Botswana is facing a difficult decision as it considers increasing its stake in De Beers amid reports that Anglo American, a major shareholder in De Beers, is contemplating spinning out or exiting its investment in the company.
Greater involvement in the diamond value chain could offer new opportunities for Botswana but also introduces increased risks.
This decision has significant implications for Botswana's economic future and its ability to balance commercial interests with societal needs, especially given recent investments in HB Antwerp and the Okavango Diamond Company (ODC).
The government is preparing for this possibility but remains tight-lipped about its intentions. Preparations began as soon as BHP made an unsolicited bid to acquire Anglo last month. Anglo American's recent announcement of its plans to divest from De Beers to focus more on copper marks a major shift in strategy.
Emma Peloetletse, Permanent Secretary to the President, stated that the government will protect the country's interests through legal means. We started preparing when BHP offered an unsolicited bid, she said. I cant say much due to the sensitivity of the situation.
Currently, the Botswana government, through the Minerals Development Company Botswana (MDCB), holds a 15 percent stake in De Beers, while Anglo owns 85 percent. Anglo took control of De Beers in 2011, and Botswana declined an offer from Anglo to increase its stake at that time.
Reports indicate that Anglo is exploring an Initial Public Offering (IPO) for De Beers, with London as a potential venue. This move aligns with Anglo's strategy to simplify its portfolio and focus on copper and premium iron ore.
The government's decision to increase its stake in De Beers will depend on Debswanas ability to sell the diamonds. Botswana currently sells its portion through ODC, which is set to increase its quota from Debswana from 25 percent to 30 percent, with a projected rise to 50 percent.
Diamond experts worry that De Beers might lose market share due to the reallocation of its quota to ODC. However, De Beers CEO Al Cook remains confident in the companys leadership in the diamond industry.
The diamond market has been subdued, with recovery expected in the second half of the year. Factors such as the growth of lab-grown diamonds have impacted some of Botswana's diamond production, especially from the Jwaneng mine.
Increasing the government's stake in De Beers could expose Botswana to a wider diamond value chain. The government has already set aside funds to buy shares in Belgian diamond trader HB Antwerp.
As Botswana considers this opportunity, it must weigh the cost-benefit comparison of investing in a commercial entity versus addressing social needs. Additionally, the government will shoulder more of the risk of extraction and marketing.
Economist Keith Jefferis has warned that diamond revenues are in secular decline and that existing mines will be exhausted between the mid-2040s and early 2050s. Botswana will need to invest more as the mines get deeper, and should ideally save a portion of diamond revenues in a Sovereign Wealth Fund.
Meanwhile, the Botswana Mine Workers Union (BMWU) has not been informed about the latest developments and is waiting for formal communication before commenting.
