Sheila Khama, the now-former CEO of De Beers Botswana, very kindly spoke to me at the Initiatives in Art and Culture’s “Diamonds” conference this weekend. Khama had just given a stirring and effective speech on the role diamonds have played in Botswana’s economic development. Expect Khama to give more of these speeches in the future; she is now transitioning to a role as a spokeswoman for De Beers on “reputational issues.”
Highlights of our talk follow:
De Beers’ current sales agreement with Botswana expires this year. What is the current state of negotiations between De Beers and Botswana?
They have not started, but will begin this year.
As far as we know, the government of Botswana has not had any conversations with any agency of any other government regarding the sale of diamonds. One must remember that there is a suite of agreements — the Jwaneng lease agreement, the sales agreement and the DTC Botswana joint venture — that together govern the mining and sale of diamonds in Botswana.
Do you think there will be more sales outside of De Beers?
De Beers understands the aspirations of our producer partners. The biggest value driver is the sale of Debswana diamonds and the maintenance of price growth. We have had a very good agreement for 42 years where we have delivered consistently. You don’t want to change for the sake of change. The government of Botswana wants to find ways to create more value, and we share this vision.
There was a story in the Botswana press that argued that De Beers had a new strategy of leaving diamonds “in the ground,” and that this wasn’t good for Botswana.
Those reports are incorrect. As a way of managing the impact of the economic crisis, the mines in Botswana took a production holiday to contain costs. You wouldn’t want to produce diamonds there is no ready market for. But this is not a long-term strategy by Debswana. Our production will continue to be in line with demand from our clients and has already increased from 2009.
What is the current state of the Botswana cutting and polishing industry?
The Botswana cutting and polishing industry has done better during the crisis than most cutting centers. At the start of the crisis, the Botswana cutting and polishing industry had 15 factories operating. One was impacted to the point of closing its operations. Within six months, another company had acquired its assets.
When the crisis started, we had 3,000 workers in the industry. At its worst, it fell to 2,300 jobs. It’s now back to up to 2,500 jobs. That is a measure of the commitment the Sightholders have to Botswana. They understand that the level of activity in Botswana is related to the level of supply. They see the value of staying in Botswana.
Have the factories proved profitable?
I can’t speak for the independent factories. Their profits are their business.
All of the cutting and polishing factories have met our supply criteria. We feel we have weathered the storm in terms of our clients.
Will there more attempts to “brand” Botswana diamonds?
The government of Botswana has created what they call “The Diamond Hub,” to look at a strategy to extract more value and how to make Botswana a diamond center. Should the government present a proposal, we would be happy to engage with them.
How did the economic crisis impact Botswana?
As the largest producer of diamonds, Botswana was not able to sell diamonds to meet cash flow requirements. The government decided it wouldn’t be right to cut back on public expenditures. So we have not seen a major impact on the economy. But there has been an impact on the national savings, because the country has had to draw on that. If the rough diamond market picks up at the end of the year, the impact will be limited. If not, it will be more protracted.
There has been a lot of bad publicity for De Beers in Botswana recently. The former managing director of Debswana, Louis Nchindo, was charged with corruption.
In the matter of the former managing director of Debswana, the authorities have determined that there is a case to answer, and it would be inappropriate of me to comment. There is the rule of the law and the rule of justice and we are confident that justice will be done.
There was also the report from a British law firm that raised questions about how the 2001 “privatization” was conducted.
This was a government report and I am not qualified to comment on it. Our understanding is that the government wanted [British law firm] Slaughter and May to undertake a study for research purposes, but the media seems to be taking it out of context.
There was also a report that De Beers gave a former Botswana president a post-presidency loan for his farm.
That was 25 years ago and we have been trying to find out as many details as we can. I can confirm that there was support in terms of a farm loan for the former Head of State, but I don’t know the details.
Our policy has now changed. We haven’t given support or donations of any sort to any political party since 2007. And if we did, our principles dictate that we must disclose them publicly.
You suggested, in your speech, that all this bad publicity is the result of the contract negotiations, and competitors who want rough.
For our competitors, it is a gateway, and it is not surprising they would increase their efforts. We have noticed a definite increase in the level of reporting on us, as well as the level of cynical reports.
But all the issues you are raising speak to one thing: the press is free in Botswana. People can write about the government, De Beers, Debswana, without any risk. That to me is the biggest message.
Do you think that these reports have hurt De Beers’ image?
One of the challenges that we face as De Beers is that we have a very prominent and visible brand worldwide and even more prominent and visible in Botswana. We will always be challenged from all quarters. Our position as Botswana’s preferred partner remains as strong as it ever was. I believe the relationship will endure another 40 years.
It is not surprising that there should be a lot of attention on this relationship. We accept this because we feel this relationship has potential value as a lesson to others. Having a strong relationship does not mean we do not, from time to time, see things differently.
But you should be aware that scholars say that the average joint venture last seven years. This relationship has lasted six times longer than that. So if that is not success, we will have to redefine that.