The effect that the global recession is having on the diamond industry is nowhere more evident than in Botswana, whose economy relies heavily on the sector. With annual diamond production at around $3 billion, diamond mining accounted for more than one-third of the country's gross domestic product (GDP) and about 70 percent of export earnings in 2007, according to the CIA World Factbook. As the largest diamond-producing country by value, and with its beneficiation industry still in the development stages, the recent dramatic decline in diamond demand has affected every aspect of the country's trade.

"These are challenging times for all of us," said Ponatshego Kedikilwe, Botswana's minister of minerals, energy and water resources, at the recent opening of the Diamond Technology Park in Gaborone. "The minerals industry in Botswana, the backbone of our economy, is like elsewhere around the world, under unprecedented stress." He added that cash conservation measures such as production cuts, shelving of capital projects and staff reductions were to be expected "just to stay afloat."

Production Wanes That stark message was backed up by Finance Minister Baledzi Gaolathe, who predicted that the country's diamond export revenues would fall by about 50 percent in 2009, due to the sharp fall in rough diamond prices seen recently. He added that he expects production to fall by 35 percent, as Debswana, the country's main diamond mining company, diminishes output to bring it level with lower market demand. After an extended Christmas vacation at all its operations, Debswana, an equal joint venture between the government and De Beers, kept two of its mines closed and reportedly was considering massive job cuts and a possible request for government bailout money.

Another mining company, DiamonEx, which launched its Lerala mine in Botswana in 2008, ran into cash flow problems and was placed under voluntary judicial management by the High Court of Botswana. DiamonEx held its first sale of diamonds from Lerala in October, which garnered a disappointing average price of $20 a carat, or more than 50 percent lower than its presale expectations.

Beneficiation Suffers Declines in production have also impacted Botswana's fledgling polishing and cutting industry. Of the 16 license holders and Diamond Trading Company (DTC) sightholders, one has delayed restarting its operations after the holiday, one is reportedly in the process of closing its Botswana facility and another has scaled down its activities to reduce labor hours. Gaolathe nevertheless noted that at the start of 2009, the manufacturing sector employed 3,108 workers, representing a 29 percent increase from February 2008.

Signs that the negative effects were trickling downstream came when DTC Botswana, which supplies Debswana's goods to the sightholders, said it would close its operations for the first two weeks of March as a cost-saving measure. It also plans to reduce overall hours and move to a four-day workweek. These short-term measures will be reviewed every three months, according to DTC Botswana spokesperson Kago Mmopi. Earlier, De Beers postponed its plans to transfer its aggregation activities from London to Botswana, previously scheduled for 2009, saying that current conditions were not suitable to make the move. The company set up its main sorting facility in Gaborone in 2008.

Silver Lining Despite the tough climate, it hasn't all been gloom in Gaborone as DTC sightholder Safdico launched Phase 1 of the Diamond Technology Park in late January. The campus, billed as "the central hub for the burgeoning diamond-cutting industry in Botswana," will cost $50 million on completion, the majority of which has been provided to date by Safdico.

"We had the opportunity to create a diamond park from scratch, based on our extensive experience in the diamond industry," said Brian Gutkin, Safdico chief executive officer (CEO). "This allowed us to style the park in an efficient, practical manner, while still maintaining its grandeur and relevance."

Safdico Manager Shanee Orbach noted that the buildings were well populated and all the major tenants were operating, with approximately 450 people employed on the campus. "The industry in Botswana needed some good news, and this certainly provided it," she said. More than 200,000 square feet of additional land has been set aside for Phase 2 of the project, although such development is not expected until the industry grows larger.

Nevertheless, Minister Kedikilwe stressed at the park opening that he is "gingerly optimistic" for the future of the diamond industry in Botswana. "We will not only ride the wave but will come out of this recession stronger by exploiting any silver lining, for silver linings there must be," he said.

The Marketplace In South Africa... • Market conditions are weak and many polishers have been laid off or had their hours reduced. • Some companies have closed down and many businesses, including significant cutting factories, are restructuring. • There has been some movement in commercial goods. • Demand exists for less expensive caraters. • Holiday trade in Cape Town was much lower than expected, due to tourists either canceling or postponing their vacations until later in 2009. • Sales of loose diamonds and jewelry to Chinese tourists improved around the Chinese New Year.