DUMA GQUBULE: Botswana in a fix over De Beers after Anglo’s exit move

At independence in 1966 Botswana was one of the world’s poorest countries. There were just 12km of paved roads; 22 Batswana had graduated from university and 100 had completed secondary school.

In 1967 De Beers geologists discovered diamonds, which have generated the resources to finance the country’s economic growth miracle. From 1967 to 2008 Botswana’s economy grew by 8.8% a year. Yet the country still has a high unemployment rate and has suffered from “Dutch disease” — a failure to diversity from diamonds. 

Botswana is now at a pivotal moment in its history after Anglo American’s decision to exit its investment in De Beers through a sale or listing. The government of Botswana has no option but to increase its stake in De Beers while the country’s trend GDP growth rate has collapsed and the long-term prospects for the industry have deteriorated sharply, partly due to growing competition from synthetic diamonds. 

From 2009 to 2023 the GDP growth rate plunged to 3% a year, but Botswana is still Africa’s third-richest country after Mauritius and Gabon, with a GDP per capita of $7, 738. 

The government has legal ownership of 15% of De Beers. It also has a 50% stake in Debswana, a joint venture with De Beers. Anglo has reduced its valuation of De Beers to $7.6bn. Using this valuation, Anglo’s 85% stake in the company could cost $6.5bn and Botswana would have to pay $2.7bn to increase its stake to 51%. With sovereign debt of about $4bn, Botswana has a low debt-to-GDP ratio of 20%. But there is an upper statutory limit of 40% for the debt ratio.

Share swap

Keith Jefferis, an economist who used to be deputy governor of Botswana’s central bank, says De Beers is a unique mining company because it also has expertise in marketing and sales. An ideal partnership would need to combine three skills sets: mining, marketing and sales, and finance. But De Beers is probably too small to attract the mining majors. And Russian company Alrosa, which is under sanctions, is the only other large diamond producer. A vanity purchase by a luxury goods company or a sovereign wealth fund would add little value to De Beers. 

There has been talk of a return of the Oppenheimer family, but getting back with the ex is seldom a good idea. A possible way out of this predicament is for the government of Botswana to go it alone with the current management team, which is led by respected CEO Al Cook, and exchange its 50% share in Debswana — which accounts for 77% of group production — for a share in De Beers. “This would be a share swap and no cash would change hands,” an investment banker says. 

According to the latest Anglo annual report, De Beers’ economic interest in Debswana is 19.2%. Therefore, the Botswana government’s economic interest in the joint venture is 83.7% and Anglo’s is 16.3%. The difference between legal and economic ownership is probably due to the taxes and royalties Botswana receives in addition to dividends.

This means the government’s economic interest in De Beers is 64.4% using production figures. The difference between Anglo’s 85% legal ownership and its 35.6% economic interest in De Beers may be another deterrent to a direct sale.

A dilution of Botswana’s voting rights in Debswana in exchange for control over a larger group that also has mines in SA, Namibia and Canada would be a small price to pay to get such a historic transaction over the line and create a new African diamond champion headquartered in Gaborone.

The downside is that the volatility of the diamond industry may require periodic cash calls on the government of Botswana and make it difficult to make the new De Beers an attractive proposition for a listing on the JSE.

• Gqubule is research associate at the Social Policy Initiative. He writes in his personal capacity.