Synthetic Diamond Threat to Botswana Economy

GABORONE-BOTSWANA’S former Minister of Minerals, Energy and Water Affairs David Magang has warned that synthetic diamonds pose a serious threat to Botswana’s diamond-led economy.

He said one of the greatest threats to Botswana’s economic well-being, if synthetic diamonds “became fashionable”, is that there would no longer be a market for natural diamonds.

“Indications are that De Beers is about to enter the synthetics market too to peg its claim on the flourishing market. Clearly, synthetics represent one of the greatest threats to Botswana’s economic well-being for the ramifications are that even if our mines were to continue to be operational for the next 100 years, no one would buy our diamonds if synthetics became fashionable,” said Magang, speaking during a presentation on the subject ‘Mitigation on Dependency of Diamonds’ at the Botswana Institute of Chartered Accountants (BICA) gala dinner.

Magang, who is also a businessman of note, said synthetic diamonds have also become “so real that you can’t differentiate them from diamonds and the only way to identify them is through the use of sophisticated machines”.

He said this is one of the biggest threats to diamonds in Botswana as (synthetic diamonds) are selling annually to the sum of US$9 billion and the market continues to grow.

Magang added: “One of the things we can do to mitigate the problem that we have in terms of unemployment in this country is that the mining itself of diamonds does not provide employment. What provides employment is the processing of minerals. That is where the value is.”

He observed that while some estimates saw diamond production continuing until 2050, operating costs and capital expenditure would rise over time, as it became necessary to drill deeper to extract the diamonds, with the result that revenue from diamonds would decrease.

“The cost of extracting a carat of diamonds from the dug-up ores will mount and government will simply have to resign itself to much lower returns than it has been accustomed to in the past,” he said.

“What is important is that we have of late been told that diamond production in this country will continue until 2050. It is actually possible, the optimists will say that we may be able to mine our diamonds from Orapa and Jwaneng until the end of this century.”

Magang warned of the dangers of over-dependency on one major economic activity in the event that commodity prices tumble. He cited the example of the 40 percent drop in diamond prices experienced over the past three years, which resulted in the closure of several mines and four factories as well as loss over 1,000 jobs.

“Not only are we facing the possibility of diminishing diamond reserves, recent times have seen countries with no diamonds begin to vigorously produce artificial diamonds that possess nearly all the aesthetic appeal of the real ones but at a far reduced price,” he said.

With over 70 percent of the country’s Gross National Product (GNP) attributed to diamond sales, economic diversification has always been government’s top priority, he said, as diamonds are a non-renewable resource that cannot infinitely sustain the economy. He added that the fact that Botswana diamond reserves are finite make this a current problem, which cannot be ignored.

“We may be lucky and discover other areas where there is adequate ore of diamonds. But even if this is the case, diamonds will not generate the same return as we have been traditionally accustomed to because the deeper you go to try and dig out the ore, the more costs you incur and consequently you have to reconcile yourself with lower returns,” he said.

Compounding matters is that Botswana’s beef exportation constantly experiences a myriad of trade prohibitions, primarily imposed by the European Union due to a lack of discernible production standards, he said, and this leaves diamonds and tourism as the foremost methods of acquiring foreign currency and consequently, the primary drivers of the economy.

Magang drew attention to information technology (IT), which he said is one of Botswana’s most neglected potential agents of economic growth. “It is mind boggling that Botswana has not started cashing in on IT when other countries have joined the band wagon,” he said.