Botswana’s outgoing President Mokgweetsi Masisi made quite an impression when he was introduced to the diamond industry at the 2019 JCK Las Vegas show.
Just one year in office, the well-spoken leader proved to be an eloquent and powerful advocate for natural diamonds. He told the American audience about the impact their industry has on his country, and the responsible approach that Botswana has taken to maximize value from its precious resource.
Diamonds enable every Botswana citizen free healthcare, and free education from pre-school through university, he explained. It builds roads, hospitals, and schools and has elevated the country from being one of Africa’s poorest nations to rank among its fastest growing and best run.
“The fact that you buy our diamonds is by itself an act of commitment to our country – wherever you are, you carry a bit of Botswana with you,” Masisi said in his keynote address at a De Beers event during the show. “Please care for it because we care about it. Please use it wisely because we have used it wisely.”
It seemed personal for the president and his wife, Neo Jane Masisi, a former Debswana employee who similarly wooed the Las Vegas crowd with her charm, elegance and on-point message.
That visit was a significant one for Masisi as well as for the country whose citizens recognize the importance of diamonds for economic growth. And it was especially meaningful for the diamond industry, which was starting to take the provenance of supply more seriously.
Botswana was, and still is, the poster child for the “Diamonds Do Good” story.
Bad optics
Five years later, in 2024, Masisi once again attended the Las Vegas show. This time the energy was different, even as he was given the appropriate platform and exposure. The speculation was that he made the trip to finalize the pending 10-year marketing deal and 25-year mining lease agreement with De Beers.
Those pacts were up for renewal in 2020, but negotiations were postponed apparently because of the pandemic. Finalization was delayed again and again as there were clearly disagreements regarding the terms, even if the parties remained tight-lipped about why they kept postponing.
A “heads of terms” agreement – which is essentially a non-binding letter of intent – was announced to some fanfare in October 2023. But the Vegas show came and went, and the official document has still not been signed.
Instead of the expected photo-op announcing the deal, Masisi spent his time in Vegas talking up diamonds with the trade and influencers, making Tik Tok videos debunking myths about natural diamonds. Frankly, he appeared a little too accessible for a head of state.
The optics weren’t great. The industry would have preferred clarity regarding De Beers. It couldn’t have sat well among Batswana (Botswana citizens) either, given they face 27% unemployment and projected economic growth of just 1% in 2024 – primarily due to the slump in global diamond demand.
Last week’s presidential election saw Masisi ousted, marking the first defeat of his Botswana Democratic Party since the country’s independence in 1966. Clearly there were several issues that influenced the vote, but the impact of the diamond market, or its lagging, along with the De Beers deal, and its lacking, were no doubt central issues.
Entangled relationship
The internal dynamics of Botswana’s political and economic landscape is beyond the scope of this column.
Rather, my intention is to outline what’s at stake for the diamond market, and to push for a mutually beneficial relationship between the Botswana government and De Beers, and the diamond industry, under incoming President Duma Boko.
After all, Botswana is the second largest producer of rough diamonds, accounting for 23% of global output by volume and 26% by value, according to 2023 Kimberley Process data. Only Russia exceeded that contribution.
But Botswana exerts greater influence on the market, due to De Beers’ presence in the country and the nature of the company’s partnership with the government.
Botswana has a 15% share in the De Beers Group, with Anglo American holding the rest. In addition, De Beers and the government have an equal stake in mining company Debswana as well as in DTC Botswana (DTCB), which sorts and values Debswana’s production. As a result, an estimated 80.8% of the company’s income goes to the government.
The last 10-year marketing agreement signed in 2011 enabled the establishment of Okavango Diamond Company (ODC) to conduct independent rough sales on behalf of the government. It also saw De Beers move its aggregation and sales operations from London to Gaborone and earmark more rough supply for local beneficiation. In doing so, it incentivized sightholders to open factories in the country.
Today there are over 40 cutting and polishing companies operating in Botswana. Many established a presence there in the past two years as they’re jostling for position in anticipation that more goods will be prioritized for local beneficiation under the new deal.
Encouraging signs
The stakes were therefore high for Botswana in negotiating the agreement. But there was a lot riding on it for De Beers too. The company also has its limits and needs to extract a certain value from the relationship.
Rumors have swirled since the election result that De Beers was losing patience with the president and was rethinking the deal. Masisi was still holding out for more. Admittedly, this would have been a braver column to write calling out such antics before the country cast its vote – while Masisi was still the relevant decision maker.
Now it’s up to Boko, a Harvard law graduate who pulled off the surprise landslide victory on October 31. Sensing the tension, Boko already said he wants to conclude the pact with De Beers as soon as possible, Reuters reported.
That’s an encouraging sign for the diamond industry. Finalizing this drawn-out saga would eliminate one major point of uncertainty engulfing the trade, among the many it currently faces.
The new deal
From an industry point of view, it was never clear what more Masisi’s Botswana expected from De Beers. The heads of terms agreement outlined some generous concessions made by the company, comprising several components, as described in the feature I wrote last December for Rapaport, A New Dawn for Botswana.
The most important aspect of the deal for Botswana is the creation of the Diamonds for Development Fund. Its goal will be to identify sectors beyond the diamond value chain that support the government’s national development plan. De Beers committed to initially contribute BWP 1 billion ($75 million) to the fund and up to BWP 10 billion ($750 million) over the next decade.
As far as production is concerned, finalizing the mining lease would clear the way for the De Beers shareholders to make important development and investment decisions, most notably the expansion to underground operations at the Jwaneng mine. I wonder how readily Anglo American will greenlight such capital-intensive projects given its intention to divest from the company, and how those decisions now play into De Beers’ valuation.
The 10-year marketing and sales deal would see ODC raise its share of Debswana’s production from 25% to 30%, effective immediately, and then gradually increase it to 40% and eventually 50% over the next decade.
That’s a new revenue stream that would go directly to the government at the expense of De Beers, which would lose that supply and associated sales. De Beers said in September it intends to reduce the number of its sightholder clients from the next contract period beginning in 2026 due to “lower anticipated availability for the sightholder supply model.”
Meanwhile, with more diamonds at its disposal, ODC is mulling a contract system of its own. And it will be able to allocate more rough supply for polishing in local factories to enhance Botswana’s beneficiation sector.
HB matters
There were clearly other elements being considered beyond those that were made public in the heads of terms agreement. Those are admittedly a matter of speculation.
We do know that Masisi tried to expand the government’s reach within the diamond industry. Much of those efforts centered around Botswana’s only non-Debswana mine, Karowe, and the intentions of manufacturer HB Antwerp in the country. The jury is still out whether his focus on these fringe players was well advised.
In March 2023, the government agreed to acquire a 24% stake in HB Botswana, the local subsidiary of HB Antwerp. The treasury set aside BWP 890 million ($66 million) in its 2024-25 budget for the acquisition, while HB promised to build a state-of-the-art factory in Gaborone to enhance local manufacturing.
HB’s management appeared to have the ear of the outgoing president. It was rumored that Masisi wanted in some way to replicate with De Beers the deal that HB has with Karowe’s owner, Lucara Diamond Corporation. In that agreement, Lucara sells all its specials – rough larger than 10.8 carats – exclusively to HB, and the mining company gains a share of the profit from HB’s sales of the resulting polished.
A profit-share arrangement or any exclusivity clause relating to Debswana goods would be far more complicated given Debswana’s scale of production.
Besides, dealers operating in the large-stone segment have criticized the Lucara-HB arrangement as it is said to undercut the going rate for such goods. Lucara’s CEO William Lamb upon starting his new role promptly canceled the deal in September 2023, citing a breach of contract by HB. However, the parties renewed the arrangement in February 2024.
For its part, HB has yet to begin building its Gaborone factory, according to sources in the local industry. And the government’s acquisition of HB shares seems not to have advanced.
Boko will no-doubt pencil HB into his diamond to-do list, although it won’t be a priority.
Missed opportunity
More pressing on his agenda will be smoothing out relations with De Beers. That takes on even greater urgency given Anglo American’s prospective divestment from the diamond company.
Botswana is central to that deal given its 15% stake and web-like involvement in the various De Beers subsidiaries. Such a complicated ownership structure is hardly appealing to investors. More importantly, though, investors will want assurances that their prospective government partner is easy to work with and aligned with the long-term vision for the company – not only the country.
Botswana has naturally displayed those guarantees through most its 55-year relationship with De Beers. But cracks started to appear during the negotiations. One can’t help but sense that as Masisi sought to be a hero for his nation, trying to squeeze a few extra drops of value from its resource, he was pushing for demands that De Beers viewed as counterproductive for itself and the industry.
Hopefully, president-elect Boko will take the lesson. The industry is invested in Botswana’s success, and benefits from it, but the opposite should also be true.
As a 15% shareholder, the government must also act in De Beers’ interest, as well as that of the broader diamond industry. Diminishing De Beers’ influence there beyond a certain level would be to the detriment of Botswana.
Masisi was able to strike that sensitive balance with aplomb in 2019. But something changed in the five years since then; diamonds became political issue.
As he ends his tenure, Masisi will surely wonder how he could have handled the De Beers negotiations differently. President-elect Boko and De Beers CEO Al Cook will ultimately sign the deal. I predict that will happen soon as the new leader will want to quickly make his mark, and Cook will be eager to ease the concerns of potential investors.
The talks seemed to break down over specific points from which neither side would budge. Whatever they were, there was always a feeling that they were add-ons desired by Botswana. If so, the country will have to make concessions this time around.
After all, Botswana stands to gain a lot from the proposed deal, at De Beers’ expense. Botswana will become a major supplier of rough diamonds, not just a top-tier producer, and that will have profound implications for the market. It’s forcing Cook to reposition De Beers through its Origins Strategy, seemingly as a luxury retail brand.
The deal that wasn’t signed should have been Masisi’s diamond legacy. He laid the groundwork for a historic agreement but couldn’t, or wouldn’t, cross the line.
Others will finish the job. In doing so, they’ll enable Botswana, De Beers and the broader diamond industry to move toward implementation of the deal that will affect each of them. And we’ll finally understand the full implications of what’s at stake. The De Beers-Botswana agreement will create a new dynamic that will shape the diamond industry in the next decade.
Image: President Mokgweetsi Masisi at the 2019 JCK Las Vegas show (courtesy: De Beers).
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