Diamond cutting, polishing firms seek gov’t help
Mbongeni Mguni | Sunday February 18, 2024 04:35
By the last count, the country had 48 diamond cutting and polishing firms, most of which are clients of De Beers from whom they are under contract to purchase rough diamonds in 10 sales events each year.
However, with diamond prices and demand slumping to pre-COVID lows last year, the firms have found themselves stuck with costly inventory, unable to offload it to the retail market, while under pressure from overheads, including bank credit.
De Beers softened its prices last year and into 2024, while also providing flexibility around the requirement for the firms to take up stones at its sales events.
However, reports emanating from the local sector indicate many are struggling.
Botswana Diamond Manufacturers Association (BDMA) chair, Siddarth Gothi, told BusinessWeek that some firms had closed in October, earlier than the festive break, to stave off costs, while others were yet to reopen in the New Year.
In an emailed response to enquiries, Gothi likened the situation to a “survival of the fittest”.
“This is the time of test and a time for the survival of the fittest,” he said on Tuesday. “The members of the industry were forced to slow down the production within their factories due to continuously dropping polished (prices). “Some factories have paused operations for over six months now. “Others were cutting costs wherever possible to stay afloat.”
He continued: “A lot of the expats were sent back home for an early Christmas vacation last year, while many citizen employees were made to sit at home as the companies were incurring huge costs of holding piled up inventories. “Most diamond cutting factories in Botswana sent their employees on longer vacations starting from October for Christmas holidays, while some factories are yet to open.” Gothi said the industry had formally requested the Diamond Hub to intervene in the situation, while engagements were also continuing with mining companies and other arms of government for support.
“The BDMA engaged with the government and requested relief in order to sustain these factories during such tough times. “The following reliefs were requested (being) training levy exemption for the diamond cutting industry, subsidising of wages of the local workforce employed in the diamond industry and also a relaxation of rental. “We are still awaiting the response from the respective bodies, through the Diamond Hub and the Ministry of Minerals and Energy who have assured us that they will do everything in their capacity to sustain the industry,” he said.
The BDMA chair added that the increase in the minimum wage last December had added to the industry’s woes at a time when factories were struggling to stay afloat. He explained that the industry’s present circumstances were the result of cumulative troubles beginning with the 2019 slowdown in the global diamond market, the 2020 COVID pandemic and a “sudden injection” of nearly 20 more factories into the local industry.
“In 2022–2023 the sudden injection of almost 20 new diamond cutting licenses and factories in Botswana, led to instability in the existing established factories due to severe employee turnovers during the year 2022–2023 thereby causing the high employment and re-training costs,” he said.
Helped by incentives from government and De Beers, the number of cutting and polishing firms in the country grew to 48 at the end of 2022, from 21 in 2020 and less than five about 10 years ago. The growth is designed to position Botswana as a centre of the global diamond industry, with more processing of stones from local miners and downstream activities such as jewellery being domiciled in the country.
Gothi said BDMA members were “hoping and expecting” markets to pick up, starting from mid-2024, and stabilise towards the end of the year.
“This will be possible if the US and Chinese markets come back to normalcy soon,” he said. “The threat from lab-grown diamonds encroaching the natural space remains strong.”