Diamonds maybe losing their sparkle but still shining for local economy

Tiri Masawi

WINDHOEK – Diamonds seem to be losing their spackle as the mainstay of the Namibian economy, after its contribution to government coffers contracted by 9.6 percent during the past year.

Outgoing president of Namibia’s Chamber of Mines, Kombadayedu Kapwanga acknowledged the slump in diamond production in Namibia and the subsequent loss in the financial contribution to the economy in the year 2015/2016 in his annual statement published by the chamber in the annual review.

Although the chamber  does not financially quantify the 9.6 percent contraction in financial terms, it represents a significant loss in potential revenue for both the country and miners bearing in mind that diamond production is a  significant contributor to treasury.

The slump in diamond contribution and output is hinged on a multiplicity of issues, chief among them being the temporary diminishing price of precious stones worldwide and reduced production by NamDeb a 50/50 partnership between the Namibian Government and DeBeers anchored by the Oppenheimer family.

Ironically, a rather challenging production period has not been peculiar to Namibia as other countries in the region including Botswana and Zimbabwe which produce a significant portion of the precious stones. The two countries have not been seeing good days because of a challenging world market.

Combined, Namibia, Botswana and Zimbabwe produce a significant chunk of the world’s diamond needs and fend off competition from other countries like Sierra Leon.

However Kapwanga vehemently disputes recent statistics by the Namibian Statistics Agency (NSA) showing that the mining sector contribution to the Namibian economy has receded to 11.2 percent of Gross Domestic Product (GDP).

“There was a significant reduction of 11 percent in the output for diamonds from 1.76 million carats in 2015 to 1.57 million carats in 2016. NamDeb’s land operations contributed 403 000 carats to this total also posting a drop in output due to operational challenges which involved declining resources, cementation of ore,, water management challenges and reduced throughput owing to clayish material,” Kapwanga said in part of his presidential statement on the status of the mining industry.

Kapwanga sums up the low production and contribution of precious stones to the Namibian economy to sluggish global demand.

As if the slump in diamond production and contribution to the economy in the period under review is not a worrisome trend for both the Namibian revenue collection system and the mining companies themselves it has also seen the mining industry contracting by 6 percent.

The Chamber of Mines Namibia also challenged the percentage contraction although it came from the country’s official statistics bureau the Namibian Statistic Agency.

“The Chamber of Mines is however in disagreement with the reported preliminary overall contribution of mining by 6 percent and disputes the overall GDP contribution of 11.1 percent. While the contraction of diamonds may have been accounted for correctly, the chamber negates the contraction of 1.2 percent posted by metal ores as this this includes the production of copper, gold, lead and zinc.

Slump in overall fixed mining investments

The Chamber of Namibia however finds solace in that the mining industry in that country continues to be the heaviest investor and contributes significantly to social upkeep of the citizenry through various initiative, but that as well took a serious nose dive in the period under review.

“Fixed investment by the sector saw a further reduction from R5.46 billion in 2015 to N$3.49 billion in 2016. It is of no surprise that those numbers may appear insignificant in comparison to the exceptionally high fixed investment of approximately R17 billion recorded in 2014 as the development of the three new mines ad the sulphuric acid plant are now complete.

Perhaps more worrisome to the Namibian economy is the continued slump in rankings for the country’s mining sector as a preferred investment destination.

According to the Chamber of Mines Namibia Chief Executive Officer Veston Malango Namibia rankings as a preferred destination in the mining sector has slumped from number one in 2014 to 9th in 2016. The rankings are released by the Frazer Institute on an annual basis.

“Sadly however tides have reversed and we find ourselves in a similar situation as in 2011. In 2015 the Frazer report on Namibia dropped three places ranking as the fourth most attractive destination for mining in Africa.

“In the most recent 2016 report Namibia’s ranking has fallen a further five places to ninth position. The proposed empowerment policy legislation and additional conditions to license were cited as the main drivers for the ranking deration,” a rather concerned Malango said.

According to Malango Namibia needs to fall on a new trajectory of partnerships in the near future and continue to create an atmosphere that promotes growth and prosperity of privately owned businesses.

Diamond benefits

Meanwhile, De Beers and its joint ventures revealed in its latest Report to Society realised last week that they spend invested N$2.8 billion in in the local economy through purchasing of goods and services last year.

The money was spent on a diverse range of suppliers for Namdeb and Debmarine Namibia during one of the most significant years in the company’s history in the southern African country.

They further invested N$86 million in community development initiatives, included an N$10 million partnership with the University of Namibia’s southern campus in Keetmanshoop to pay for the studies of underprivileged students.

De Beers and the Namibian Government own Namdeb on equal shares. Namdeb has operations along the southwest coast of the country with the main land-based operations at Oranjemund and outpost diamond mines near the southern port of Lüderitz and along the Orange River.

The also co-own marine diamond miner – Debamarine Namibia, which is mining precious stones off-shore in the Atlantic Ocean. Last year the company acquired SS Nujoma, said to be the world’s most advanced marine diamond exploration and sampling vessel valued at about US$150 million.

“I am proud that we were able to put the Namibian supply chain to work last year by procuring goods and services with local companies. Aside from the revenues generated by the investment, this would have helped to secure jobs and provided additional support to smaller businesses, which are the unsung heroes of Namibia’s economy.

“More broadly, the country’s diamonds, already a major contributor to socio-economic development, now have the opportunity to play an ever more important role in shaping Namibia’s future and that of its people as a result of the new sales agreement.

“This year, we look forward to further business and community investments that will help both Namibia and De Beers Group achieve mutual success in a safe and sustainable way,” said Bruce Cleaver, CEO of De Beers Group and Chairman of Namdeb Holdings.

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