NICHOLAS SHUBITZ: Botswana speaks out against Russian diamond sanctions
Advanced economies could do more to ensure their policies do not negatively affect their African allies
22 April 2024 - 05:00
byNicholas Shubitz
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Weak demand and excess supply has precipitated a decline in both rough and polished diamond prices in recent years. While the sanctions on Russian diamonds that came into effect in March could offer temporary respite, the restrictions may not prove as effective as envisioned and could even backfire on Western diamond traders while hurting Botswana’s recent efforts to increase local beneficiation.
Russia and Botswana are the world’s two largest diamond producers by both weight and value. As a consequence, one would expect a ban on Russian diamonds to benefit Botswana. But on closer inspection the benefits of the sanctions are not so clear cut, with the World Federation of Diamond Bourses warning of “irreparable” damage to the global diamond market, and the government in Botswana voicing strong opposition to the new export requirements.
The new rules require diamond dealers to self-declare the origins of their diamonds, with all 1-carat or larger rough diamonds having to go through Antwerp in Belgium when entering the EU. But leading diamond expert and price setter Martin Rapaport has expressed doubts about whether such a scheme is enforceable. Rapaport analysts are concerned the new requirements will discriminate against New York traders while hurting African miners, and even the Antwerp traders are complaining about delays and increased costs due to the ban on Russian diamonds.
Considering Germany still receives a good deal of Russian oil, albeit after the sanctioned crude has been refined and re-exported from India, a similar scheme could easily occur in the notoriously opaque world of diamonds. At the same time, markets in Asia, Africa and Latin America will likely remain open to Russian gems. This could see Western traders paying higher prices for uncut diamonds while cutters in India and traders in Dubai increase their profits by importing discounted Russian stones.
Dubai has already overtaken Antwerp as the leading hub for diamond trading worldwide with almost $40bn worth of trade in rough and polished diamonds. With the United Arab Emirates (UAE) having recently joined Brics, the emirates are unlikely to effectively enforce sanctions that would reduce the profitability of Dubai’s diamond traders. India, home to the world’s largest diamond cutting hub in Surat (where 90% of rough stones are processed), is in a similar position and is another Brics member that has consistently refused to enforce Russian sanctions.
Even if sanctions on Russian diamonds were to prove effective, the resulting increase in diamond prices could simply stimulate growth in the production and sale of artificial stones, mostly from China, which already produces almost 60% of all lab-grown diamonds. This is a major concern for diamond miners as these so-called synthetics have been pushing down prices for naturally occurring stones.
Verification
According to Botswana mineral resources minister Lefoko Moagi, having one centralised location for all the world’s diamonds to undergo Group of Seven (G7) compliance verification poses significant logistical challenges for producer countries like Botswana. Moagi believes the scheme could have unintended consequences and would hinder Botswana’s efforts to increase local beneficiation.
The government of Botswana is urging the G7 to allow verification processes to occur within the country of origin, arguing that they could readily adjust their operations to meet G7 standards. Thus far, Gaborone has been frustrated by the lack of engagement from the G7 in addressing its concerns following several meetings with European representatives in which the government’s questions have gone unanswered.
Depressed diamond prices have already had a negative effect on Botswana and led to negotiations with De Beers aimed at boosting local beneficiation. A new agreement will see state-owned Okavango Diamond Company (ODC) increase its share of local production from 25% to 50% over the next decade, enabling ODC to introduce contract sales and allocate rough diamonds for beneficiation, which was not possible under the previous auction-only sales agreement.
Botswana hopes the new agreement with De Beers will lead to an increase in local diamond beneficiation, with the export of rough stones currently accounting for over 80% of Botswana’s diamond-related economic activity. However, the G7’s latest measures and the unpredictable price effects of the sanctions threaten to upset Botswana’s plans.
A system that forces uncut diamonds to be verified in Belgium undermines Botswana’s recent efforts to increase local diamond cutting, polishing and trade. Other producers on the continent share these concerns, with the African Diamond Producers Association (ADPA) having emphasised the potential negative economic effects the latest measures could have on the global diamond supply chain.
Gaborone fears sanctions on Russian diamonds will reduce opportunities for Botswana to move up the diamond value chain, while simultaneously leading to a loss of market share for Botswana’s rough diamonds in major cutting and polishing hubs in India and the UAE as discounted Russian stones continue to flow to these Brics markets.
This is not the only issue in which Botswana faces economically painful European legislation, with the EU mulling a ban on the import of animal trophy hunting products. Botswana relies on foreign hunters to raise tourism revenue while helping to control its elephant population, which is the world’s largest.
President Mokgweetsi Masisi has expressed outrage, referring to a similar ban floated by the UK as “patronising” and a “resurgence of colonial conquest”. The government says the bans will have a negative effect on rural communities that depend on hunting-generated income and has threatened to send 20,000 live elephants to Germany in protest.
With the G7 steadily losing influence across Africa, advanced economies could do more to ensure their policies do not negatively affect their African allies. This has become something of a recurring theme, seen in the unequal distribution of vaccines during the pandemic, funding for war outstripping development finance, and climate policies that demand African states borrow money at high interest rates to import renewables instead of making use of abundant domestic fossil fuel supplies.
Although many of these Western initiatives may be well intentioned, from Botswana’s perspective the latest restrictions on the diamond industry (which accounts for roughly 25% of Botswana’s GDP, compared with only 1% in Russia) are perceived as another example of this unfair treatment. Considering the political ascent of Russia and China on the African continent, the G7 should be more responsive to Botswana’s concerns and urgently assess the risk of sanctions on Russian diamonds hurting Botswana more than Russia.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
NICHOLAS SHUBITZ: Botswana speaks out against Russian diamond sanctions
Advanced economies could do more to ensure their policies do not negatively affect their African allies
Weak demand and excess supply has precipitated a decline in both rough and polished diamond prices in recent years. While the sanctions on Russian diamonds that came into effect in March could offer temporary respite, the restrictions may not prove as effective as envisioned and could even backfire on Western diamond traders while hurting Botswana’s recent efforts to increase local beneficiation.
Russia and Botswana are the world’s two largest diamond producers by both weight and value. As a consequence, one would expect a ban on Russian diamonds to benefit Botswana. But on closer inspection the benefits of the sanctions are not so clear cut, with the World Federation of Diamond Bourses warning of “irreparable” damage to the global diamond market, and the government in Botswana voicing strong opposition to the new export requirements.
The new rules require diamond dealers to self-declare the origins of their diamonds, with all 1-carat or larger rough diamonds having to go through Antwerp in Belgium when entering the EU. But leading diamond expert and price setter Martin Rapaport has expressed doubts about whether such a scheme is enforceable. Rapaport analysts are concerned the new requirements will discriminate against New York traders while hurting African miners, and even the Antwerp traders are complaining about delays and increased costs due to the ban on Russian diamonds.
Considering Germany still receives a good deal of Russian oil, albeit after the sanctioned crude has been refined and re-exported from India, a similar scheme could easily occur in the notoriously opaque world of diamonds. At the same time, markets in Asia, Africa and Latin America will likely remain open to Russian gems. This could see Western traders paying higher prices for uncut diamonds while cutters in India and traders in Dubai increase their profits by importing discounted Russian stones.
Dubai has already overtaken Antwerp as the leading hub for diamond trading worldwide with almost $40bn worth of trade in rough and polished diamonds. With the United Arab Emirates (UAE) having recently joined Brics, the emirates are unlikely to effectively enforce sanctions that would reduce the profitability of Dubai’s diamond traders. India, home to the world’s largest diamond cutting hub in Surat (where 90% of rough stones are processed), is in a similar position and is another Brics member that has consistently refused to enforce Russian sanctions.
Even if sanctions on Russian diamonds were to prove effective, the resulting increase in diamond prices could simply stimulate growth in the production and sale of artificial stones, mostly from China, which already produces almost 60% of all lab-grown diamonds. This is a major concern for diamond miners as these so-called synthetics have been pushing down prices for naturally occurring stones.
Verification
According to Botswana mineral resources minister Lefoko Moagi, having one centralised location for all the world’s diamonds to undergo Group of Seven (G7) compliance verification poses significant logistical challenges for producer countries like Botswana. Moagi believes the scheme could have unintended consequences and would hinder Botswana’s efforts to increase local beneficiation.
The government of Botswana is urging the G7 to allow verification processes to occur within the country of origin, arguing that they could readily adjust their operations to meet G7 standards. Thus far, Gaborone has been frustrated by the lack of engagement from the G7 in addressing its concerns following several meetings with European representatives in which the government’s questions have gone unanswered.
Depressed diamond prices have already had a negative effect on Botswana and led to negotiations with De Beers aimed at boosting local beneficiation. A new agreement will see state-owned Okavango Diamond Company (ODC) increase its share of local production from 25% to 50% over the next decade, enabling ODC to introduce contract sales and allocate rough diamonds for beneficiation, which was not possible under the previous auction-only sales agreement.
Botswana hopes the new agreement with De Beers will lead to an increase in local diamond beneficiation, with the export of rough stones currently accounting for over 80% of Botswana’s diamond-related economic activity. However, the G7’s latest measures and the unpredictable price effects of the sanctions threaten to upset Botswana’s plans.
A system that forces uncut diamonds to be verified in Belgium undermines Botswana’s recent efforts to increase local diamond cutting, polishing and trade. Other producers on the continent share these concerns, with the African Diamond Producers Association (ADPA) having emphasised the potential negative economic effects the latest measures could have on the global diamond supply chain.
Gaborone fears sanctions on Russian diamonds will reduce opportunities for Botswana to move up the diamond value chain, while simultaneously leading to a loss of market share for Botswana’s rough diamonds in major cutting and polishing hubs in India and the UAE as discounted Russian stones continue to flow to these Brics markets.
This is not the only issue in which Botswana faces economically painful European legislation, with the EU mulling a ban on the import of animal trophy hunting products. Botswana relies on foreign hunters to raise tourism revenue while helping to control its elephant population, which is the world’s largest.
President Mokgweetsi Masisi has expressed outrage, referring to a similar ban floated by the UK as “patronising” and a “resurgence of colonial conquest”. The government says the bans will have a negative effect on rural communities that depend on hunting-generated income and has threatened to send 20,000 live elephants to Germany in protest.
With the G7 steadily losing influence across Africa, advanced economies could do more to ensure their policies do not negatively affect their African allies. This has become something of a recurring theme, seen in the unequal distribution of vaccines during the pandemic, funding for war outstripping development finance, and climate policies that demand African states borrow money at high interest rates to import renewables instead of making use of abundant domestic fossil fuel supplies.
Although many of these Western initiatives may be well intentioned, from Botswana’s perspective the latest restrictions on the diamond industry (which accounts for roughly 25% of Botswana’s GDP, compared with only 1% in Russia) are perceived as another example of this unfair treatment. Considering the political ascent of Russia and China on the African continent, the G7 should be more responsive to Botswana’s concerns and urgently assess the risk of sanctions on Russian diamonds hurting Botswana more than Russia.
• Shubitz is an independent Brics analyst.
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