Botswana has fired a warning shot to diamond miner De Beers over their five-decade partnership that has underpinned the southern African country’s economic prosperity after taking a 24 per cent stake in Belgian diamond processor HB Antwerp.
Botswana president Mokgweetsi Masisi has threatened to abandon the relationship with the world’s second-largest diamond producer unless the state-owned marketing firm receives a bigger share of rough stones in a sales agreement that comes up for renewal in June.
The partnership has transformed Botswana into one of Africa’s fastest growing economies, while supplying De Beers with 70 per cent of its rough diamonds. About a third of Botswana’s GDP is driven by diamonds while Debswana, the joint venture with De Beers, is a major source of employment and tax revenue.
Yet Masisi is demanding that Botswana — the world’s second-largest diamond producing nation after Russia, whose gems have been sanctioned by the US — receives a larger share of the diamonds than the 25 per cent of production that it is currently entitled to.
Last week, Botswana invested an undisclosed sum for almost a quarter of HB Antwerp, a three-year-old diamond processing and trading firm. HB Antwerp aims to increase transparency through the traditionally opaque diamond supply chain, turning up the heat on De Beers, which is 85 per cent owned by UK-listed miner Anglo American.
Rafael Papismedov, co-founder of HB Antwerp, told the Financial Times that the tie-up would help Botswana break free from the current model of being “stuck in a box that says you can only dig and wash the diamonds”.
Although Papismedov denied that it was there to compete with De Beers, he said the current operating model carried on “colonisation” by acting as if Botswana is incapable of building midstream capabilities for making polished stones that go into jewellery.
Although a third of global diamond value was coming from Botswana, he said, local employment beyond the mines is small compared with the 1mn polishers and cutters in India.
De Beers said that it moved its 10 annual “sightholder” sales events from London to Botswana in 2013 and supplied $1bn of rough diamonds into local cutting and polishing facilities that employed nearly 4,000 Botswanans at the end of 2022. It said it was “excited by the potential to build on this foundation”.
Botswana is due to hold elections next year in which Masisi’s Botswana Democratic Party will be fighting to maintain the grip on power it has held ever since independence in 1966.
In previous polls, diamonds and the future of the De Beers relationship have been key issues given the inequality that marks Botswana’s economy despite its mineral wealth.
Mining analysts diverge on how deep the rift between Botswana and De Beers goes. The dispute has made international lawyer Simon Wolfe, managing partner of advisory firm Marlow Global, nervous enough to warn Botswana against “killing the goose that lays the diamond eggs”.
However, Paul Zimnisky, an independent diamond analyst, says that Botswana’s investment in HB Antwerp is dwarfed by its 15 per cent shareholding in De Beers, which he estimates to be worth up to $2bn.
“I don’t think there’s anywhere near as much hostility behind the scenes,” he said, adding that the agreement is widely recognised as one of the fairest in the mining industry.
“I think it would be very difficult for the government to walk away from De Beers completely,” Peter Leon, partner and Africa chair at Herbert Smith Freehills, said. Botswana could not easily end the sales agreement while it is also in separate negotiations with De Beers over renewing mineral leases, he said.
Yet even with stakes high for both sides, Hans Merket, a diamond mining expert at the International Peace Information Service, a research institute, said that “the president is very serious about his threats to walk away from the marriage.”
“It’s making many people in the diamond industry nervous,” he added.
