Namibian PM Accuses De Beers Of Misleading Nation, Calls Upon Producers To Establish Domestic Cutting Factories

“We have been brainwashed! We have been indoctrinated! There has been deliberated programming. The diamonds in Namibia belong to the Namibian people,” thundered the Prime Minister of Namibia, Theo-Ben Guriah, to a stunned audience of international diamond industry leaders, half a dozen Namibian government ministers, as well as government officials from Botswana, Angola and South Africa, who gathered to celebrate the inauguration of the Lev Leviev cutting plant in Windhoek. “We were told [by De Beers] that it was not good to have a processing facility like yours too close to the mines. And you [Lev Leviev] have taught us it is a lie.”

The audience suddenly fallen silent. “This is history in the making,” muttered an American who sat near me. “The people in Namibia know about diamonds, but have never seen them, as all our rough diamonds have always been exported,” continued the Prime Minister.

“Then you came, Lev Leviev, and you showed your commitment to adding value to our economy by enabling our diamonds to go downstream locally. What you did was take our (unemployed) boys and girls from the street. You taught them skills and you put them to work. As they are now cutting and polishing our diamonds, they have put the lie to rest.”

“You have done more than you promised,” said the Prime Minister who then paused a few moments to stare pensively at the Israeli diamond tycoon. “Mr. Leviev, there is something about you,” he then quietly added.

The evening crowned what should have been mostly the festive inauguration of the Sakawe Mining Corporation (Samicor) – the offshore mining company arisen out of the bankruptcy of Namco – and the opening of the LLD Diamonds Namibia (Pty) Ltd diamond cutting and polishing factory. Somehow it appeared that the President of Namibia Dr Sam Nujoma and his government had made a conscious decision to turn the day into an overt anti-De Beers event, mostly without mentioning the company by name.

The President called the new LLD diamond factory, which at full capacity will employ 550 workers, “the largest in the whole of Africa.” It is the fifth cutting factory in Namibia. It is the first, however, that will cut and polish diamonds mined in Namibia – something that the government has wanted for a long time.

Making sure that the LLD commitment to cutting Namibian diamonds in Namibia will not remain an aberration, the Minister of Mines and Energy, Dr Nickey Iyambo, declared that it is now “the government’s stated policy objective to create job opportunities and add value to our diamonds. Indeed we want to see the whole value chain of this operation from rough to cutting and polishing, processing, manufacturing of jewelry, down to the retailing of a ‘Namibian Brand’”.

The government is committed to “encouraging and facilitating local manufacturing under the concept of Mined and Manufactured in Namibia.” After making that statement Dr Iyambo paused and, deviating from the prepared speech, he repeated for maximum impact: “Mined and Manufactured in Namibia.”

Namibia Sends a Message to Botswana and other Neighbors

The statements by the various governmental dignitaries were evidently carefully orchestrated. “To our neighbors Botswana and Angola, we hope you will imitate what is taking place here. Time has come to march ahead together to put an end to the export of raw materials,” echoed Trade and Industry Minister Jesaya Nyama.

The timing of these messages couldn’t have been worse from a De Beers perspective. Debswana’s 25-year mining concession for the world’s single most profitable mine, Jwaneng, will lapse at the end of July. Both De Beers and the Botswana government, the two partners in this joint venture, want to improve their respective revenues from this production. The enhancing of domestic diamond added value, through expanding the Botswana manufacturing infrastructure, has become an important governmental priority. In South Africa the pending Diamond Act may require that all the De Beers production be offered to domestic manufacturing companies. A new 5% rough diamond export tax will provide the local industry with a competitive advantage – and adversely impact the continued flow of goods to the DTC in London.

Producing nations, especially those who mine the goods in partnership with De Beers, will certainly honor signed agreements with their partner. However, there are occasional windows to renegotiate the terms. The renewal of mining concessions or the expiry date of marketing agreements (every five years) provide such opportunities. The Namdeb concession in Namibia will run to 2020, but negotiations for a new marketing agreement will start next year. Windhoek sources confirm that an inter-ministerial team will soon start considering their options.

The Namibian government leaders, in their call to rebel against stated De Beers policies, may further have garnered “courage” by unconfirmed reports from Angola that De Beers is about to apologize for its past dealings with Unita and is going to waive the repayment of the some $90+ million Endiama debts to the diamond giant. This is seen as humiliating to De Beers, which is also said to be about to drop the various legal actions (international arbitration) against Angola.

The four Southern African producers – South Africa, Botswana, Namibia and Angola – represent close to $5 billion worth of diamond production, some 60% of world output and virtually 100% of the De Beers production. Concerted joint actions by the governments of these countries to increase their share of profits, review marketing costs, change marketing methods to facilitate national branding, legislate the diversion of rough to domestic manufacturing facilities and increase local manufacturing would trigger a restructuring of the De Beers marketing systems – and could be potentially lethal to Supplier of Choice.

Says Namibia’s Prime Minister: “A process of change has started and it has manifested itself in different ways. This is a regional southern African view specifically for diamonds. We are not saying to De Beers to pack up and go, but there is room left for Lev Leviev to come in and do what he wants to do.”

The issue quite transcends Leviev. Dating back to Namibia’s pre-independence days, when South Africa ruled the country, Namibia has always been “more hostile” (or “less friendly”) to De Beers than any of the other countries in the diamond quartet. For an upcoming and fast growing challenger, Namibia represents a very strategic opportunity as a gateway into Botswana. Indeed, Lev Leviev has already been manufacturing for many years in South Africa and is currently planning to build a modern factory in Luanda as well.

The ultimate prize is Botswana, and the Namibia ventures, when proven successful, should ease the entry into that country. The strong commitments to Namibia, also in the non-diamond spheres (such as construction projects), will eventually become irresistible to the Botswana government, it is conjectured. 

Mined and Manufactured Locally

Namibia seeks the development of a Namibian brand. Local officials say that even Namdeb, the diamond mining joint venture between De Beers and the Namibian government, which produces some $440 million annually of rough, favors such brand development. This would require making “Namibian boxes” available to the local industry, something De Beers has steadfastly refused. The two other large factories, Namcot, owned by the Steinmetz Group and with some 100 workers, or Namgem, a factory owned by Namdeb, but operated by Lazare Kaplan, that employs some 150 workers, receive sight boxes from London. June 28, 2004, should be remembered as the date the Namibian government publicly aired its dissatisfaction with the present status quo in no uncertain manner.

Actually, President Nujoma did more than that. In his keynote address, he noted that “Leviev is the first company to cut Namibian mined stones. In the future, the factory will acquire rough from own and other producers.” It was clear that the President referred to Namdeb. When asked whether Namdeb is ready to supply the local LLD factory, Namdeb’s Managing Director Inge Zaamwani forcefully, but elegantly, declined to talk to journalists, both on and off the record.

Indeed, the Prime Minister told the audience that he would be prepared to invoke Section 58 in the Diamond Act of 1999. That section allows the Minister of Mines and Energy to “require a producer to make available for sale to a cutter such quantities, classes, qualities and descriptions of unpolished diamonds as the Minister may reasonably fix and determine.” The law does not limit the Minister in the amounts or quantities he may order to be sold to domestic factories. (This author has learned that De Beers has, in principle, decided to open a Diamdel office in Windhoek. As the other two large factories are Sightholders, it may well be that such a Diamdel operation would supply rough to the LLD factory. But this is conjecture on my part.) If Section 58 is invoked, LLD would be manufacturing original Namibian origin goods and facilitating the development of national branding programs.

President Sam Nujoma, who formally opened the factory, remarked that “for more than a century our diamonds were mined and exported in raw form to other countries without adding value to them. The Leviev factory will not only enhance our national efforts to promote value addition to our natural resources, but will also create employment opportunities and enhance the transfer of skills and appropriate technology to our economy.” Leviev, who invested $6.2 million in the new state-of-the-art factory expects that, at full production and after training the workforce, the plant will cut and polish between 25,000 and 30,000 carats a month. At the moment there are some 300 workers. “One should also consider the indirect employment generated by our plant, ranging from suppliers of tools, maintenance, banking services, hotel and tourism, insurance, transport, etc,” notes Leviev, who estimates that his factory will provide a living for some 1,000 families.

Together with the investment in the Samicor marine mining company that presently operates with four vessels, the Leviev Group has invested US$60 million in Namibia. It is expected that Samicor will initially produce some 150,000 carats annually valued at some $25 million that will mostly, if not totally, be manufactured in the first Namibian factory to process locally mined rough diamonds.