond Com­pany, which is es­sen­tially a small ver­sion of global sightholder sales divi­sion that gets to sell 15% of Deb­swana.

This com­ple­ments the 15% stake Botswana has in the over­all De Beers group. “Di­a­monds do not sell them­selves,” De Beers CEO Bruce Cleaver told City Press this week in Gaborone.

“You have to work hard to sell di­a­monds, to move di­a­monds. A huge amount of in­vest­ment goes in there.”

On the other hand, Stephen Lussier, the CEO of di­a­mond gi­ant De Beers’ in-house Forever­mark jew­ellery brand, claimed that: “A di­a­mond’s value has noth­ing to do with mar­ket­ing ... It is in­her­ently rare and valu­able.”

How­ever, De Beers spent about $130 mil­lion (R1.7 bil­lion) on mar­ket­ing last year and has cre­ated the Di­a­mond Pro­duc­ers’ As­so­ci­a­tion, a di­a­mond mar­ket­ing body.

Con­nect­ing di­a­mond rings to mar­riage, par­tic­u­larly in the Amer­i­can mar­ket, “served us well for the bet­ter part of 70 years”, Lussier said.

That no longer works – not least be­cause the in­sti­tu­tion of the wed­ding ring does not re­ally ex­ist in ma­jor emerg­ing mar­kets such as China, and is be­ing eroded in the US.

He was speak­ing at a di­a­mond con­fer­ence out­side Gaborone this week and out­lined the Di­a­mond Pro­duc­ers’ As­so­ci­a­tion’s at­tempts to “em­bed di­a­monds in the cul­ture” of non-Western mar­kets.

Up to the 1990s, the US and Ja­pan to­gether con­sti­tuted 75% of the global di­a­mond mar­ket.

Botswana has also drawn in a num­ber of cut­ting and pol­ish­ing op­er­a­tions. Be­fore 2008, there were two in the coun­try, and now there are 20.

Min­eral rev­enues amount to about a third of Botswana’s na­tional bud­get, but can fluc­tu­ate wildly.

In this year’s bud­get, min­eral rev­enue was pro­jected at 17 bil­lion pula (R22 bil­lion) com­pared with 19 bil­lion pula last year and 15 bil­lion pula the year be­fore.

Deb­swana, De Beers’ min­ing en­tity in Botswana, is

Now, ac­cord­ing to Cleaver, the US, China, In­dia and Ja­pan to­gether ac­count for about 73%.

De Beers is in­creas­ingly col­lab­o­rat­ing with ri­vals and this demon­strates how much the com­pany has changed from its erst­while sta­tus as mas­ter of a global di­a­mond car­tel.

In the past, al­most all the world’s di­a­monds moved through De Beers. Its es­ti­mated share of the global di­a­mond trad­ing mar­ket was still about 80% in the early 1990s. Now, it is in the re­gion of 33%, with sec­ond place go­ing to Rus­sia’s state-owned Al­rosa with 27%.

The car­tel col­lapsed in the 1990s, par­tially due to the Rus­sians pulling out.

De Beers has re­sponded to a weak mar­ket by slash­ing sup­ply.

“In 2015, we took de­ci­sive ac­tion and re­duced pro­duc­tion across the world. That had a very good ef­fect and in 2016 the rough mar­ket has been far more sta­ble than it was in 2015,” Cleaver said.

Global di­a­mond pro­duc­tion was about 160 mil­lion carats in 2008, but fell to 120 mil­lion carats within a year due to the eco­nomic cri­sis. Pro­duc­tion will prob­a­bly reach 137 mil­lion carats this year. De Beers cut its own pro­duc­tion from 33 mil­lion carats in 2014 to 29 mil­lion last year. owned 50-50 with the gov­ern­ment. The gov­ern­ment, how­ever, gets 80% of its min­ing prof­its due to roy­al­ties.

Those prof­its de­rive from sell­ing 85% of Deb­swana di­a­monds to De Beers’ sales arm.

The other 15% of Deb­swana’s di­a­monds gets sold to the Oka­vango Di­a­mond Com­pany.

This new part of the part­ner­ship gives the gov­ern­ment 15% of the trad­ing prof­its, which pre­vi­ously all went to De Beers.

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