Diamond Prices Are Slumping:Does Botswana Have A Backup Plan?

On Diamonds Are Forever,the hit song from the 1971 James Bond movie of the same name and famously sampled by Kanye West, Shirley Basey sings in her soulful voice that "...diamonds are forever, they are all I need to please me".Unfortunately, according to reports about the diamond industry — unlike Miss Bassey— Botswana's economy should not expect the beautiful stones to be its only source of economic prosperity in the coming years.

According to a recent Bloomberg article, De Beers, which mines a significant portion of rough diamonds in Botswana, was forced to cut down prices by 5% across the board at its recent November sale held in Gaborone a few weeks back, something which has not happened in years.

The reason for this price cut according to the article was to increase diamond sales which have been slumping over the last 4 sales as a result of diamond polishers and traders buying fewer diamonds because of low-profit margins caused by the current oversupply of polished diamonds.

Because of this oversupply, polishers and traders were forced into a corner by retailers who could bargain for low prices and as a result, De Beers found it necessary to cut prices in order to give them a helping hand and hopefully reduce the oversupply of stones in the market.

This move by De Beers , who in the past have been known to relentlessly stick to their sightholder format of conducting sales which basically orders buyers to buy all stones at the set price, paints a picture of the dire situation which currently persists in the diamond industry— an industry which accounts for about 86% of the country's export revenue.

Another cause of slumping sales is the proverbial evil twin of rough diamonds—synthetic diamonds. Synthetic diamonds have been a hot topic in the diamond industry for the last few years and with the world moving more and more towards sustainable development, the mining of rough diamonds which is not exactly environmentally friendly is likely to take a back seat in the next few years, rendering synthetic diamonds the go-to option.

The issue of economic diversification in Botswana has been discussed by previous and current administrations but up to date, no rigid diamond beneficiation drives have been effectively and successfully put in place in the country apart from the established of local cutting and polishing factories which are not finding easy to run their operations due to several factors.

De Beers being forced to cut down prices should act as a warning sign for Botswana about how long diamonds are going to be able to sustain the country's economy. Although the price cut by the diamond giant is likely to be successful in reducing oversupply and hence lean to increase in sales again, the country cannot keep putting all its eggs in the rough diamonds basket as is currently the case.

The demand for polished diamonds in the US market grew by 4.5% and it is important to note that this market accounts for half of all diamond purchases. Is it not high time that the country puts in place measures which will aim to directly tap into that market instead of relying on selling to middlemen who stalls our diamond revenue every time they run into economic problems?

We have the diamonds so why can we not ensure that we partake in every activity in the diamond pipeline, from the mining to the actual retailing of the stones to those growing markets? I find it ironic how our diamond output as well as demand for the final polished products is increasing but sales and hence the revenue for the country are slumping all because we rely on middlemen to sell our stones for us to the final consumers.

Beneficiation drives should include but not be limited to encouraging more participation in the diamond cutting and polishing sector by citizen-owned companies, creation of diamond hubs in the country as well as the growing of non-mining activities such as diamond tourism.

From the aforementioned challenges facing the diamond industry, it is clear that it is not going to be able to support and sustain the country's economy for forever but for now, as we still work on other ways to diversify the economy, it is of utmost importance to harness as much revenue from the industry as possible so as to give us some leeway for the next 4 or so decades.