Botswana's Stones Could Run out by 2050, but the Government Still Has Lofty Ambitions for the Industry.: Botswana: Next Diamond Capital of the World?

By Thomas, David | African Business, January 2017 | Go to article overview

Botswana's Stones Could Run out by 2050, but the Government Still Has Lofty Ambitions for the Industry.: Botswana: Next Diamond Capital of the World?


Thomas, David, African Business


In a secure facility on the edge of Gaborone, protected by towering walls and rifle-toting guards, an international team of experts sift through thousands of rough diamonds from the rich seams of Botswana.

Just minutes away, amid the constant hum of machinery, dozens of Indian and African workers toil side by side, cutting and polishing the precious stones for sale on the international market.

In past decades, the raw, uncut diamonds would have been immediately whisked to Botswana's airstrips and flown to the diamond centres of Europe for processing. Today, policymakers say that the polishing facility of India's KGK Diamonds and the sorting and sales operations of the Diamond Trading Company --repatriated from London amid great fanfare--are evidence that the country is finally adding value to its exports.

"We're trying to diversify from the export of diamonds into things like beneficiation, cutting and polishing," says Biggie Ganda Butale, Botswana's assistant minister for investment, trade and industry.

"We want to turn Botswana into the diamond capital of the world so that when you mention Antwerp and other such cities, Botswana will be on the same keel."

Such lofty ambitions have gained increasing prominence as Botswana embarks on economic diversification, an increasing necessity given the finite nature of the nation's diamond resources. With estimates suggesting that the stones could run out by 2050, the government believes that beneficiation--the process of transforming raw diamonds into finished products--could prolong an industry that accounted for $4.6bn of exports last year.

Yet creating value-addition around dying mining operations is fraught with peril. As reduced demand for polished stones and a glut of diamond jewelry led to rough diamond price falls of up to 30% from 2014 to 2015, many of the companies in Botswana closed operations and laid off staff.

"Beneficiation is possible but the government have done nothing to address the productivity and cost issues which are the main reasons the industry is in decline," says Roman Grynberg, an industry expert and professor in economics and management sciences at the University of Namibia. "Many firms shut this year and last, and employment in Botswana fell from about 3,000 to 1,500."

Challenging the hegemon

As operating margins in the sector are squeezed to almost zero and industry leverage decreases by some $3bn to $13bn, according to consultancy Bain, Africa's cutting and polishing operations have been pushed to the brink. In neighbouring Namibia, numbers are down to several hundred, while in South Africa, once the centre of the global diamond industry due to rich deposits, around 200 workers cling to their jobs. All struggle to compete with India, the global hegemon of the trade and host to an estimated 800,000 employees.

"India still has low-cost labour, but today it's very skilled," says Edahn Golan, a diamond industry analyst. "So if Botswana wants to become a polishing centre, its challenge is to have the same kind of efficiency, cost of labour and skills that they have in India. It's a very big challenge and at the moment it's not doing well ... historically manufacturing goes to where it's cheapest."

Grynberg believes that if Botswana is to have any chance of becoming a global beneficiation centre capable of competing with India, it must grasp the nettle of high costs and low productivity by opening up serious discussions with organised labour in order to hammer out a compromise. …

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