De Beers polishes image in Botswana

De Beers has adjusted the tone of its engagement with Botswana - making it more about the people than its relationship with the government - to manage the risk of being perceived as too close to the ruling party.

This perception could cost it dearly if the opposition wins the next election. De Beers used last week’s Connecting Resources to Society in Botswana conference organised by Chatham House, itself and the mines ministry to highlight its contribution to the country’s prosperity, development and economic growth.

De Beers forged the Debswana partnership with the Botswana government in 1969, shortly after the discovery of diamonds there. Since then, 708-million carats of diamonds have been mined and the partnership is the linchpin of the entire country’s economy.

De Beers, the world’s largest producer of rough diamonds by value, last week issued a 50-page book outlining the financial and social contribution its partnership has generated. This could be seen as an effort to broaden its engagement with society outside its relationship with the government and, by extension, the ruling Botswana Democratic Party (BDP).

“Because 80c out of every dollar made by Debswana goes to the people of Botswana I feel pretty comfortable that irrespective of who was in power that very powerful economic equation would be respected and understood for the good it does,” said Bruce Cleaver, De Beers’s head of strategy.

“We think whoever is in power, we could continue our relations with them provided we continue to make this kind of contribution to Botswana,” he said. It was critical for De Beers to retain sound relations with the Botswana government regardless of who was in power, said an analyst who could not be named for company policy reasons, adding that he did not regard a change in ruling party as a high risk. The risk lay elsewhere.

The sales contract with De Beers for the diamonds coming from Debswana expires in 2020 and there was no guarantee the state would automatically extend the agreement to De Beers. It might take the chance to adjust the terms of the agreement, possibly bringing in another party to sell Debswana’s diamonds, the analyst said. “Could it be De Beers’ performance in this downturn makes the government think De Beers is not a good partner and won’t let them sell all its diamonds again? Maybe,” the analyst said.

Output from De Beers mines in SA, Namibia and Canada was dwarfed by the more than 20-million carats from Botswana out of De Beers’ production of about 30-million carats annually. Losing the sales rights to Debswana diamonds would fundamentally alter De Beers’ relationships with its diamantaire customers.

“Those rights are absolutely vital,” the analyst, said. Cleaver said talks with the state were tough and complicated, with no sweetheart deals. “I’ve done a number of these negotiations and they’re bloody difficult, but at the end of the day, there are enough sensible people on both sides that you can actually come to an arrangement that suits everybody,” he said. The relationship with the state has come under pressure with the fall in vital revenue streams from Debswana, which generated 39% of government revenue last year.

Analysts expect De Beers’ diamond sales this year to fall to about $4bn from last year’s bumper $6.8bn.De Beers was pulling all the levers at its disposal to ensure rough diamond prices improved and a glut of rough and polished diamonds clogging global production pipelines were cleared, Cleaver said, adding that it was this ability of De Beers to be so influential in the market that had kept the partnership intact for nearly five decades.

Realising its over-reliance on diamonds to fund the country, the government has stepped up efforts to diversify its economy. “The government seems keenly aware that there is voter fatigue and that it needs to deliver jobs and prospects for youth. Diamond production has plateaued and so economic diversification ... has become a government priority,” said Alex Vines, head of the Chatham House Africa Programme.

De Beers has to negotiate the political landscape, distancing itself in the eyes of the public from a perceived cosy relationship with the government as expectations grow of the BDP possibly being voted out in the next elections in four years’ time or the elections after that.

“It’s not clear that if the opposition won power, though, whether they would actually change the current system,” said Ross Harvey, senior researcher at the South African Institute of International Affairs. “But they do have support in mining areas, and so it serves them politically to express doubts about the nature of the Debswana-BDP relationship,” Harvey added.