By Martyn Charles Marriott
In my 90th year, I see a glimmer of hope for something I have advocated during my work for various diamond producers over the last 45 years.
The current debate over the future of De Beers presents an opportunity for a return to the discipline and control of the natural diamond market, once maintained by the company under the wise guidance of Sir Ernest and Harry Oppenheimer. From the 1930s on, they maintained the stability and strength of the diamond industry through their Central Selling Organisation. This was backed by a stockpile and a quota system. In addition, they spent huge sums on generic advertising (Diamonds are Forever), including creating an engagement ring tradition in the USA and worldwide, even in China. They stemmed the flow of alluvial diamonds from West Africa, which was upsetting the market, by setting up buying offices at the source. Sir Philip Oppenheimer persuaded the Russians of the merits of this system.
It was not perfect; some producers, such as Selection Trust and Williamson Diamonds, felt that the CSO took advantage of them, making additional profits beyond the agreed margin.
It was a monopoly, but one that benefited everyone – producers, the cutting industry, trade, and consumers.
It fell to me as manager of the De Beers Dicor operation in Sierra Leone to persuade the Government of the benefits of this system. I believed in it.
My departure from De Beers coincided with the discovery of diamonds in Botswana, and I found a role there as their diamond consultant from 1970 to 1983. Initially, I persuaded them of the merits of the CSO system with the caveat that the diamonds had to be properly sorted and valued. I also advised that the production level at Orapa be increased to the level it merited and helped them secure a favourable quota. It was I who initially proposed that the future development of the mines in Botswana should be by a 50/50 company. For over twelve years I was a member of the Government’s negotiating team with De Beers that secured the very high level of profits that would accrue to the Government from the development of its diamond mines. During the development of the Jwaneng Mine by the then joint company, I was asked to co-ordinate the Government’s inputs into the project.
In 1980 I was asked by CRA to advise on the marketing of the Argyle mine production. I again persuaded them of the merits of the CSO, and we became their valuer.
From 1985 through to the end of the century I was heavily involved in the restoration of the Angolan diamond industry as consultant and valuer to Endiama. In this instance, as the production there was then small, I advocated sales by tender initially, and we built up a successful sales procedure from there, which was eventually undermined by corruption.
I also played an active part in the establishment of the Kimberley Process.
Unfortunately, in 1986 things in the diamond world began to fall apart. Argyle and De Beers ceased their co-operation. The Russians became more and more independent and this was followed by the Canadian mines marketing their production separately. The CSO was no longer in control. And now we have the competition of synthetic diamonds.
Although obviously no longer active myself, my two sons, Luke and Benjamin, carry on our valuing business worldwide and have developed eValuer, an industry-changing new system of pricing and valuing diamonds.
I relate all the above to demonstrate the experience that leads me to write this article concerning a possible future for the natural diamond industry based on co-operation between the African producers.
I must admit that I found no enthusiasm for my ideas for African co-operation during my time working for the Government of Botswana. Moreover, at the end of my work there, I was at odds with its policy. I did not believe in the move towards local processing. I felt it unlikely that local establishments could compete with the industry as it stood, particularly the Indians. I preferred a sovereign wealth fund, further development of the cattle industry, tourism, and concentration on developing other industries. I felt that the pressure on De Beers for local processing could equally well be used on them and Anglo American to develop other industries.
However, times change. Botswana is seeking a greater interest in De Beers, and Angola is seeking an interest too. To my mind, this could be an opportunity to return to old strengths and disciplines. Some sort of OPEC for diamonds that could provide a basis for the future.
In his recent article, Chaim Even Zohar suggests Botswana should go it alone.
The main argument against this is that they would again be putting all their eggs in one basket.
He claims that Botswana had a bad deal from De Beers. This could not be further from the truth. The negotiating team of which I was a member achieved a fantastic deal for the country, with the effective tax rate achieving 80 per cent of the mine’s profits going to the Government – a level unknown elsewhere in the mining industry. It also gained control through the 50/50 partnership and secured multiple other benefits, like the open towns to service the mines at Orapa and Jwaneng. Furthermore, localisation of management has been remarkable.
Where I can agree with Chaim is that De Beers has not done very well on the marketing side, recently, albeit through difficult times.
One of his reasons for his proposal is the extent of corruption that has destabilised the Angolan industry. Corruption is a difficult subject. It exists all over the world. The pork barrel in USA and more. Mandelson in the UK. Sarcozy in France. The king in Spain. Several diamond merchants. Corruption is endemic in many young democracies in Africa. Far more transparent sales systems are now in place in Angola. Fear of corruption should not rule out future co-operation.
An advantage of the co-operation proposed is that it could open up new sources of finance for the project – might the IBRD or the African Development Bank be prepared to finance part of the stockpile? Whatever, the new entity would be more bankable than one dependent on one country.
Essential to any such project will be its management. Where do we find someone with sufficient imagination, ability, and knowledge of the diamond industry to run the new De Beers, to come up with a new and effective marketing strategy and policies? There is no Oppenheimer available. Is there a Motswana or an African individual hidden away somewhere who could fill the bill – an international banker or businessperson? Should we turn to Gareth Penney or Bruce Cleaver?
Chaim touches on the question of the profitability of the Canadian mines. Clearly some assessment of the value of each mine and its production must be made, preferably independently. How much is known about Venetia? An enormous task.
A thorough review of DTC marketing policies and practices would be essential. More transparency is needed. Modern information systems provide an opportunity to open up new sales avenues. Vertical integration should be encouraged. There is a need to do what the industry needs rather than requiring their customers to do what De Beers wants.
A key factor in the future would be a return to a higher level of generic advertising. Much has been done recently including the work of the Natural Diamond Council, but more is needed. I feel that it is unjust to expect the downstream industry to contribute. Margins in the trade are tight. The main profits from the industry have always accrued to the mining industry (viz the funds generated for the Government of Botswana over the past 50 years). In return the downstream industry, until recently, was guaranteed some stability.
I agree with Chaim that the inclusion of Namibia would be highly advantageous, mainly because of the nature of its beautiful production. This should not present a problem. Namdeb is already a 50/50 partnership between the Government and De Beers, like Debswana.
As to the financial techniques involved the Government is advised by reputable merchant banks. However there could be a simple starting point. Governments could exchange their Debswana, Namdeb and Endiama shares for shares in De Beers. A financial partner could be brought in, or an IPO could be used, to complete the deal.
I throw these ideas into the current situation from a personal and historical perspective realising that they leave many questions unanswered, but in the hope that they may be of some interest.