By Ndaba Gaolathe

WHAT MAKES NATIONS WEALTHY

1. “There is no one amongst us who knows how to cut timber like the Sidonians”, words of Solomon about a nation that he called upon to assist him erect a great building.

2. He does not say the Sidonians are rich in timber. What makes the Sidonians rich is their knowledge, their know-how, that no one has. What you know how to do better than everyone else is what makes you wealthy, not what you have.

3. What you know gives you opportunities that flow like a mighty river.

4. “No one amongst us makes watches like the Swiss”, “No one amongst us makes cheese like the Swiss”, “No one amongst us designs and makes semi-conductors like the Taiwanese”, “No one plans and implements like the United Emirates or the Singaporeans”. This is what makes these countries wealthy, not what they have. No one builds and navigates the financial markets as they do in Hong Kong.

5. This is what makes them wealthy, not what they have, but what they are able to do better than everyone else. GDP per capita in Switzerland US$92, 000, Hong Kong US$50,000, Singapore, US$73, 000, Emirates US$43, 000 and Botswana $6, 800.

6. Our vision for this country, our vision of the New Botswana, is of a nation that is able to craft, better than everybody else, some services and products the world needs to stay alive, each of our people sharing in the flood of opportunities to prosper, united in purpose, and being an exemplar on the African continent.

7. So our concern should be if there is anyone saying “There is no one among us who mines diamonds like Botswana” – or “There is no one among us who cuts diamonds like Botswana”, or “There is no one among us who polishes like Botswana”, or “There is no one among us who designs and makes diamond jewelry like Botswana?”, “The is none among us who provides the kind of hospitality as the people of Botswana do”, “There is no one among us who manufactures quality food or medicines as the people of Botswana do” or “There is no one who designs and manufactures micro-chips the way Botswana does”, “There is no one who provides transport infrastructure and logistics solutions the way Botswana does.” This is what we believe is possible for this country; this is what we are fighting for and hope each citizen can play their role in building this new Botswana.

8. The question is, does the world stop and make these statements about our country?

9. It is clear that no one cuts and polishes diamonds like the people of Israel. This is how the world perceives Israel and its people.

10. Yes, DeBeers mines well, but it is even truer that “No one among us aggregates and sells diamonds like De-beers [we will return to this matter]. This is what makes them wealthy, not the mines they have, nor the mines they could have for years to come. They have built the know-how, the technology, the soft[1]wares, and the relationships over more than a hundred years ever since the times of Cecil John Rhodes and Barney Banato.

11. What does it take to become excellent in what you do, in a way that everyone says “No one amongst us cuts timber the way the Sidonians do”? It takes: • Vision, and intent • Learn religiously from the best • Patience and continuous improvement • Discipline • Immense investment, sometimes appearing wasteful • Deploying the best minds and organising collaborations and markets • No giving of excuses

12. A simple depiction of mastering what one does, DeBeers has over the last hundred years been able to unearth more than 5 000 diamond categories, and find their own way and processes to consistently assort them into about 125 types of boxes. This is a mammoth body of knowledge and know-how. This kind of sophistication, along with how DeBeers has been able to organise its global client networks is what puts De-beers in one of the best positions to anticipate, influence, and exploit diamond prices.

13. They are much like the consummate seller of perfumes who is able to master their customers, solicit the best prices from them and keep them coming back.

14. Bringing it closer home, when I served communities as part of our national service immediately after high school, I noticed that madila (fermented or sour milk) brewed at the Maporotla cattle posts was consistently different from madila at Sehitwa. The latter was more bitter and less viscous.

Madila at Habu and Nokaneng were tastier, but madila at Ikoga took the price. Madila in the central districts at Makoba and Matsitama are more condensed. If we were intent and futuristic about what we could do with milk what DeBeers has done with Diamonds, and indeed what the Swiss are doing with milk, we could categorise our madila into hundreds of categories, and develop hundreds of proprietary recipes, including cheese categories and be able to sell at optimal prices, far higher than prevailing milk prices.

This alone can create wealth in this nation. 15. Perseverance to achieve supremacy in what you do is a lifetime investment. There is an amazing story of a paralyzed Jean-Dominique Bauby, a French journalist who suffered a stroke, and ultimately couldn’t speak or move his body. He found a way to write a book, a best-seller, by blinking his way at every letter he wanted to write.  “There is no one among us who can write without writing like Jean-Dominique Bauby”.

16. Martin Luther Kind sums true wealth well, “ïf a man is called to be a street sweeper, he should sweep streets even as Michelangelo painted, or Beethoven composed music or Shakespeare wrote poetry. He should sweep streets so well that all the hosts of heaven and earth will pause to say, ‘Here lived a great street sweeper who did his job well.

WE ARE FAILING TO USE OUR BEST PEOPLE

17. I have met citizens in this country who are patiently building, in a way that nobody is. I will not mention names, but I will mention Monty Chiepe and Ruudi Lemcke because he just won a prize as one of the best breeders in the world; these two, and a few others, have been building a way of growing bulls and cattle in a special way.

A country that is serious about building wealth should put systems in place so that people like these grow in their art and cause the world to stop and ask “There is no one among us that grows bulls and cattle like the people of Botswana.” Our system should work to learn from them and create a pervasive culture that will ultimately cause the world to stop and say “No one crafts this…better than the people of Botswana do.

18. There is an exceptional citizen of Botswana who has acquired a leading Canadian company that does research and development and manufactures bio-degradable detergents. He is present in European markets. Our system is not interested in citizens like these and we lose the opportunity for the world to stop and say “No one among us manufactures such healthy soap as the people of Botswana”.

19. Everyone talks about diamond beneficiation, and how everyone wishes to partake in this. Do we really want to be involved in cutting and polishing – if we have failed, who is responsible for this failure? This failure is suggested by a statement attributable to the Head of State that, “We have learned a lot from the relationship with De-beers including the fact that we lose $15 billion every year for selling our diamonds raw without beneficiation. We are a major diamond producer, both in terms of value and quantity. We should therefore benefit more. Our benefit from the potential $15 billion is almost US$8 billion.”

20. We submit that if we have failed to beneficiate our diamonds it is our own doing, and no one else but the Botswana Governance system should be taking the blame for this, not even DeBeers.

21. We also submit that any producer of any product sells that product at the best available price – Debswana produces raw diamonds and their concern should be fetching the best price for raw diamonds, not for beneficiated diamonds. If we are not capturing the benefits of participating in other parts of the value chain, it is because we have failed to find the strategy for so doing, and yes, we have failed. What does our strategy as a country entail, or what could it entail?

22. Put plainly, both DeBeers and Botswana have been fetching higher diamond prices than should ordinarily be the case because we are part of an oligopolistic sector. A few facts first

23. Actually, mining activity alone is one of the most profitable parts of the value chain. Average operating margins could be about 30% and more for the more successful miners – but this activity is highly capital-intensive and does not create many employment opportunities. Our diamond mines employ less than 5 000 people, which is much less than you would expect for such levels of investment.

24. Although cutting and polishing generate much more employment opportunities, the margins are low, and business is generally risky. The luxury retail end can also be highly profitable, sometimes more than 30% for the larger firms, and a majority of firms generally enjoy good margins of 7-14%.

25. So where exactly does the Government of Botswana wish to play, – as an investor – and where do its citizens wish it should play – as a facilitator and regulator.

26. Whose responsibility is it that Botswana citizens have not fared well as investors in the diamond sector?

27. GOB has not to date provided clarity of intent for itself or its citizens on which part of the value diamond chain it believes possesses the best available opportunity.

28. Even if GOB has provided any such clarity of intent, there are no obvious concrete steps that are being taken for citizens to succeed in the diamond sector, or in any other sector for that matter.

29. It is not the responsibility of any mining partner, not even DeBeers to decide for Botswana how it should best cultivate ways to beneficiate our diamonds. If we are making large profits at the mining level, would you want to throw it in low-return sub-sectors when we haven’t done anything to raise return in those sub-sectors?

Shouldn’t we be re-investing those profits at the design and retail end, or even in other sectors where we are even more determined to excel? Or perhaps we should invest even more to develop our own technology in mining, aggregating, and selling?

30. Botswana has generally fared poorly in building the foundations in any sector to make Botswana a leading light.

31. We are not willing to invest in technical, industry-specific skills. We are not producing craftspeople in any serious way, in any sector. Israel continues to build the best diamond craftspeople, yet they produce much fewer diamonds than us. I have not heard the world say “No one cuts diamonds like the people of Botswana”, but I have (heard) the world say “No one cuts and polishes diamonds like the people of Israel.”

32. We are not willing to build the right financing ecosystem, for instance, there is still no specialized diamond financing available for citizens, yet this is a sector that needs cash flow given that the diamond assets hold cash locked up until it is sold. This is one among many diamond barriers for Botswana citizens.

33. The Government machinery treats accomplished foreign business persons very differently from the way it treats accomplished local business persons. Our government system has co-invested directly, rightly so, with the accomplished DeBeers originally family-owned, but we have not done the same with local persons with high potential.

Of course, Botswana has invested in Botswana companies via various investment arms such as the Botswana Development Corporation, and CEDA. In a sense we don’t believe in ourselves, we don’t believe that there are exceptional talents in our midst whose creative genius, intellectual properties, and technology can completely revolutionalise our economy.

34. Our diamond system has actually produced fine diamond sector executives, but we don’t have a system to organise them, deploy them, and utilise them to send our diamond sector to the next level.

35. I look to Taiwan for a system that believes in its people, with 77% of the financial institutions and banks owned by local systems, and only 10% owned by international banks. Botswana’s banking system is dominated by foreign banks and it is not tailored for the kind of entrepreneurial possibilities we confront as a nation.

36. We have not invested adequately in R&D, even in the sectors that show great promise. After so many years in the diamond sector, we should have been able to build our own intellectual property and technology for various aspects of the diamond process. The Okavango Diamond Company may well be in the process, but it is still far behind where we should be. Our joint venture companies Debswana, and DTCB all use DeBeers technologies and intellectual properties for their vast processes.

37. The basics of our relationship with DeBeers

Exploration and production

▪ In our case mined by Government/DeBeers joint venture 50/50 %. ▪ Ultimately the Government of Botswana walks away with about 82% of the profits, with DeBeers keeping the balance, 18%. ▪ This means each partner contributes equally towards development capital, but not so in profit sharing. ▪ The mining joint venture depends a great deal on technology and intellectual property developed by DeBeers. ▪ This part of the chain is one of the more profitable parts of the chain.

▪ Success in this part of the chain does not mean you need to be involved in other parts of the chain, nor does it guarantee success in other aspects of the diamond process. In fact, trying to do well in too many parts of the chain may come at a cost to your performance in another part of the chain. Sorting, valuation • Sorting and valuation of diamonds is a sophisticated art, that once more depends on technologies and intellectual property developed over many decades. It is delicate enough to make the difference between consistently profitable operations and those that can’t make it.

• In the case of Botswana, another GOB/DeBeers 50/50 percent joint-venture, DTCB, sorts and values diamonds from the Debswana system and then sells them on to both Okavango Diamond Company ODC (25%) and DeBeers Global Sight[1]holder Sales DGSS (75%). DGSS is physically housed at the DTCB buildings. (entails aggregation)

• DGSS aggregates and sells diamonds to their global sight[1]holders, and so does ODC sell to their own clients. There are about 5 000 categories of stones carefully assorted into about 125 types of boxes. To get the big picture, the Government of Botswana receives proceeds at multiple layers: • As a shareholder at Debswana. • As a shareholder at Diamond Trading Company Botswana (DTCB). • As a shareholder at Okavango Development Company • As a tax collector for mining ecosystem Where do the Botswana Government and DeBeers Company play?

38. Clearly, they both are major players in production and in sales – not so in cutting/manufacturing, jewelry, or wholesale. DeBeers is a master in both production and sales technology and associated intellectual property. Arguably DeBeers is ahead of everyone else in sales, and market intelligence – it has taken more than 100 years to build the ecosystem.

The Government of Botswana and De-beers relationship has evolved over time, with the first phase characterised by a government that was almost completely dependent on DeBeers for mining, sorting, valuing and sales. Three distinct features characterise the difference between the current arrangement and the first at the inception of the GOB/DeBeers relationship in the early 1970s:

a) Government now, through the Okavango Diamond Company has an alternative sales conduit for some of its mining output.

b) DGSS conducts aggregation activity in Botswana, even for diamonds that are not produced in Botswana.

c) DGSS is somehow under some form of obligation to supply a certain amount of 2-carat plus diamonds to cutting and manufacturing companies located in Botswana. The alleged 24% stake in HB Antwerp.

39. In various media releases by the Government, it appears the Botswana Government intends or has already acquired 24% of HB Antwerp.

40. Surely, on its own, HB Antwerp cannot be a solution towards building know-how in cutting and polishing – so we would need to know or understand the broader plan on how we will create that sector that everyone will say “No one cuts and polishes diamonds the way Botswana does”.

How does HB fit into this broader plan and how does it align with other components of this plan and other potential partners? We ask these questions because HB Antwerp is a new company, with limited financials, and only part of a niche market that is not necessarily scalable.

41. There is still no information available on this transaction, so only questions abound:

42. Regarding the 24% stake in HB Antwerp, how much did we pay or intend to pay for it, and therefore what is our expected return on it? The fact that such an announcement has already been made and there is no information on these questions readily available raises alarm.

43. Who made these assessments on value and risk implications – was it the Okavango Diamond Company or the Ministry or the Mining Company of Botswana?

44. There is an alleged diamond supply agreement with ODC, what are the terms of it?

45. What was the process for selecting HB Antwerp, who were the other competitors, and why ultimately HB Antwerp was prioritised?

46. What was the decision-making process – Did the ODC perform an internal assessment of the potential benefits of the deal with HB Antwerp?

47. It would be interesting to know more about the sales agreement, in principle, between the Okavango Development Company and HB – what does it entail?

48. Since we do not possess any concrete information about the HB Antwerp relationship our best is to guess:

• The guess is that ODC was not involved in originating or structuring the sales agreement with HB Antwerp.

• The guess is that there was no convincing process for comparing HB Antwerp with alternatives.

• The guess is that there is no broader framework for developing the diamond sector against which this transaction is measured.

• Worse still, the Government of Botswana continues to be secretive with all its diamond deals.

49. DeBeers negotiations

We face a choice as a country i) to supply into the existing system; This entails access to DeBeers technologies and IP through joint ventures – Debswana and DTCB. This entails our direct sales conduit, ODC. The process has always been secretive, so we do not know what else the Government can improve from the current deal.

Although there are all these areas for improvement, we also recognise that any investor needs certain sales guarantees especially if they are investing additional capital. DeBeers has already invested half of the US$2 billion Cut 9 investment which only comes into operation in 2027 and will have to assess whether to inject half of the US$ 6 billion-investment, which would come on stream in 2035 or so.

ii) Build an alternative system

▪ It takes many years to build an alternative system, and decades, to master it in a way that consistently offers the best prices, through downturns and upturns.

▪ If we intend to part with DeBeers, then this is what we need to do, and the type of work we need to have done. We need to have done preparatory work towards being able to:

▪ Anticipate demand, supply, and prices

▪ Able to determine prices

▪ Able to exploit and squeeze the best prices

▪ Able to optimize aggregation, segregation, and organisation of players at different levels

▪ Much the same way a consummate seller of perfumes is able to master her customers, solicit the best prices from them and keep them coming back

50. Some work has been done, but we are still years away from achieving the levels that we need to guarantee we don’t crush our diamond sector or our economy.

51. We haven’t built our technology, our intellectual proprietary softwares to navigate the processes and the market nuances. I think the mining aspect is much more navigable, it can be done without DeBeers, technically speaking.

52. More specifically, DTCB would also cease to exist, as most of the technology used or deployed for valuations and sorting is owned by DeBeers.

53. DeBeers would have no incentive to carry out the aggregation for non-Botswana diamonds in Botswana either, and it is not obvious if the sight-holders, particularly the key market influencers, would wish to remain an integral part of the Botswana diamond system.

54. Although our mines are still highly profitable, they are nowhere near as profitable as they used to be.

55. If we walk away, in accordance with the threats made by the Head of State, we should understand that by way of readiness:

56. We would not be able to fetch the prices we are fetching for diamonds. In fact, prices may plummet.

 57. We would need at least tens of US$ investments to develop our mines for their next phase.

58. We would have to create our own market, through our technologies and intellectual properties.

59. De-Beers would walk away with their technology at DTCB, Debswana, and DGSS levels.

60. Indeed, there are ways Debswana can continue mining without De-Beers, but Botswana would not be ready to secure the right prices at the right scale globally. If DeBeers chooses to be hostile and prices fall globally, Anglo-America would still successfully swim as a wealthy company given De-Beers is only a small part of the larger Anglo-American family.

61. We have said it before and we still say it now, we do not have to be beholden to a single technical partner, DeBeers, but we have to be wise about what we do next:

• We have specifically said that we, of the new Botswana, will improve our prospects for breakthroughs as we ramp up investment in our own intellectual property and technology at the mining, sorting, aggregation, and sales process levels (Research and Development) where we are currently heavily dependent on De-Beers.

• Okavango Diamond Company has been at it, but they are not yet there. Our investment further down the chain of the diamond sector has nothing to do with De-Beers and would not be dependent on contracts with De-Beers.

• We have also said the Government of Botswana has not done enough to build the human and financial infrastructure for citizens to be full participants in the diamond value chain. So, we would invest heavily in training and carving partnerships to also develop a financing ecosystem that is tailored to diamond sector nuances and that will allow Botswana companies to meaningfully engage in mine expansion projects and indeed in all other strategic parts of the value chain.

62. We need to make our diamond dealings more transparent. If we are so bent on keeping secrets, democratic Government have a way of doing it – a Parliamentary process that handles the confidential aspects of our deals. Failure to do so would suggest there is much our leaders are hiding, and want to continue hiding

• Ndaba Gaolathe is the President of Alliance for Progressives (AP0