Goodbye London, Hello Gaborone: De Beers Sales Head To Africa

In 2009, it was overtaken in carat terms by Russia’s Alrosa. De Beers says the move to Gaborone was partly motivated by wanting to keep alive the sights system, which still sells to buyers like jewellers Tiffany & Co and China’s Chow Tai Fook, and Indian family firms. “The Botswana government did not come to De Beers and say please transfer your business. The Botswana government said we would like you to sell the Botswana diamonds here,” said Varda Shine, who runs De Beers’ Global Sightholder Sales. “We believe our business model is quite strong and provides value for De Beers and its shareholders – so we came up with the idea of moving the whole business.” But some in the industry say it presents challenges that the model may not survive. De Beers already sells 10 percent of its production through auction as opposed to via sights, and according to the 2011 deal, the Botswana government will be able to sell a portion of local production through state-owned Okavango that will rise to 15 percent. De Beers says the auctions provide a guide price for sightholders, but others only see competition. “There is a direct challenge to the De Beers sightholders system taking place,” says diamond entrepreneur Martin Rapaport, whose own group operates rough and polished diamond tenders. There are also questions about the wisdom of separating De Beers’ management, which will remain headquartered in London, from its sales and the expertise that has underpinned the group. “The diamond end of the business is going to become divorced from the corporate end of the business, and the corporate end of the business has already been largely denuded of diamond expertise,” said Brian Menell, whose family sold a stake in the Venetia mine to De Beers a decade ago and now has mining interests across Africa as head of the private Kemet group. He also pointed out the move brings De Beers closer to just one of its producing nations, which could arguably skew its views. Botswana accounts for almost three-quarters of De Beers production, but it also has mines in Namibia, South Africa and Canada.

Goodbye London: De Beers heads to Africa

“We believe our business model is quite strong and provides value for De Beers and its shareholders – so we came up with the idea of moving the whole business.” But some in the industry say it presents challenges that the model may not survive. De Beers already sells 10 percent of its production through auction as opposed to via sights, and according to the 2011 deal, the Botswana government will be able to sell a portion of local production through state-owned Okavango that will rise to 15 percent. De Beers says the auctions provide a guide price for sightholders, but others only see competition. “There is a direct challenge to the De Beers sightholders system taking place,” says diamond entrepreneur Martin Rapaport, whose own group operates rough and polished diamond tenders. There are also questions about the wisdom of separating De Beers’ management, which will remain headquartered in London, from its sales and the expertise that has underpinned the group. “The diamond end of the business is going to become divorced from the corporate end of the business, and the corporate end of the business has already been largely denuded of diamond expertise,” said Brian Menell, whose family sold a stake in the Venetia mine to De Beers a decade ago and now has mining interests across Africa as head of the private Kemet group. He also pointed out the move brings De Beers closer to just one of its producing nations, which could arguably skew its views. Botswana accounts for almost three-quarters of De Beers production, but it also has mines in Namibia, South Africa and Canada. ANTWERP, DUBAI, GABORONE? For its part, Botswana – long hailed as an African success story – is hoping the De Beers shift will help it boost skills and develop as a diamond hub that will attract a growing traffic of buyers across Africa. While it may never outshine Antwerp, Dubai or Tel Aviv, Gaborone hopes it can carve out its own niche. Many question whether it can really change the structure of an industry where most of the resources are in Africa but most of the value is generated elsewhere, and whether its strategy is good preparation for life after diamonds, as the mines age. Thanks to improvements in technology used in cutting and polishing and increased efficiency, Botswana has lowered its costs to compete, for larger stones at least, with India. But Tannenbaum says productivity still lags behind, making margins difficult for smaller gems, where the cost of cutting and polishing can make up a larger percentage of the final price.