It was a haunting premonition. In March, Botswana's then President Festus Mogae cautioned the country over the perils of its excessive dependence on diamonds. Now the world's biggest diamond source, along with other mineral-rich African states, is being burnt by the same commodities that elevated it to the global stage.
Countries such as SA, Lesotho and the DRC are all starting to feel the weight of tumbling mineral prices, a major source of their revenue.
Diamonds - Difficult times
Since diamond-bearing rock was first uncovered in Botswana in 1967 by De Beers geologists, gems have had a growing importance in Botswana's economy and now account for 45% of GDP.
In September, gems comprised 63% of the country's export earnings. This was already down from the previous month's 71%, even before the world's economic woes had taken the shine off diamond markets by any significant measure.
Botswana produced 33,6m carats worth US$2,96bn in 2007, nearly all through Debswana, the government's joint venture with De Beers. RBC Capital Markets diamond analyst Des Kilalea says about $80 of every $100 Debswana produces goes to the government's coffers. That's after royalties, tax, and its 50% share in Debswana.
Diamond prices have already shed 30% since panic gripped financial markets in October. And Kilalea believes prices could slide a further 20%- 25% by the end of 2009. That's a potential 55% slump since the middle of 2008.
During an economic recession people tend to cut back on luxuries. This exerts considerable pressure on demand for diamonds - perhaps the epitome of luxury. All eyes in the diamond industry are on how sales will perform over Christmas, when traditionally more diamonds are bought than at any other time of the year.
"This Christmas is probably going to be miserable," says Kilalea. "There's hardly a store in London that doesn't have a 20%-off sale. That's never happened."
Diamond producers have started to respond to the global downturn. Northern Cape producers BRC DiamondCore and Rockwell are extending holiday shutdowns at their operations. Petra Diamonds is considering closing two SA mines. Gem Diamonds has scaled back in Australia and Indonesia.
De Beers, in which Anglo American holds 45%, is also planning production cuts. The Oppenheimer family owns 40% of the company and the Botswana government the remaining 15%.
Spokes m an Lynette Gould says the company will adjust production to demand where necessary. In its December gem sale (called a sight), De Beers's trading arm, the Diamond Trading Company, offered customers a "relatively small" selection of diamonds, in line with demand. "We anticipate continuing with this approach to the extent that the current circumstances prevail."
Botswana has four big diamond mines, all owned by Debswana - Jwaneng, globally the richest mine by diamond value, Orapa, Damtshaa and Letlhakane. Out of these mines comes a quarter of the world's diamond production value.
The Botswana government has pushed its industry away from benefiting solely from raw diamonds. This year, with De Beers, it opened the $84m Diamond Trading Centre in Gaborone, where Debswana's production is valued and sorted. Stones are then sold to 16 local cutters and polishers, which employ around 2 200 people.
Kilalea says these businesses will feel pain. "There will be retrenchments in cutting and polishing factories globally," he warns. And that includes Botswana.
MD of local cutting and polishing factory Eurostar Diamonds, Eric van Pul, confirms this. Though his company has not been forced to cut jobs, he has heard of others that have.
"It's a difficult time; we'll take it step by step. We can't give any promises for next year," Van Pul says. "January and February will be crucial months [to see where the markets are headed]."
James Campbell, MD of African Diamonds, which is planning to build a Botswana diamond mine in partnership with De Beers, says the mood in the country is bleak. "The government is tightening its belt," he says.
Though the country may have to cut its spending next year because of lower diamond revenues, Kilalea gives credit to Botswana's prudent leadership.
He expects government will protect its valuable mining sector. "They'll do what's necessary to survive this; they're not going to kill the goose that lays the golden egg."
Ranking the Analysts 2009
