diamond

‘Beneficiation’ and ‘value-added’ are the buzzwords in the vocabulary of African economic development.

On a continent replete with minerals and other natural resources, almost all of which are exported raw to the North or the East to be made into high-value manufactured goods, this seems self-evident.

And maybe it is... Or maybe it isn’t. In an ideal world it should be. The idea of turning Africa’s cocoa into fine chocolate before export, its cattle into quality shoes, or its rough diamonds into fantastic jewellery, seems irresistibly obvious.

And so beneficiation is, not surprisingly, the foundation of government policy – or at least the dream – of Africa’s resource-rich countries, which is almost all of them. It is also official policy at continental level. Certainly it is at the heart of the institutional economic relationship between Africa and China, as articulated through the Forum for China-Africa Cooperation (FOCAC).

Next week, FOCAC will hold its sixth conference, the second at summit level, in Johannesburg. Beneficiation and value added will be much on the lips of the African leaders, especially as they interact with Chinese President Xi Jinping and his delegation.

And South African officials say the summit will announce some beneficiation projects. The economic relationship between Africa and China seems an obvious candidate for beneficiation. Africa exports to China are almost entirely raw materials; and its imports from China are almost entirely manufactured goods.

South Africa has been in the vanguard of trying to persuade China to invest in the processing of minerals. It registered some success last year when South Africa’s Industrial Development Corporation and China’s Hebei Iron and Steel Group struck a deal for Hebei to build a steel mill in the northeast town of Phalaborwa. This should boost manufacture and create jobs in South Africa, instead of just exporting raw iron ore.

Botswana’s diamond industry is often cited as perhaps the greatest success story of beneficiation – as indeed it has undoubtedly been Africa’s greatest success in developing a natural resource for the benefit of the whole country. Debswana, the joint venture between the diamond corporation De Beers and the Botswana government, has lifted the country from poverty to middle-income status in half a century.

In 2013, the Botswana government took a step further by persuading (some analysts say arm-twisting) De Beers to move De Beers Global Sightholder Sales – its international sales division – from London to Gaborone. In turn the ‘sightholders’ – the diamantaires – were offered an incentive in the form of guaranteed diamond supply, to establish cutting and polishing works in Botswana. About a quarter of them did this. At the height, around 21 companies were processing rough diamonds in the country.

But a few have already closed their operations in Botswana since then, because of ‘challenges in the diamond industry’s midstream sector during 2015,’ as De Beers puts it in a report just published titled Turning finite resources into enduring opportunity.

It adds that the challenge now facing the country is how to generate greater value from the beneficiation. It urges all stakeholders ‘to work together to help deliver sustainable solutions that will ensure the long-term viability of these operations.'

Training and skills development in all areas of the diamond value chain should be the focus, it says.

This week Keith Jefferis, former deputy governor of the Bank of Botswana, tackled the problem of the sustainability of the diamond beneficiation project at a conference in Gaborone organised by De Beers, London’s Chatham House and the Botswana government. The conference discussed the beneficiation of the diamond industry, but also focused more broadly on the problem of how to diversify Botswana’s economy away from diamonds. Diamond production is about to peak, and the country has been battling to find something to replace them with.

As Jefferis said, Botswana’s success has been a case of ‘good luck, well managed.’ The next big challenge was how to shape the country for a non-diamond future.

It had been easy to establish the diamond-processing plants, he suggested. The problem was how to make them productive and competitive and therefore sustainable. He agreed with De Beers that training was the key and noted that where local diamond cutters and polishers had been sent to India for training, they had returned with skills comparable to those of the Indians, who are a large part of the reason the Botswana operations are struggling to compete.

But Jefferis also focused attention on the wider business environment in Botswana, and how it could be improved not only for more sustainable beneficiation, but also for more sustainable businesses of any kind. In other words, to stimulate diversification.

Botswana diamonds are probably the best-case scenario for beneficiation, because together, the Botswana government and De Beers have such control of the industry that they can ensure it happens. So if beneficiation is challenging even for Botswana diamonds, it must be more so for other industries and other countries.

Which raises the pertinent question of whether governments should be picking winners and mentoring them to greater success, or just creating an environment conducive to all businesses to prosper.

Jefferis suggests the latter course is the one Botswana – and by implication, others – should be following. This is the key not only to beneficiation, but also to the diversification of the economies of resource-rich countries, or any countries.

He noted that Botswana had been relatively successful in diversifying its economy as the contribution of diamonds to gross domestic product (GDP) had dropped from about 50% in 2002 to just over 30% last year. But the country still depends on diamonds for 85% of export revenue and the bulk of taxatio.

Yet Botswana remains unattractive to investors wanting to establish export-oriented businesses, he said. He catalogued a long list of things that the Botswana government should be doing to make it more attractive. The key would be to improve transport infrastructure.

He noted that even the main border post between Botswana and South Africa closed at night. ‘So at 6am … you can see a queue of trucks two kilometres long, waiting to enter Botswana.’ That added to transport costs. Opening such border posts around the clock would be an easy first step for the government to take towards diversification. A second would be to establish one-stop border posts.

The government should also open up the air transport market, Jefferis said, to bring down transport costs. He noted that Air Botswana faced no competition in the domestic market. It was also ‘crazy,’ he said, that companies struggled so hard to acquire land for their operations in such an extremely low-population density country.

‘And the immigration system is dysfunctional. It’s not easy for companies to bring in skilled labour from outside the country,’ he said, adding: ‘These are all public goods which are firmly the responsibility of government to make it easier for companies to set up profitable export production.’

He also warned, more broadly, that Botswana was jeopardising its economic expansion by failing to manage its very scarce water resources sustainably. Foreign participants in the conference saw the problem for themselves as taps in their hotels ran dry.

Jefferis said neither De Beers nor the country’s farmers were paying for water – mostly from underground aquifers. And so the country was in effect mining this non-renewable commodity, rather than charging royalties for it, in the way it charged royalties for its diamonds.

And Jefferis said Botswana should be focusing on exporting services, for example by taking advantage of its well-educated, English-speaking people to establish call centres and back offices to international companies.

When you look through a magnifying glass at a stunning, 57-facet, round, brilliant Tiffany diamond that has just been cut and polished by Batswana hands at the company’s subsidiary, Laurenton Diamonds, in Gaborone, the allure of beneficiation can be irresistible. But there is a wider highway for the governments of Africa’s resource-rich countries to take towards successful beneficiation and ending their dependence on single commodities. It is a much more mundane one that entails letting trucks cross the borders at night, and cutting through metres of red tape, as Jefferis suggests.

‘Beneficiation’ is all very well but not when it focuses the mind exclusively on ‘what can we do with all this stuff we have,’ rather than ‘I have this brilliant idea which the market will love. Where do I get the stuff to make it happen?’ African governments should instead be focusing on liberating the entrepreneurial spirit of their people.

 

This article was first published by the Institute for Security Studies.

Please use the following link to the Institute for Security Studies website :https://www.issafrica.org/iss-today/the-dubious-benefits-of-beneficiation

 

 

 

NTU-SBF Centre for African Studies

 

50 Nanyang Avenue
Singapore 639798

 

(65) 6513 8089