Thursday, May 21, 2009

Africa: Diamonds are forever - but jobs in Africa's diamond industry are not

They may be the hardest substances in the world, but even diamonds aren't immune to the global economic downturn. In fact a slump in sales has led to the biggest cut in diamond mining in modern history. That could mean fewer jobs in Africa, if the economy doesn't pick up.

Global diamond company DeBeers may have coined the term "a diamond is forever", but they're learning that sales aren't. Last year, the demand for rough stones, uncut diamonds dropped dramatically, along with the prices. Mark Boston has been a diamond dealer here in London for forty-five years.

"We knew in the diamond business that we couldn't possibly be immune from what was happening in the wider world economy and we were prepared for it to impact on our industry," Boston said.

But the impact was unprecedented he says.

"The sort of downturn was so abrupt and so dramatic and so sudden that the producers adopted most unusual, and almost unprecedented position in closing mines," Boston said.

Nearly 9,000 kilometers from the diamond dealers in London, miners in Botswana were told to go home. Botswana is home to the world's most productive diamond mines. For fifty days this year, its mines were totally shut down. They are owned by the government and DeBeers. Analyst Roger Murray says the mining company was forced into the decision by the glut of stones on the market.

"It faced an unpleasant choice, either continue producing uneconomically and rack up a huge stockpile of stones, or cut production sharply while the downturn continues," Murray said. "They took that option which of course has economic negatives for Botswana - lower government revenue, lower exports, some unemployment, a whole setback to the way the country's been going."

Botswana gets much of its export and tax revenue from the diamond industry.

Last year, in a gala ceremony, Botswana opened the world's largest, most advanced diamond sorting and valuing facility in a joint venture with DeBeers. Company spokesman David Prager says the new center is part of a long-term strategy.

"It's not just about immediate economic gain, we've been in Botswana for 40 years, we hope to be there for another 40 years, and if you're going to be in a place for that long a period of time, you've got to make sure you're doing certain things right for your business, not because they're the right thing to do, but because it makes commercial sense," Prager said.

Prager calls it "enlightened self interest." An investment in Botswana's future ensures DeBeers.

"What we've tried to do with the government of Botswana, is keep that natural resource in that country for longer," Prager said. "Now, the diamonds that come out of the mines in Botswana are not sent to London, they're sorted and valued by local Botswana citizens."

About 6,000 jobs in Botswana depend directly on the diamond industry. During the shutdown, the workers were employed in care and maintenance work and continued to be paid. Analyst Murray says that's important.

"It's a small percentage of the total workforce, but these people have money, and buy goods, the shops depend on them without those people spending power, the economy generally is going to be seriously in trouble," Murray said.

Botswana will produce about half as many stones this year as it did last year. Almost all its mines are reopened, and Murray says the country can weather the economic storm, for now.

"Botswana has built up a position where it is actually fortunate enough to have built up a high level of foreign reserves, $10 billion, which is big by African standards, Also the government has reserves in its budget account, so they can finance a downturn for about a year, but they need the diamond market to pick up in 2010," Murray said.

Traders in London say there are signs of a turnaround in the diamond market. One will be needed for Botswana to shine in the future.

Published with the permission of Voice of America
Published by Mike Hitchen, Mike Hitchen Consulting
Putting principles before profits