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The Dallas Morning News Jim Landers Column: DeBeers Cuts Africa in on More of Diamond Business

June 17, 2008

By Jim Landers, The Dallas Morning News

Jun. 17–DeBeers S.A. managing director Gareth Penny was in the U.S. last week to visit the company’s new retail outlet at NorthPark Center and to tell a Washington audience that African diamonds are improving the lives of Africans.

You’d expect a chief executive whose company rises or falls on its image to talk a good game about fighting AIDS, creating jobs and sharing the wealth in the countries where it operates. But this is still fairly new to DeBeers.

In 1999, Mr. Penny led a strategic turnaround at the company. DeBeers shifted its focus from controlling the global supply of diamonds to meeting global demand.

It set aside $295 million to settle price-fixing complaints filed on behalf of U.S. diamond buyers. The deadline for filing a claim was May 19. A federal judge in New Jersey approved the company’s settlement plan May 29.

DeBeers still accounts for 40 percent of world production and sold $6.8 billion in diamonds last year, and the company says its mines now run at capacity.

DeBeers certifies the origin of its gems as part of the Kimberly Process, established in 2000 to stop the trafficking in conflict or “blood” diamonds.

DeBeers has no mines or exploration activities in Liberia. But after the civil war there ended in 2003, DeBeers began helping Liberia’s democratically elected government restore the country’s image as a diamond producer.

It provided training and equipment to government officials and helped Liberia persuade the United Nations to lift an embargo last year on the country’s diamonds.

Mr. Penny said DeBeers follows an eight-point program of social responsibility that includes shifting jobs in diamond sorting and cutting to African producing countries and fighting corruption.

DeBeers runs a venture capital effort in Botswana to help entrepreneurs start businesses ranging from restaurants to auto mechanic shops.

“Africa is fashionable these days,” Mr. Penny said. “But part of the story — the private sector — is not getting the attention it deserves.”

Rosa Whitaker, who has worked on African economic issues in the White House and Congress, agrees that trade and investment are not getting enough attention.

“No region of the world transitions out of poverty through aid alone,” she said.

“The challenge now is to find what can they produce and with that, compete with China.”

Many African countries could compete with Chinese manufacturers on wages.

But China’s infrastructure, capital and the productivity of its workers make it hard for African nations to compete.

Mr. Penny said DeBeers is shifting its diamond sorting and cutting operations to Botswana from London for higher-value stones but doubts it can compete in Africa against India and China in handling small diamonds.

China does not have Africa’s problems with malaria and AIDS. Those health problems spill over into the workplace through employee mortality, absenteeism and medical care.

A global boom in commodities has lifted African economies, which grew an average of 5.7 percent last year, Mr. Penny said.

Exports of Africa’s resources have gone through booms before, however, with little residual benefit for Africans.

“Oil and minerals don’t make jobs,” said Ms. Whitaker, who now runs Whitaker Group, a consulting firm in Washington. “No region of the world has ever transitioned out of poverty by exporting raw materials. You need to process those resources before they’re exported. Without that, you get only 10 percent of the value.”

Mr. Penny argued that DeBeers’ eight points recognize the need to put more of the business of diamonds where they are produced and to train more Africans to do it.

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