Diamonds are a Fool’s Best Friend

Several days ago a media outlet in Namibia reported that the government had agreed to invest N$14.8 billion in buying shares in De Beers.

These are being sold by its primary shareholder, Anglo-American, which owns 85% of De Beers.

The other 15% has been held by the government of Botswana since the 1980s. Botswana profited well from both its 50% stake in Debswana (the equivalent of Namdeb), as well as the 15% of De Beers it acquired with stockpiled diamonds. But that was then.

Similar noises about acquiring a share in De Beers are also being heard from Luanda – so the ‘three wise leaders’ of southern Africa are thinking of buying the world’s largest diamond company.

We are all the product of defunct ideas, and former Namib Desert Diamonds (Namdia) chief executive Kennedy Hamutenya was quoted as saying he thought ownership of De Beers is basically a good idea, and Namibia should be involved in this acquisition.

If he had been speaking in the 1980s or 1970s he would have been right – this would have been a good idea.

But it will soon be 2026 and diamonds have lost their most important quality – as a store of value. In 1970 you could buy a 1 carat diamond and know that after 20 years its value would have increased and would almost certainly be a form of protection against inflation.

‘NOT THAT RARE’

Diamonds then, like gold today, are rare, but not very rare.

Diamonds were even better than gold, because per dollar they were physically smaller than gold and you could easily hide them. Hence they were a preferred commodity for smuggling.

Alas, the world moves on! In the 1950s, De Beers and General Electric developed ways to produce synthetic industrial diamonds, which were absolutely essential in drilling and construction. For 15 years the technology remained in the hands of the United States (US).

The arrogant assumption at the time was that only the US and Europe would be able to develop the technology for synthetics.

In the 1960s, as Japan recovered from World War II, it developed the technology, and in time East Asia became a centre for synthetic diamond production.

Finally, when China entered the fray, it knew perfectly well it would need extremely large volumes of diamonds for cutting as it industrialised.

Today, China is by far the world’s biggest producer of diamonds – much larger than the biggest mined diamond producers such as Russia and Botswana. It is estimated that in 2023 China produced over four billion carats of synthetic industrial diamonds.

In comparison, all the world’s mined diamonds amounted to around 130 million carats in 2024 if one includes the large volumes of illegal diamonds coming from the Democratic Republic of Congo.

WHAT’S THE PROBLEM?

What is the problem with Angola, Namibia and Botswana buying De Beers?

First one needs to ask why Anglo-American is in such a hurry to sell its 85% share in De Beers.

The reason is that it wishes to sell its mining assets to one of several possible buyers, including BHP – the Australian giant of the mining industry.

The problem is that no suitor wants Anglo-American with De Beers still in tow.

The reason is that China is now the world’s largest producer of gem-quality synthetic diamonds, producing an estimated 22 million carats of synthetic gem-quality diamonds.

These are indistinguishable to the naked eye from mined diamonds by a diamantaire.

Distinguishing the diamonds requires expensive machinery and as they are near-perfect substitutes the price of mined diamonds have collapsed.

The average cost per carat, according to Kimberly Process statistics, was US$88/per carat in 2024 from US$132/carat in 2022, a decline of 35%.

LONG LIVE GOLD

The decline in price continues as the diamond is no longer the king of gems. Long live gold, which cannot be produced in a laboratory.

If no one wants to buy De Beers, the world’s biggest producer of mined diamonds, why would three countries among the world’s largest producers of mined diamonds which are in a steady state of falling prices, want to buy it?

The polite answer is simple foolishness. The prognosis for diamond prices are very poor.

The other alternative is that Anglo-American will sell De Beers at a ridiculously low price to get it off its books so its takeover bids could proceed.

Anglo-American values De Beers at US$4.9 billion (about N$85 billion). Mister Oppenheimer, the previous owner of De Beers for 80 years, saw the writing on the wall and sold the company’s shares to Anglo American for a reported US5.2 billion.

The Oppenheimers were clever.

Sadly, there is possibly a much worse, nefarious explanation for this sale. Both nationalisation and privatisation are wonderful ways for governments or ministers to get a bribe.

Economists and other similarly nice people seem to think these are ideological or economic issues. Often these are used as a fig leaf for bribery.

When a government or a minister buys an asset at too high a price, it is not uncommon for someone to get a kickback, and when the government sells an asset at too low a price, it will also get a kickback.

Corrupt ministers love both nationalisation and privatisation.

Currently, Namibia has an outstanding public debt of N$171 billion.

Adding another $N15 billion to buy a company of which the main product is in structural decline would be an act of foolishness at best.

Namibia has more important investments to make in energy and agriculture, such as actually completing the Neckartal Dam, which stands full and makes no contribution to the economy because there is no water distribution network.

– These are the views of Roman Grynberg, an academic who has written several books on diamonds, gold and other metals.

In an age of information overload, Sunrise is The Namibian’s morning briefing, delivered at 6h00 from Monday to Friday. It offers a curated rundown of the most important stories from the past 24 hours – occasionally with a light, witty touch. It’s an essential way to stay informed. Subscribe and join our newsletter community.