Botswana is facing a threat from the synthetic gem quality market following giant diamond producer, De Beers’ failure to assure the country of non-involvement in synthetics, according to the Botswana Institute for Development Policy Analysis (BIDPA).

In a study titled, “synthetic gem quality diamonds and their potential impact on the Botswana economy”, BIDPA claims that in the recognition of the 25-year mining agreement for Jwaneng as well as the marketing arrangement with De Beers, the government of Botswana had sought assurance that De Beers would not enter the synthetic quality gem market.

And De Beers did not provide such assurance, says the non-governmental research organisation.

BIDPA stated that in response to this in the suite of agreements signed between Botswana and De Beers, there was an agreement on synthetics, which provided that in the event that De Beers enters the gem quality synthetic market, it will market these gems in a 75-25 percent joint venture with the government of Botswana.

While a joint venture with De Beers in the production of synthetic gem quality diamonds may mitigate a part of the loss that Botswana would suffer as a result of the widespread use of synthetics in the jewellery industry, this cannot compensate for the loss of economic rents in the mined diamond sector that would result, according to researchers at BIDPA.

“This is because mining of rare gems such as diamonds has traditionally brought significant rents whereas an industrial process which is readily replicable will in the long-term drive only normal profits,” they said.

The study found that market penetration by synthetics decreases Botswana’s potential for acting unilaterally or in conjunction with other supplies to limit production.

The researchers says if Botswana maintains a policy of supply of diamonds driven by demand, that is, whatever is optimal for De Beers, then production is likely to decline at the end of the 2020s.

It is, therefore, in the interest of Botswana and all other mined diamond products to maintain the value of diamonds.

However, in the absence of mandatory global standards to oblige all suppliers along the value chain to document that the diamonds traded are indeed mined diamonds, the quality of diamonds cannot be assured.

“It is in the long[-term] interest of Botswana and other mined diamond producers to demonstrate to the international community that mandatory international labelling standards are necessary to avoid fraud in international trade,” says BIDPA.

Botswana is also the world’s most diamond-dependent economy and a catastrophic decline in the price and profitability of the sector as a result of a loss of consumer confidence in the long-term value of diamond as a store of value is a definite but unquantifiable risk.

“That risk is being increased by the industry through its use of synthetic annealment and enhancement techniques to increase the value of mined diamonds,” says the study.

In the long-term, only mandatory global standard that clearly differentiates mined from synthetic and enhanced diamonds can protect the commercial value of Botswana’s assets. However, the international community is unlikely to support such a standard unless it can be demonstrated that there is fraud occurring, the researchers argues.