De Beers bends the knee to Botswana

Now raw diamonds will be processed in Africa, instead of Antwerp. But what will China and India think of that?

Published March 28, 2008 9:44PM (EDT)

In the parlance of mining, the word "beneficiation" refers to a process by which raw ore is separated out into the good stuff -- the useful minerals or gems -- and the waste. In political economy, the word has come to describe a politically infused process in which the countries that are the original source of raw materials gain additional rights to profit from their processing and distribution.

A textbook example: On March 20, the government of Botswana, the world's largest producer of raw diamonds, and the legendary diamond goliath De Beers announced the opening of the Diamond Trading Company, Botswana, a state-of-the-art processing center for cutting, polishing, marketing and selling diamonds.

How the World Works has been fascinated by Botswana ever since learning of its unique experience of colonialism -- a relatively hands-off approach to rule by Great Britain that allowed Botswana to maintain pre-colonial institutions and tribal structures. An enlightened decision by the first president of Botswana, Seretse Khama, to convince his own tribe to cede its local mineral rights to the state set the stage for three decades of astonishing economic growth, from the 1960s to the 1990s. Eighty percent of government revenue is derived from the leasing of diamond mining rights to De Beers. While other sub-Saharan African countries plunged into chaos or corruption after independence, Botswana shined.

Nonetheless, fast economic growth is no panacea if its fruits aren't distributed evenly throughout the population, and while diamonds brought revenue to the state they did not bring much in the way of jobs or downstream economic activity. Botswana has high levels of inequality and rampant unemployment, and is ravaged by AIDS.

Which brings us to De Beers' act of "beneficiation." In 2005, Nicky Oppenheimer, De Beers CEO, said that "the polishing of diamonds is taking on increasing importance in Botswana, and De Beers is happy to be part of that process." Last October, De Beers managing director Gareth Penny added, "It is not altruism that leads us to this, but a sense of what is right, what makes good business sense, what consumers will demand, and a determination to create the necessary conditions for the future and stability of business."

But it hasn't always been that way.

From a report on the new joint venture published in South Africa's Business Day:

"Whatever De Beers is doing, they've been forced to do. They fought tooth and nail about moving the DTC to Botswana," says Charles Wyndham, a former De Beers director and now CEO of the diamond information site

Wyndham, a long-standing critic of De Beers, is not the only one to say that the company plays a different role these days.

"The historical policies of the diamond distributors have consistently resisted beneficiation in Africa, mostly on economic grounds," said Chaim EvenZohar, the principal of Tacy, a Tel Aviv-based diamond consultancy, at the Antwerp Diamond Conference in October last year. "When pressured, they supported token manufacturing operations -- which were not often very successful."

So what changed? Simple: The end of the 25-year lease for the right to mine Jwaneng, the world's richest diamond lode, approached, and De Beers could not afford not to get its lease renewed. But Botswana said to De Beers, if you want a new lease, you gotta give us a bigger piece of the action. Beneficiate us, baby.

"The government of Botswana has always been a competent bargaining agent," wrote Robert L. Curry Jr., in a 1987 study of Botswana's diamond industry management published in the American Journal of Economics and Sociology. The reasons for that competence may go all the way back to the nation's experience of colonialism. Intriguing, isn't it, that one of the first African sub-Saharan nations to wrest greater control over the economic exploitation of its own natural resources was one that experienced the lightest imperial touch?

But even though there's some satisfaction to be taken in this post-colonial triumph, Botswana's success in gaining concessions from De Beers is no guarantee of economic prosperity. The diamond trade has not escaped the pressures of globalization. Once upon a time, Antwerp was the world's center of diamond polishing and cutting, but today India and China increasingly dominate the business, taking full advantage of their brutally competitive juxtaposition of low wages and highly skilled labor. De Beers no longer controls the entire global diamond trade -- upstart Russian and Israeli firms will seek every opportunity to undercut its prices.

Which raises the possibility that just as Botswana finally wins a bigger share of the economic fruits of the diamond business, the global economy will make it harder than ever to turn a profit.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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