The World Bank and the De Beers Cloak of Secrecy

IN EARLY May, the World Bank took a rare swipe at Botswana, its star pupil in Africa. Nils Handler, a World Bank consultant, complained in the report ‘Botswana Mining Investment and Governance Review’ that mining contracts were kept secret, and that even the country’s auditor general was unable to review them.

One could just as easily replace the name Botswana with Namibia, and say precisely the same thing. In Namibia, one is about as likely to get a copy of the recent agreement between the Namibian government and De Beers as to experience a rainstorm in Windhoek in June.

But whose fault is this? After all, De Beers was, until the Oppenheimer family sold its 45% share to Anglo American in 2011, a supporter and founder member of the Extractive Industries Transparency Initiative (EITI), which supports openness in mining contracts. Anglo American remains a member of the EITI, but upholds the De Beers impenetrable cloak of secrecy that completely envelops the diamond trade. De Beers frequently points out that countries were the real driving force of the EITI, and none of the diamond-rich countries of southern Africa have joined what is widely seen in the region as an “arrogant, post-colonial instrument of European domination”.

The World Bank is a strong supporter of transparency, but in this case, it completely misses the point. Assume that tomorrow, Namibia and Botswana decide to openly publish their contracts with De Beers. This, of course, assumes that De Beers would agree to such an act of commercial folly. The simple fact is that it would make no difference at all to diamond revenues because just about every other aspect of the international trade in diamonds is shrouded in secrecy that knowledge of the terms of the contracts would make little difference.

The secret 2004 agreement between Botswana and De Beers, lasting 25 years, is said to give Botswana 81% of the revenues from its mines. One can reasonably assume that Namibia would not settle for a worse deal, and that its agreement is virtually identical. If I am wrong, I am happy to be corrected. In any other mining sector, such a revenue split (81%/19%) would seem absolutely brilliant, and would indicate how well Botswana has negotiated its contract with De Beers.

In the diamond trade, the first question one has to ask is 81% of what? The short answer is 81% of whatever De Beers says the diamonds are worth. But in the diamond industry, price and volume are less than transparent. The De Beers price book is a secret. In 2014, there was a major scandal in the southern African diamond industry when the De Beers price book was leaked and the company threatened to take legal action.

To anyone in the minerals sector, the notion of the price of a product being kept secret would seem preposterous, but while diamonds may be mined, they are not a mineral. There are over 5 400 varieties and grades of diamond, and the De Beers price book to this day remains the central commercial artefact of this opaque industry.

De Beers competitors, such as Russia’s Al Rosa and BHP Billiton, time their diamond sales around the De Beers sales. De Beers, since 2002, is no longer a cartel, but remains a dominant member of the diamond oligopoly, and it still effectively controls price.

However, the cloak of secrecy does not just shroud price, but also the size of reserves, and the quantity that is and will be traded. De Beers’ power stems in part from its ongoing relationships with the countries which supply it with diamonds, and this in turn depends on just how many diamonds are in the ground.

In 2015, when reports emerged that diamond production would come to an end in Botswana in the 2020’s, a new ‘resource assessment’ was released by the government that in fact diamond production in Botswana would continue until 2050. The report states that Botswana would produce another 600 million carats of diamonds over and above what was expected. Of course, because this so-called assessment was not compliant with Johannesburg Stock Exchange (JSE) standards, it was released by the Botswana government, and not by De Beers or Anglo American.

Yet, there is an even stranger and more difficult question that would undermine any assessment of what Botswana or Namibia actually get of the fabulous wealth that resides in both countries. The articles of association of De Beers in Luxembourg from 2002 state that ”Debswana will be a business partner of the (De Beers) Group for so long as the Debswana Group sells its entire annual diamond production (excluding, for these purposes, special stones)”.

This implies that there was another marketing channel for “special stones” (above 10,8 carats), which are considered the most valuable of diamonds (defined variously as diamonds worth US$500 000 to US$1 million or more), and this raises the question of how such diamonds are marketed, and who benefits from this trade. Furthermore, is there a similar and separate marketing arrangement for Namibia’s extremely valuable diamonds?

But even if all the questions about the real prices and quantity of diamonds were answered, would knowing the contract details make the slightest difference? Not really. The accounts of Namdeb are at least public, but the accounts of the much larger Debswana in Botswana remain secret, even following the 2015 EU transparency directive, which obliges firms like Anglo to publish their accounts and revenues statements.

This did not occur for Debswana. At the time, Anglo disclosed revenues and profits from Botswana, but not much else. What the Anglo American report of 2016 does state is that of the 94 De Beers related companies that it had inherited, some 30-odd were located in tax havens, or countries with iron-clad secrecy frameworks in place.

They are very nice people in Washington at the World Bank, and their calls for contract transparency are admirable. But in the medieval world of the diamond trade, we stand far from the light because for almost 150 years, De Beers and its cloak of secrecy have stood as barriers to Africans knowing the real value of their diamond wealth, and it is likely they will never know. Secrecy creates market power and hence profits, and will not be abandoned easily.

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.