De Beers rallies local banks to support the midstream
Mbongeni Mguni | Monday May 8, 2023 06:00
De Beers’ executives recently held a diamond masterclass attended by high level officials from the country’s commercial banks, in an effort to sensitise them about the industry and the role played by financiers in better positioning Botswana globally.
The number of cutting and polishing firms in the country, who represent the diamond industry’s midstream, grew to 48 at the end of last year, from 21 in 2020 and less than five about 10 years ago.
The major catalyst to the growth has been De Beers’ relocation of its international rough diamond operations from London to Botswana in 2013, as part of an agreement with the Government of Botswana. Last year, De Beers supplied $1 billion in rough diamonds to 39 of the 48 local cutting and polishing firms, who are its “sightholders” or clients that hold exclusive contracts to bid for supply at the 10 auctions the diamond giant holds annually in Gaborone.
“This is a billion dollar opportunity for a sector that’s significantly under-banked and as Botswana develops itself as a trade centre for diamonds, the banks are the missing link,” Howard Davies, De Beers’ senior manager, Pricing & Development Sales and Sightholder Services, told the bankers’ masterclass last week.
Davies noted that global diamond centres such as Antwerp, achieved that status due to their proximity to the supply of rough diamonds at the time when auctions were held in London and also because of their concentration of professional services including access to finance. ABN AMRO and Antwerp Diamond Bank have been hailed as the cornerstones of Antwerp’s rise in the global diamond industry. “Antwerp was the most powerful trading centre for diamonds for a long time, until about 10 years ago and that was because it was close to London and also had the whole ecosystem of services, from shipping, professional services, compliance and others.
“However, the major factor was Antwerp Diamond Bank and ABN and without the access to capital, the diamond trade in Antwerp would not have gone anywhere.
“That’s something we can learn when we think about what the road ahead looks like for Botswana.
“My challenge for the banks is ‘which of you is going to be the ABN of Gaborone or the Antwerp Diamond Bank of Gaborone,’” Davies said.
Local banks have generally shied away from funding the diamond cutting and polishing factories, due to their risk assessments of the sector, a position strengthened by a P100 million impairment hit on Standard Chartered Bank Botswana (SCBB) from a diamond firm in 2015.
As a result of the knock, the bank’s profits fell by 85% and local financiers generally backed away from the sector.
Cutting and polishing firms often struggle with liquidity issues as they buy their allocations at De Beers’ auctions, spend further in cutting and polishing, but often experience delays recouping their costs as the stones await buyers in the market’s downstream.
SCBB’s troubles in 2015 were reportedly linked to a cutting and polishing firm’s purchase of a multi-million dollar rough stone, which struggled to sell as the market hit a downtrend.
Most of the local cutting and polishing firms are dependent on their international holding companies for liquidity, a situation that has resulted in frequent closures over the years.
Analysts, including De Beers’ executives, have said cutting and polishing technology developed during the pandemic, has proved to be a gamechanger for the local industry, cutting costs, increasing efficiencies and narrowing the country’s gap with other global centres.