In this article, policy adviser and former De Beers Botswana CEO Sheila Khama writes about De Beers' exploration in Angola and asks whether Botswana should be concerned.

On October 23, De Beers Group reported promising progress from the company’s exploration programme in Angola. In response, Spencer Mogapi, Botswana’s veteran journalist posted a question on his X account, and asked ‘Is Angola eating our lunch?’

He was not alone, as his followers also suggested that something was amiss. Others speculated over De Beers’ motives while some pointed a finger at former President Mokgweetsi Masisi and suggested that his vitriol towards De Beers had gone too far and the country was paying the price. So convinced were some Batswana that when the former President lost a bid for a second term, his treatment of Botswana’s premier partner was cited as one of the many reasons he had lost the confidence of voters.

For his part, in his maiden speech President-elect Advocate Duma Boko chimed in, striking a conciliatory chord but adopting an urgent tone by suggesting the company’s investment in Angola was indicative of Botswana’s lack of competitiveness in attracting and retaining investors.

He said, “we are competing on the international stage, and we’ve seen a shift toward Angola as the epicentre of diamond investment.” Two noteworthy views, but more circumspect responses by the public and current Head of State are nevertheless warranted.

SHOULD THERE BE CAUSE FOR CONCERN?
A good place to start is an understanding of the rationale for exploration.

Through exploration and discoveries of new deposits, companies ensure business continuity. Business continuity is achieved through sustained sources of mineral supply that also guarantee future revenue streams. Collectively these factors enhance company competitiveness.

As such, on thinking about a company’s portfolio, an ideal mix of projects comprises pre-mining projects, early-stage mining operations as well as matured assets. This combination ensures that mineral resources are continuously available for production as new operations replace older ones that approach an end of life.

However, because success is not guaranteed, among others, companies complement exploration efforts with joint venture partnerships over existing assets or with start-ups looking for financial resources and marketing expertise. Others rely on mergers and acquisitions. Whatever the circumstances, companies prefer to operate in different jurisdictions as a way of spreading geographic risk. Viewed through this lens, exploration, therefore, is a must.

Specifics notwithstanding, De Beer’s exploration program in Angola is fundamentally driven by this commercial logic. Put another way, the decision is not a statement of poor relations with Botswana.

Why would De Beers return to Angola now?

For some time, De Beers geologists believed that all things considered, Angola and the DRC would likely be the next location of larger diamond deposits of the order of magnitude that could parallel or surpass those found in Botswana. This notwithstanding, decades ago, the company terminated operations in both countries because of internal conflict, lack of security of company property and employees.

An additional factor was reputation risk following an outcry by civil society and the United Nations over illicit mineral trade that stemmed from internal conflict in African countries. De Beers’ challenge was to balance the risk of losing an opportunity of potential discoveries to competitors who may be less wary of brand damage. The outcome was to focus exploration on other parts of the world. The 2022 resumption of exploration activities in Angola follows a change in the investment climate in that country and not in Botswana.

Does this render Botswana less trade competitive?

Here too the answer needs to be somewhat nuanced. It is true that in recent times, some commentary on the country’s competitiveness has not been as positive as has historically been the case. For instance, at the height of negotiations and tension with De Beers in May 2023, Richard Chetwode, an industry expert said, "the message to Botswana’s parliament and the whole country must surely be, it takes decades to build up the enviable reputation Botswana has; it only takes a few weeks to damage it permanently. Why is the government doing this? Why are they putting up a huge sign saying, “Botswana isn’t open for business?"  The statement was a response    to uncharacteristically negative public pronouncements about De Beers by representatives of the previous administration.

But overall, Botswana continues to receive favourable reviews, least of which through the 2023 Annual Mining Survey Report of Canada’s Fraser Institute. Using the ‘investment attractiveness’ measure, Botswana was number fifteen out of eighty-six jurisdictions. In Africa, the country ranked number one - a position it has held many times before. By contrast Angola was forty-six globally and number seven in Africa with a significant gap between the actual scores of the two countries. Results are based on responses by exploration executives who comment on regulatory effectiveness, attractiveness to investors as well as perception of sovereign risk based on experiences of regulators worldwide.

How should Botswana consider the move?

There are two useful reference points. The first relates to Botswana as a sovereign with a desire to reduce perception of risk and attract investment. In this case, Botswana’s leaders should certainly not worry about De Beers’ investment in exploration in Angola or elsewhere. But the authorities should worry about the impact of the actions of its own leaders towards investors. To the degree that such actions depart from investor-friendly norms of previous decades, the potential impact of this on the country’s reputation warrants concern. The fact that diamonds are a luxury commodity adds to the urgency.

After all, it was this reputation that secured support to the industry by influential voices. Speaking at a meeting in France 2009 on the onset of the economic crisis, former President Barack Obama said, “You know, you have a country like Botswana, which is a well-managed country that has made enormous progress. But their main revenue generator is diamond sales. And they have literally seen the diamond market collapse, in part because they couldn’t get trade financing, in part because the demand in developed countries has dropped off. So, we started to make progress there. Our most important task right now is helping them get through this crisis.” Botswana would do well to prove the country’s friends right because failure to do so is likely to pose a greater threat than any De Beers’ activities in Angola.

Former President Obama’s sentiment was based on Botswana’s governance record, regard for rule of law and responsible development of minerals. In this context, the mainstay of governance is the country’s mining law. Yet in a bizarre move and despite possessing any such powers, in 2023, former Minister Lefhoko Moagi reneged on an extension of an exploration license to Tsodilo Resources without any legal basis. He declined to approve the extension even after the courts ordered him to do so. This was a spectacularly ill-advised and damaging move to the country’s image because in terms of security of tenure, it is hard to imagine anything worse than a regulator’s disregard for national laws and decisions of the courts. Silence on the part of the heads of the Justice and of the Executive Branches were equally noteworthy!

A second perspective is that of Botswana as an investor. The country has significant interests in the diamond industry through equity in Debswana, DTC Botswana, the Okavango Diamond Company, and De Beers Group itself. Therefore, a De Beers that invests in natural diamonds aurgers well for Botswana because it points to long-term commitment to the industry. This is an important consideration because the absence of De Beers from the equation weakens the industry and erodes all the other investments made by Botswana in the industry.

What are additional considerations?

As Botswana diamond reserves diminish and revenue declines proportionately, the additional revenue from potential discoveries in Angola will be a Godsend in a country with limited prospects. Conversely, as the portion of Debswana production sold to De Beers decreases relative to the state-owned company, an unintended consequence is that the country’s leverage in with De Beers will lessen. Repositioning the country based on these eventualities deserves greater attention than De Beer’s move.

Additionally, while nothing suggests that the fundamentals of the diamond jewellery market have changed irreversibly, trends as relates to demand for lab grown diamonds are on an upward trajectory. The risk of Botswana losing her shine at a time like this adds to natural diamonds marketing challenges. Policies for restoring the ‘Diamonds for Good’ legacy are infinitely more urgent than any disadvantage of De Beers resuming exploration program in Angola.

What might be an appropriate response?

There is no silver bullet and given that there is a lot for the new administration to address urgently, De Beers’ activities in Angola is not one of them. But to protect national interests a few potential policy options all point to the need for Botswana’s leaders to be pro-active and forward looking.

Through revenue from Debswana, Botswana has contributed significantly to De Beers Group. This is especially true with respect to financial resources that enabled investment in development of technology by the Group.  Botswana should use its seats on the boards of De Beers to support funding of exploration activities beyond its borders and position the country to reap any future benefits consistent to its historic contribution.

Botswana needs to rationalize its mining (specifically diamond portfolio) to ensure return on investment. Focus should be on productive assets and not a political capital which merely erodes value.

Pending sale of Anglo American shares in De Beers presents an opportunity for Botswana to carefully consider the merits or demerits of increasing the country’s equity. If deemed appropriate, not only would an increase of shares deliver higher revenue in future, but it could avoid dilution depending on how a partnership between De Beers and Angola evolves. The key is to balance the downside with the upside.

So, on whether Angola is eating Botswana’s lunch an alternative question might be did Botswana eat South Africa and Canada’s luncheons? However, I am inclined to think that a more pragmatic way is to perceive exploration as a necessary investment in the future of the country that is intertwined with natural diamonds.

*Sheila Khama is a policy adviser, podcast host, nonexecutive director of FTSE, Nasdaq and the ASX and an Associate Fellow of Chatham House. She is also former CEO of De Beers Botswana and a former Debswana nonexecutive director.