A cosmic shift began in the diamond industry last week, which in many respects was symbolic, but at the same time intrinsically significant. Nine months beyond schedule, De Beers and the government of Botswana concluded a sales agreement, according to which De Beers agreed, by the end of 2013, to move its rough diamond trading operation from London to Gaborone, the capital of the Southern African nation.
London’s management of the African diamond trade dates back almost 120 years to 1893, when De Beers’ founder Cecil John Rhodes contracted 10 firms in the British capital to sell De Beers' entire production. Known as the London Syndicate, they included a company called A. Dunkelsbuhler, which employed a 16-year-old, German-born apprentice called Ernest Oppenheimer. After emigrating to South Africa in 1902, Oppenheimer would in 1928 take over the reigns at De Beers and become the founder of the diamond industry’s most powerful and long-lasting dynasty.
The Diamond Trading Company was formed by De Beers in London in 1934, and assumed the old London Syndicate’s role of buying up diamond from producers around the world and distributing it to its select group of clients, called sightholders. The DTC was incorporated in 1986 and established as a stand-alone company within the De Beers family of companies in July 2004.
While De Beers’ nerve center has always remained in South Africa, even when part of the company was nominally headquartered in Luxembourg, the trading headquarters was in London. Located close by Hatton Garden in Charterhouse Street, around De Beers developed a network of companies which served to assist the rough diamond distribution effort, including the DTC brokers, among them I. Hennig & Co., Bonas, H. Goldie & Company and W. Nagel International Diamond Brokers.
While the new De Beers-Botswana agreement is unlikely to eliminate London’s rough trading and marketing infrastructure entirely, it is likely to become a shadow of what it once was. From the beginning of 2014, and possibly earlier, DTC sightholders will have to travel 10 times a year to the DTC’s looming glass and metal trading structure in the Botswana capital, in order to receive their rough supply.
The transplanting of its rough marketing and distribution operation in Botswana will require DTC to transfer about 100 members of staff and their families to Gaborone, with many coming from London, although others expected to make the journey from South Africa and Namibia. Remaining in United Kingdom will be the DTC’s senior management, the Forevermark team, De Beers Group Services and the DTC Research & Development Office.
London’s loss will be Gaborone’s gain. “We are invigorated by the challenge and excited by the possibilities,” said a clearly elated Ponatshego Kedikilwe, Botswana’s minister of minerals, energy and water resources at the signing ceremony of the new diamond sales agreement on September 16.
De Beers Chairman Nicky Oppenheimer was also enthused by the opportunity being provided to Botswana. “Together, we will create the world’s leading diamond hub,” he said
De Beers’ readiness to move its rough diamond marketing operation to Gaborone was not Botswana’s only coup. The mining company also agreed that Botswana could market 10 percent of diamonds outside De Beers’ sales channel, and that figure would rise to 15 percent over a five-year period.
Once the new system is up and running the existing DTC Botswana company will receive and sort the output from the local mines owned by Debswana, which is jointly owned by De Beers and the government of Botswana. It will then sell 10 percent — rising eventually to 15 percent — of those goods to the state-appointed entity that will manage independent sales. The remaining diamonds will be sold to DTC, which will aggregate them goods received from De Beers other mines and suppliers around the world. DTC will then sell the rough to its international sightholders and the group of DTC sightholders based in Botswana.
Botswana agreed that the sales pact would remain in force for the coming 10 years. De Beers’ officials stressed the importance of that feature, noting that it will ensure a consistent supply of rough diamonds to its clients over a prolonged period.
Botswana now has two years to get its business infrastructure into shape, in order that it be equipped to service the increased level of trade that will result from the new agreement with De Beers. “We must, as a matter of urgency, change for the better; our work culture, the way we do things, and reduce on the culture of entitlement,” said Eric Molale, the leader of Botswana’s negotiating team, who also serves as permanent secretary to the country’s president.
Preliminary forecasts in Botswana suggest that the agreement will generate a per annum $6 billion flow of cash though the country’s banking system, and will lead to a significant expansion of the transportation and tourism sectors. At present most non-African visitors to Botswana must route to Gaborone through Johannesburg, South Africa, and there are but a handful of higher-end hotels in the country’s capital.
“As we now know, the road to turning Gaborone into a global diamond hub to match the likes of Antwerp, Tel Aviv and Mumbai is littered with booby traps,” wrote an editor for the Mmegi news agency in an op-ed pice last week. “Six years ago, the idea to set downstream activities in Botswana was met with outright disapproval and persistent pessimism by the diamond industry. We have now managed to create over 3,000 jobs and are accruing other secondary benefits through the diamond cutting and polishing firms here, though a lot remains to be done, including on the labor relations front, before the industry is fully competitive.”
Speaking early this week at an event in Hong Kong, at DTC’s CEO looked at the recent sales agreement from the perspective of De Beers’ social contract with the people of Africa. “Beneficiation in diamond producing countries enables the populations of those nations to find opportunities where they did not previously exist and to use these as a springboard for a better life,” she stated. “The diamond industry is truly proving itself to be a pioneer in this model of sustainable development, and the ability to undertake something which has such a transformative effect on people’s lives not only today, but long into the future is something which, as far as I have seen, is unrivaled in other industries as a vehicle for social development.”
“The Government of Botswana has also proven itself to have ground-breaking foresight in managing its mineral resources, and it is through building on the strength of the fantastic win-win partnership we enjoy that we have managed to ensure stability and continuity in our industry for the next ten years,” Shine stated.
PHOTO: De Beers Chairman Nicky Oppenheimer (left) and Ponatshego Kedikilwe, Botswana’s Minister of Minerals, Energy and Water Resources, holdng the just signed 10-year sales agreement.