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Diamond income set to increase.

ANVER VERSI interviews Mr BALEDZI GAOLATHE, the Managing Director of Debswana, on the state of Botswana's diamond industry.

Anver Versi: It has been said that Botswana "lives and dies by its diamonds". Given such dependence on a single industry, how vulnerable is Botswana's economy to changes in the global diamond market place?

Baledzi Gaolathe: Botswana's economy is potentially seriously vulnerable to adverse changes in global diamond market. However, in practice measures have been in place to reduce the impact and incidence of such changes. Botswana has continued to cooperate with the Central Selling Organisation and other major diamond producers to promote orderly growth and stability of the market through advertising diamonds and sale through the single channel system.

Botswana is working hard to diversify its economy in order to reduce excessive dependence on diamonds. The country has also built large foreign exchange reserves to cushion itself during times of depression.

AV: How much influence does Botswana have on the global supply and therefore price of diamonds?

BG: Botswana is one of the world's biggest producers of gem diamonds and has the potential to produce more in the future. Our cooperation is crucial. Consequently our influence is considerable in the supply and price of diamonds.

AV: As a member of the De Beers board, what role did Debswana play in bringing about the recent agreement with Russia?

BG: We played a lubricating role. There were exchanges of visits between ourselves and the Russian diamond authorities during the course of negotiations. During these interactions we exchanged views especially on the question of cooperation of major diamond producers between themselves and with the CSO. Although we were not involved directly across the board, I think we helped.

AV: In your opinion, has the global diamond market stabilised or is it still potentially volatile?

BG: The rough gem diamond market is relatively stable and there have been signs of improvement in larger goods, vindicated by recent price increase. Weaknesses are at the lower end of the spectrum.

The diamond market is sensitive to world economic conditions. When the economies of major consumers improve demand tends do the same and vice versa. On the other hand the operations of the CSO have a continuing stabilising influence.

AV: What is the impact of illegal sales, particularly from Angola, Sierra Leone, etc on Debswana's market position?

BG: The impact of such illegal sales deny the countries concerned the needed revenues and, depending on quantities involved, could destabilise the market and adversely affect our sales. However, the impact on our sales has not been significant of late.

Angola is potentially a major producer. With peace in Angola, we believe that country will cooperate. De Beers have been allocated prospecting licences in Angola.

AV: Would you please chart Debswana's progress since the same time last year?

BG: We expect our sales this year to be more as a result of increased production and as result of increase in CSO sales during the first half of the current year.

We are talking to the unions about introducing continuous production-working seven days week. At present we work five and a half days. This will increase production by more than 14-15% and investment will not be significant. There will be considerable cost advantages. It will also entail employing up to 300 more people to work in shifts.

AV: Is Debswana still exploring for new deposits?

BG: Yes. Debswana's geological department has found a couple of kimberlite pipes and evaluated them but there is nothing too exciting at the moment. We will keep on hoping.

AV: The new mining legislation is geared towards making the sector "investor friendly." What are the prospects for investors in the diamond mining sector in Botswana?

BG: Prospects for investors in the diamond mining sector are good. In fact at present there are 305 diamond prospecting licenses in Botswana held by different companies.

AV: How would you assess the performance of the TMC and its future prospects?

BG: TMC is still in a development and training phase, consequently its performance still leave considerable room for improvement. Future prospects are good as we expect our labour force to attain high productivity when fully trained and experienced.

The factory is not yet fully staffed. There are 360 people but the capacity is for 500. Perhaps by the end of the year we will have a full complement.

We can compete on cut and price. There is a fine balance between shape and loss from cutting. Virtually all products are exported.

TMC was set up primarily to create jobs and in the long run to add value.

AV: I believe that Debswana is currently in the process of renewing its sales contract with the CSO. Could you give us any indications of proposed changes that would enhance benefits to Debswana?

BG: It would be premature to give indications which are still the subject of negotiations. In principal, we will be looking to see that our interests are maximised and as in the past we will be seeking an arrangement which continues to be equitable and enhances the growth and stability of the diamond industry.

AV: Do you foresee a time when perhaps a percentage of Botswana's diamonds are sold directly to the local cutting industry thereby making it more competitive?

BG: Debswana does not intend subsidising the cutting industry by way of supplying it with diamonds at reduced prices. Diamonds are not bulky items so transportation is neither here nor there.

However, buying from the CSO gives you a wider range of goods. There is therefore no particular economic advantage which would arise from the measure you contemplate.

AV: Mr Baledzi Gaolathe, thank you very much.

BG: Thank you.

RELATED ARTICLE: MINING AND MINERALS

In 1971 Botswana began mining diamonds, since when it has never looked back. It is now the third largest diamond producer in the world. The country's economic prospects have been transformed by, not only diamonds, but copper-nickel and, to a lesser extent, coal. In 1995, some 13,000 people were employed in the industry.

The annual production of these three minerals is, respectively, over 16m carats, 48,000 tonnes and 890,000 tonnes. Copper-nickel comprises about 8% of the country's export earnings, shadowing beneath diamonds which account for 80% on exports, 30% of government revenue and around one third of GDP.

Diamond mining began with the opening of Orapa followed by Letlhakane in 1977 and the vast Jwaneng in 1982. Mining is carried out by De Beers Botswana Mining Company (Debswana) in which the South African giant and the Botswana Government each hold a 50% interest. Debswana plays a vital role in employment and over 90% of its 6,000 employees are Batswana. In 1990, it also completed a $87m crushing plant at Jwaneng.

Copper-nickel mining has struggled financially compared to diamonds, because of high interest rates and foreign currency losses. Selebi Phikwe mine opened in 1974 and was almost immediately struck by technical difficulties and a fall in metal prices. However, two other mines opened more recently - Pheonix and Selkirk - providing room for optimism.

Coal reserves are mainly in the east, with proven reserves of over 12bn tonnes at Morupule and Mamabula. Only the former, however, is currently in operation. The Government hopes to step up coal mining further, and should be assisted by the development of the Maputo Corridor project when coal exports are sufficiently developed.

Botswana also produces small amounts of gold, iron and soda ash.
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Title Annotation:Botswana: The Jewel In Africa's Crown; Debswana Managing Director, Baledzi Gaolathe; Botswana's diamond industry
Author:Versi, Anver
Publication:African Business
Article Type:Interview
Date:Sep 1, 1996
Words:1242
Previous Article:The divestment dilemma.
Next Article:Giving power to the people.
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