De Beers’ secret relationship with Botswana
De Beers’ corporate dealings and Botswana’s ruling party’s funding are not always clear
It might be an exaggeration to say that Botswana would be nothing without Anglo American’s diamond arm De Beers, but it’s not far short of the truth. The fact is, diamonds generate 80% of Botswana’s foreign exchange earnings, and almost half its government revenue. De Beers argues that one in 20 jobs in Botswana comes from the diamond industry. Here, the 800 pound gorilla is Debswana — the diamond giant 50% owned by De Beers and 50% by Botswana’s government.
But despite the fact that Botswana’s citizens have a deep interest in how Debswana performs, critical details of the relationship between the government and De Beers have remained shrouded in secrecy.
In recent weeks, new details have emerged in the leaked Panama Papers which shed new light on this relationship.
In early 2015, a pilot agreement was struck between De Beers’ global sightholder sales division and Diacore International — a private company which is arguably De Beers’ largest supplier — for the purchase of an exceptional diamond worth US$19m.
Diacore paid $9.5m for half the diamond, while De Beers retained the other half until a buyer was found.
However, details of that agreement have now emerged in the leaked data from the law firm Mossack Fonseca. What was most intriguing is that the contract was negotiated from Diacore’s British Virgin Islands base. The agreement shows that the diamond’s physical location is listed as Botswana, even thought it isn’t clear where it was mined as its origin was never stated. This is an important revelation, since it underscores the claim that diamond sales are often negotiated in secret, and in tax havens.
And without true transparency over these sales, it’s difficult to say for certain whether Botswana’s citizens are benefiting as much as they should from this immense wealth.
This is important as the relationship between Botswana and De Beers is becoming closer. Recently, De Beers relocated its international sorting centre from London to Gaborone, which means rough diamonds from outside Botswana are now being sold within the country. But that money doesn’t always stay in Botswana.
And no register of “exceptional diamonds” is kept, which limits the odds of identifying the volume and value of rough stones sold.
To make it worse, mining agreements in Botswana are considered “confidential”, which means the chances of calculating the taxes and royalties on diamond sales become increasingly slim.
Nor does there appear to be much willingness to be transparent. Diacore didn’t respond to questions from the Financial Mail, while Debswana referred all questions to De Beers, which cited “confidentiality”.
So in the absence of meaningful numbers, we’re left to piece together public data to try to draw a picture of how much Botswana is benefiting from diamonds.
In 2014, in an attempt to justify the relocation of its sorting centre to Botswana, De Beers published a study “to quantify the economic value generated by the partnership in Botswana in any one year”. This revealed that revenue from this partnership amounted to $6.9bn, the largest proportion of which ($2.3bn) was invested in diamond imports from SA, Namibia and Canada.
This figure isn’t an accurate reflection of “any one year”, as it doesn’t show the value that remains in Botswana — only the portion that flows in and out.
However, the most interesting figure is the $2.2bn that the Botswana government makes from the De Beers partnership. Of this, $1bn was generated through taxes and royalties, while it earned a further $1.2bn in dividends. The value derived by De Beers is not known.
So the question remains: is this enough? It sounds like a lot of money but are Botswana’s citizens getting all they should from the partnership with De Beers? It’s hard to say. In 2013, for instance, De Beers said it recovered 31.1m carats worth of diamonds from Namibia, SA, Botswana and Canada. That year, Botswana’s production was 22.7m carats. In dollar terms, $18bn in rough diamonds were produced globally — with De Beers producing $5.9bn of that. The rump of this came from Botswana, as De Beers confirmed when it said that “Debswana . . . pro-
duces the majority of De Beers’ diamonds”.
De Beers’ relationship with Botswana’s government is one of the world’s oldest private-public partnerships. Thanks to its share in Debswana, the government now effectively owns 15% of De Beers.
In theory, this should give the government a particularly strong bargaining position when ensuring it gets its fair share of diamond revenue.
Yet sources described this as a passive partnership, where De Beers has control over the production volume, pace, valuations and buyers.
Concerns about the relationship between the country’s ruling Botswana Democratic Party (BDP) and De Beers aren’t new. Confidential diplomatic cables published in 2010 by Wikileaks reveal that Debswana even paid for a De Beers-selected consultant — known as Schlemmer — to determine the internal structure of the party, including the presidency after the 1994 election.
“Though Schlemmer wrote that report for the BDP . . . then chairman of Debswana Louis Nchindo paid for the study personally . . . The 2005 study was paid for by a mining firm with significant interests in Botswana — ie De Beers,” it said.
Schlemmer recommended that “President Ketumile Masire retire early and that the BDP bring Ian Khama into politics to unify the party. The party scrupulously adhered to his recommendations,” the cable said.
This underscores fears that Botswana’s secretive diamond industry may be constructed in the best interests of the ruling party and a global conglomerate — not necessarily the country.
The fact that Botswana fails to publish mining agreements, disaggregated sales data as well as a registry of exceptional diamonds doesn’t help this perception. The Panama Papers leaks have helped spur a global movement for tax transparency. Were Botswana’s government to take this to heart, it could help allay the concern that diamond deals might not be struck in the best interests of Botswana’s broader society.