The issue of diamond dependence is set to become a major focus for the new administration, with President Duma Boko pledging to address what he describes as the “mess” left by former President Mokgweetsi Masisi.
Boko’s selection of Ndaba Gaolathe, an MBA graduate in Finance, as his vice president underlines this priority. Gaolathe, who has extensive experience in finance and policy analysis from his times in financial institutions, warned last year, “It would be a blunder of grave proportions to walk away from De Beers without a plan.”
As Gaolathe takes a seat at the negotiation table, he is acutely aware of the shifting dynamics in the mining sector. The profitability of diamond mining has been waning as mines reach greater depths, making extraction more challenging and costly. Industry experts explain that surface mining, ideal for minerals near the earth’s surface, is far less capital-intensive than underground mining, which now faces diminishing returns. Gaolathe knows that Botswana’s financial constraints demand careful investment, as Debswana—a 50/50 joint venture between De Beers and the government—requires both parties to contribute their share to sustain operations.
This week, the Bank of Botswana underscored the urgent need to find new revenue streams for the government.
Boko, acknowledging the fragility of Botswana’s relationship with De Beers, stressed the need to swiftly rebuild trust. His administration takes charge amid a potential impasse in negotiations, which, if unresolved, could see De Beers exit—a scenario Boko warns could destabilise Botswana’s economy.
In June 2023, Botswana and De Beers reached an agreement in principle for a new 10-year diamond deal, followed by a preliminary “head of terms” in October. However, a final contract remains unsigned, and De Beers is reportedly weighing a withdrawal. The agreement, once finalised, will allow Botswana to gradually increase its share of diamonds from 25 percent to 50 percent over a decade.
“As it stands, De Beers is considering walking away, which is a very dangerous position for our country, especially given the current economic climate,” Boko said in his acceptance speech following the Umbrella for Democratic Change (UDC)’s recent electoral victory.
To keep Botswana’s diamond industry afloat, the new government faces two options: either fund the billions needed in pula alone or find an alternative partner to rival De Beers, an entity Gaolathe previously described as having honed its expertise over decades to dominate the diamond market. De Beers has meticulously categorised diamonds into over 5,000 types and sorted them into 125 assortments to maximise value.
The agreement with De Beers centers on mining rough diamonds, an area in which De Beers and Botswana have excelled. Mining remains one of the most lucrative segments of the value chain, with Debswana’s margins exceeding 30 percent on average. Gaolathe believes that Botswana can independently develop its polishing and cutting industry, citing Israel as an example, where billions are invested in training and craftsmanship.
The margins in diamond cutting and polishing, however, are lower—around 2 percent. Gaolathe argues that Botswana could raise this to 10 percent by developing its financial sector to support the polishing industry. He also cautioned that competing directly with De Beers could be risky. “If we become De Beers’ competitor and they become hostile, it would be dire for the Botswana economy,” he warned, noting that Botswana still relies on De Beers’ proprietary technologies, including their blockchain traceability system, Tracr.
The new administration acknowledges that the contentious nature of previous negotiations may have strained the Botswana-De Beers partnership. Boko stressed the need for civility and respect in commercial dealings, especially given the high-stakes, public nature of the negotiations.
“We must approach these negotiations with civility and respect,” Boko said, underscoring that hasty statements by leaders can create uncertainty among investors, leading to negative economic repercussions.
Boko promised a balanced approach, recognising that successful negotiations require both sides to make concessions. “A proper negotiation involves compromise, where you get a bit of what you wanted; the other person gets a bit. You both lose, and you both win. Then you know you have a durable, sustainable agreement,” he explained.
With diamond revenue still crucial to Botswana, Boko’s administration aims to protect and optimise this revenue stream while simultaneously diversifying the economy. Botswana owns 15 percent of De Beers and shares ownership of Debswana, which produces most of De Beers’ diamonds. Boko’s goal is to leverage this unique position for maximum benefit while fostering diversification.
“We want to safeguard the goose that lays the golden egg in the short to medium term, so we have revenue to fund economic diversification,” Boko said.
He also pledged to restore Botswana as a prime investment destination for the diamond industry, warning that Angola’s rise as a new diamond investment hub poses a threat to Botswana’s longstanding dominance.
Boko also emphasised transparency, especially in dealings with key partners like De Beers. The complexities of the diamond agreement have often been opaque to ordinary citizens, a gap Boko is committed to bridging.
“When we understand the terms, we must be open, candid, and transparent with the public, taking them into our confidence,” Boko said, promising his administration would approach negotiations with transparency and a focus on strengthening Botswana’s position.
In the lead-up to the elections, extractives policy advisor Sheila Khama echoed the need for transparency, criticising the previous government’s opacity in its dealings with mining companies. Khama argued that the lack of public disclosure on these agreements limits accountability, with Parliament and citizens left in the dark on matters that impact the national economy.
Khama further noted that Botswana’s absence from global transparency initiatives, such as the Extractive Industries Transparency Initiative (EITI), contributes to this lack of oversight. She underscored that transparency is essential for an economy reliant on “luxury” industries like diamonds and tourism.
Boko inherits a complex relationship with De Beers, one that has been historically mutually beneficial. His predecessor, Masisi, has been accused of taking a hardline, nationalist stance in negotiations, allegedly for short-term political gain. Masisi contended that past agreements heavily favored De Beers at Botswana’s expense, citing a lack of negotiating expertise as a disadvantage for Botswana.
“It was a bad agreement, it was bad for Botswana. We got too little, and De Beers got far too much,” Masisi was quoted as saying.
Some believe Masisi’s confrontational approach contributed to the Botswana Democratic Party’s (BDP) historic election loss, ending its 58-year rule. However, Masisi, while conceding defeat to Boko, defended his negotiation stance as a defining achievement of his presidency. “I am prepared to lose elections over it,” he told the media. “If this has anything to do with it, I stand very proud that I stood my ground on it.”
