Grumblings in Diamond Land

September 24, 2004

Grumblings in Diamond Land

The world's cutting centers, diamantaires and retailers look on nervously as Africa's main diamond producers increasingly voice their dissatisfaction over what they perceive as inequities in mining laws that govern diamond production their countries. For now, the grousing has not disrupted the supply chain.

The discontent in Botswana has played out recently through Debswana worker strikes and through heated local newspaper editorials. (Debswana is a 50/50 De Beers- and Botswana-owned mine). The strike, now over, was the first in twenty-one years to halt production in Botswana. Reports say production will not be seriously impacted and that production figures remain on track. Namibia and Botswana both look upon South Africa as a role model, where new mining laws promote socio-economic empowerment for blacks, (via mine ownership and management) development of skills (such as cutting and jewelry making) and job creation. But even there, discontent simmers. Despite similar 50/50 partnerships between De Beers and South Africa and its diamond mines, as well as sweeping changes in South Africa's mining laws, the country's Deputy Minerals and Energy Minister, Lulu Xingwana, noted in parliament last week that "rich white cartels are continuing, even today, to loot our diamonds."

Meanwhile, editorial articles, such as one in The Namibian this week, have charged that De Beers fudges tax and royalty payments to the governments in which it operates, and that the government is itself to blame for accepting whatever De Beers deems an appropriate payment. Namibia's Auditor General, Dirk Kotze, meanwhile, is reportedly looking into the royalty equations to determine how De Beers values diamonds.

Feeling the Heat

Governments, feeling the pressure, are looking for new ways to address the issues posed. De Beers, by far the largest producer in the area, agreed to a 10% pay increase for its Botswana workers as part of the strike settlement, and is working on a diamond beneficiation program for Botswanans. Some diamond producers, such as Lev Leviev, view the murmurs of discontent as opportunities. While De Beers has long maintained that cutting in source countries is not commercially feasible, the Leviev Group claims cutting is commercially viable. It opened one of the largest diamond cutting factories in Windhoek, Namibia, in June. "I have never lost a cent [cutting] in Africa," Leviev recently stressed.

Among many other projects, Leviev operates Samicor, an off-shore diamond mining operation in Namibia. Leviev is viewed as having raised the stakes in Botswana as well, and negotiations have been reportedly held to build a Leviev cutting factory there. The Leviev Group is presently building a diamond factory in Angola to cut a portion of the diamond goods he produces there.

Independent cutting factories are opening in Botswana, including Belgian-based Eurostar Group. Israeli-based Schachter & Namdar is expected to open a cutting plant there soon as well. Meanwhile, De Beers' 25-year operating license and contract with Botswana for the Jwaneng mine terminates at the end of 2004. Jwaneng is the largest and most productive of three mines that De Beers operates together with the government. Government officials have made clear they expect diamond manufacturing to result in far more job creation for Botswanans in the future.

– Robert Weldon

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