Feature Articles

One of the most significant trends among diamond producing states in southern African states in recent years has been that of beneficiation. After scores of years where diamonds from South Africa, Botswana, Namibia and Angola were simply exported as rough, those countries have striven to ensure that that at least part of their gem output will be exported as polished goods. Not only will this create jobs in countries with often chronic unemployment, the improved added value from their natural will increase economic activity on a national scale.

 
Ironically, following the first moves to beneficiation, the process was largely halted due to the global financial crisis. With slumping global demand for diamonds, among the hardest-hit elements of the global diamond pipeline have been the African producer states, whose reliance on gem production and exports is that much larger than other producers – such as China and Russia – who are able to rely on a wider range of exports for economic sustenance.
 
For Western diamond manufacturers, establishing factories in producer states enables them to achieve two aims. Firstly, it ensures a steady supply of the type of goods they need. Secondly, it allows them to show solid support for the beneficiation efforts of African states. In addition, with strong government support for their diamond industries and efforts made to show transparency in business and official policy, the governments of South Africa, Botswana and Namibia have given encouragement to overseas investors to open manufacturing plants.
 
Of all the southern African countries that have started along the path to beneficiation, it is Botswana that has made the most progress. Given that it is the world's largest diamond producer that does not come as a surprise. Its diamond-producing power clearly gives it a great deal of muscle when it comes to negotiating with De Beers. And since diamonds alone constitute around a third of its gross domestic product, it is obvious that the country is aiming to provide as much added value as possible to one of its few natural resources. The Botswana government and De Beers jointly own the national mining company, Debswana.
 
The sides agreed to establish a sorting plant in the Botswana capital of Gaborone at a cost to the diamond mining giant of $83 million where aggregation of its goods takes place. Botswana DTC, which the sides created in 2006, is responsible for the sorting of goods rather than having them sent to the DTC's main global office in London. The move aimed to create more than 3,000 jobs.
 
There are 16 DTC Botswana sightholders, which under the terms of their receipt of rough diamonds, had to set up polishing facilities. Their sightholder contracts are for the 2008-2011 period and they were due to receive $360 million worth of rough diamonds in 2008, with that number due to have risen to $550 million last year. The sightholders are entitled to receive a total of 15 percent of Botswana's annual output at the 10 sights a year the firm holds.
 
Among those sightholders are some of the biggest names in the global diamond industry, including Eurostar, H and A Cutting Works, Pluczenik Diamond Co, Safdico, Lazare Kaplan, Leo Schachter, Rand Precision Cut Diamonds, Steinmetz Diamonds, and Suashish Diamonds. Several are headquartered in Antwerp. In an exceptional move in mid-2009, DTC Botswana added India's Shrenuj as a sightholder.
 
Of the DTC Botswana sightholders, Eurostar Botswana is one of the leading diamond manufacturing companies in the country, if not the largest. Employing 10,000 people worldwide, Antwerp-based Eurostar employs 339 workers in Gaborone, representing about 20-25 percent of the total diamond industry workforce in Botswana. Just two percent of the employees are not Botswanan. Kaushik Mehta, chairman and CEO of Eurostar Diamond Traders, said its Botswana plant was the leading diamond cutting and polishing facility in Botswana and at full capacity, would certainly become the largest diamond factory in Africa.
 
“As Eurostar Botswana enters its sixth year of operation, it is clear that the Botswana government’s beneficiation strategy is working. Last year, Eurostar Botswana’s productivity levels approached 65 percent of the productivity levels of our flagship China factory, which is a quite remarkable achievement, especially since we have been in China for over 15 years.
 
"Having made a total investment of $8 million in Eurostar Botswana, we remain committed as ever to playing a key role in developing the diamond industry in Botswana. Moreover, Eurostar Botswana now has a dedicated team in Botswana for polishing triple excellent hearts & arrows, and we will start up a production team for princess cuts, as well. If market conditions and rough diamond supply both continue to improve, Eurostar Botswana is capable of increasing its workforce to 600 professionals by the end of 2010.”
 
Another Antwerp-based company, Pluczenik Diamond Co, operates a plant with 200 employees. Communications Director Peter Martin said the company's aim in establishing the factory was to secure long-term access to high-quality diamonds from Botswana since it is one of the most important diamond-producing countries. "This was a logical fit with the company’s global strategy, adding to the existing network of factories in Belgium, China and India. Beneficiation was of course also a major consideration, and indeed, the company’s commitment to Botswana is visible in, among other things, the fact that the Pluczenik factory continued operating right through 2009 despite the difficult economic conditions."
 
Meanwhile, a majority stakeholder in Rand Precision Cut Diamonds is perhaps the most famous jewellery retailer in the world – Tiffany & Co. Tiffany instructs almost 100 Botswanan employees in how to cut and polish rough diamonds into the high-quality gems required for Tiffany engagement rings. Tiffany's identified the need for a change in its business model several years ago. The firm's move into polishing derived from its concern that with global diamond jewelry sales rising strongly earlier this decade, it might have to fight for ever-dwindling supplies.
 
As a result, Tiffany started looking into a part of the diamond business in which it had never really been involved – sourcing, cutting and polishing its own diamonds. "We decided to move backward" in the supply chain, as Chief Executive Michael Kowalski put it. The Rand factory opened in early 2007, polishing small and low-cost brown diamonds, overseen by experienced cutters brought in to provide instruction. The plant's workers produce about 250 finished gems each week, primarily round brilliants for Tiffany engagement rings. About 85 percent of the stones are deemed "Tiffany qualified," and are sent to a Tiffany office in the United States for grading. Tiffany is already looking ahead, and has plans to begin clearing land this year for the construction of a 20,000-square-foot factory. Set to open in 2011, it could employ close to 300 workers.
 
Similarly, in 2007, Namibia and De Beers signed a new sorting, valuing and marketing agreement under which the production of their jointly owned miner Namdeb will be sold through the DTC until 2013. They established a Namibia Diamond Trading to develop a sustainable local downstream diamond industry in Namibia.
 
The aim is to make diamonds available for sale in Namibia for local manufacturing and creating jobs and value creation from its diamonds. NDTC was due to make $300 million of diamonds available locally last year. The sorting, valuing and sales of the country’s rough diamonds will eventually take place through NDTC. As is the case in Botswana, there are some big names in global diamonds among the 11 sightholders, including AMC/Gemxel Diamonds, LLD Nambia which belongs to Israeli diamond magnate Lev Leviev, and Laurelton-Reign Diamonds.
 
The beneficiation process, which began in neighbouring South Africa under the leadership of former President Thabo Mbeki, has also led to the creation of a list of sightholders, with 15 companies receiving an assured supply of rough goods. There, too, the aim has been to ensure the establishment of diamond polishing plants to create economic activity within the country, and higher export earnings.