Botswana Seeks Wider Diamond Industry Role as Russia Hobbled

(Bloomberg) --

Botswana, the world's second-largest diamond producer, is seeking a more prominent role in the industry as No. 1 player Russia faces international outrage following its invasion of Ukraine. 

The southern African nation is vying to host a permanent new headquarters and secretariat for the Kimberley Process, which seeks to combat trade in the gems from conflict areas, part of the government's effort to turn the country into a global industry hub. Income from diamonds have helped Botswana, which was among the world's 25 poorest countries, attain upper-middle income status.

“We have the most to lose if diamonds are badly managed,” Botswana's President Mokgweetsi Masisi said in an interview in Nairobi, Kenya's capital. “We have used everything we've got from diamonds for schools, for roads, for medicine, for developing our human resource.” 

The Kimberley Process was initiated in 2003 by governments, civil rights groups and industry players to increase transparency and try and eliminate trade in so-called “blood diamonds.” While it has established a mechanism to trace the origin of the stones, which has curtailed the illicit trade, the U.S. and groups such as Human Rights Watch and Amnesty International, have called for it to have a broader mandate and address more wide-ranging issues such as human rights abuses. 

Ukraine War

Botswana, which took over the rotating chairmanship of the Kimberley Process plenary from Russia after its last session in November, will go up against China and Austria to host the watchdog's permanent secretariat. It's unclear when the winner will be named or when the next Kimberley Process plenary will be held, partly because of the  war in Ukraine. 

Masisi's administration is monitoring the fighting and the effect it might have on the diamond market. The country held a successful gem auction last month, and doesn't expect the war to have any immediate impact.

Over the longer term, sanctions against Russia could curtail demand for its gems, which would push up prices from stones produced elsewhere, but there it a limit as to how much they can rise before demand tails off, Masisi said.

Most of Botswana's gems are mined by Debswana, a joint venture between the government and Anglo American Plc unit De Beers. A 10-year diamond-sales pact between the government and De Beers expired in 2020, but has been extended until the end of June this year. 

New Deal

Masisi, 59, who has been pushing for the industry to create more jobs and for more diamonds to be cut and polished in his country, said neither he nor De Beers want another extension and are busy negotiating a substantive new deal. It took years to negotiate the last deal, which led to De Beers moving all its diamond selling and sorting staff to Botswana from London.

“We want to get into the whole value chain,” said Masisi, who has been in office since 2018. “We want to be the best bearers of knowledge on diamonds in the world.”

Botswana relies on diamonds to generate 90% of its exports. Debswana sold 38.1 billion pula ($3.3 billion) of rough diamonds last year, the most since 2016 and almost 61% more than in 2020 when the coronavirus pandemic affected auctions and retail sales.

Prices have surged over recent months, driven by increased demand among U.S. consumers, who buy about half the world's diamond jewelry. The closure of one of the world's biggest mines has also put pressure on supply.

Other interview highlights:

• While the International Monetary Fund expects Botswana's economy to grow 4.7% this year, Masisi said the expansion will depend on how the coronavirus pandemic affects production and markets.
• The growth rate could reach 5.7% in four to five years as investment increases.
• Botswana will explore environmentally-friendly technology before it taps its 200 billion tons of coal reserves on a large scale, even though the country's contribution to global warming is negligible.
• Plans announced by the government last year to allow hunters to shoot 287 elephants to keep their numbers in check and reduce the damage they did to crops is under threat from European countries that are “gravitating towards enforcing legislation to prohibit the importation of trophies,” Masisi said. Botswana, which is bigger than the size of France, has less than 3 million people and more than 130,000 elephants, the most in the world.

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