The complicated dance between De Beers sightholders and the London-based brokers who work with them is about to get considerably more complex with the imminent move of the sights to Gaborone. It is anticipated that the first full Gaborone sight will take place in January of 2014.
Diamond brokers are a vital link in the business chain for sightholders, especially as the move to Botswana looms closer.
The move will mark the close of a remarkable period of business-as-usual for De Beers and its sales, marketing and distribution arm, the Diamond Trading Company (DTC), and a dramatic change in how — and where — their business is conducted for the foreseeable future. The seismic shift to Botswana is more than geographic. It’s the essential next step in the southern African country’s attempt to reinvent itself as a full-service world diamond center covering all the stages from mining to jewelry manufacturing and sales. But it will drastically change the industry landscape and dramatically affect the lives of all who work in diamonds, especially brokers and sightholders.
Throughout the diamond industry’s evolution, brokers have served as some of their clients’ most important and best-informed business associates. But following World War II, brokers became absolutely essential to the success — and even survival — of U.S.-based diamond buyers. That is when De Beers started having trouble with the United States Justice Department and other U.S. governmental agencies. Criticized at first by the U.S. for refusing to provide industrial diamonds for the war effort, De Beers was soon being investigated for its monopolistic activities, which were the very heart of the way it sold rough diamonds. U.S. antitrust charges were brought against the company in 1945, 1957 and 1974, forcing the company to cease all direct operations in the U.S., its largest customer at that time.
There was little question that De Beers acted like a monopoly. At that time, it controlled the sale of 85 percent of the world’s diamond production and, at the same time, virtually set market prices in response to fluctuating demand and fluctuating supply. The business was opaque, one-sided, extremely effective — and profitable. De Beers controlled not only the amount of goods each client was offered in its box; it also decided on the types and sizes of goods each box contained, based on its own opinion of each individual sightholder’s needs.
But, for some U.S. clients with a long history of doing business with De Beers, the order to cease all U.S. operations was shockingly abrupt. Around 1973, one diamantaire recalls, he suddenly found his calls to the DTC being refused. When he finally got a call through, before he could even speak, he was told, “Do not, under any circumstances, call me again.” At the same time, De Beers executives could not travel to the U.S. for any reason for fear of being arrested as agents of a monopoly.
The solution? U.S. sightholders, who could no longer do business directly with De Beers, were advised to hire London-based diamond brokers to act as intermediaries. The brokers would represent their clients in the all-important decision-making process by which De Beers determined what goods each sightholder would receive. Many of the brokers had worked for De Beers directly or for DTC, familiarly known as “the syndicate.” They were intimately familiar with the way the company worked and made good use of this valuable knowledge in guiding their clients through the ten sights offering rough diamonds each year.
Today, antitrust allegations against De Beers have dissipated, in part because it no longer controls the major part of either the mining or the marketing of diamonds. In recent years, diamond business has increasingly shifted to other diamond centers and few current sightholders are U.S. based. The role of the broker, however, has not diminished. Rather, it has grown and changed, a reflection of the massive shift in the industry from one that is supply driven to one that is demand driven.
Mike Aggett, managing director of H. Goldie, a 100-year-old firm based in London, describes the multifaceted roles of brokers in today’s diamond business. Aggett is based in the firm’s Antwerp office, in the heart of that city’s historic diamond district. “The broker’s role has evolved as a result of the growing rarity of our natural product, the increasing demands of the ever-more-educated consumer and the development of new markets,” Aggett explains. The reduced volume of goods supplied by the DTC also reduced its role as custodian of the diamond supply, but its actions still shape the industry. For that reason, Aggett says, “H. Goldie places great importance on aligning its sightholders’ businesses with the strategic vision and goals the DTC has for the industry.”
Saul Goldberg, president of the New York City firm founded by and named for his father, William Goldberg, describes the relationship with his broker, Bonas, as far more than just an intermediary. “There is a strategy among the DTC to allot the goods. The broker is working on this all year long. They have to strategize to represent the client, to get the product. Does the broker position you properly with the DTC? It’s not just buying the rough. The DTC asks, ‘Are you branding?’ ‘How are you selling your goods?’” Acquiring the goods is just the first step in the process; the broker is involved with helping the sightholder position his diamonds in the global marketplace. The broker and his client are a team, Goldberg adds.
Brokers such as H. Goldie, Hennig and Bonas — all London based — have become silent partners as sightholders navigate the ever-changing nature of the business. Aggett says that with the global production of rough diamonds forecast to decline, brokers have taken on an active role in helping their clients secure a regular and sustainable supply of rough. “H. Goldie is in regular contact with other producers and producer governments to promote and present their customers’ businesses in a way that crystallizes how they can become a valued asset to a supplier. This can involve formalizing presentations on their behalf,” similar to the way brokers have been assisting clients in their submissions for the DTC’s Supplier of Choice (SOC) program and the latest DTC requirement, the Contract Proposal Questionnaire (CPQ).
Aggett adds that “In addition to securing supplies and an upstream focus, many sightholders need assistance and support in forging downstream relationships.” To that end, the company provides analysis of mining forecasts and potential future sources of supply to assist its clients in the development of future business.
The broker, originally just a middleman, is now seen as an adjunct marketing department. “The brokers have moved from a position of ‘lobbyist’ for their clients to the DTC to a far more professional and proactive role with a much deeper involvement in all aspects of their customers’ businesses,” explains Aggett. “This might include, in addition to their DTC representation, rough sourcing from other producers, marketing and forging connections with downstream partners for both loose polished and jewelry products,” all the while never forgetting to “oversee adherence to Best Practices and general compliance throughout the pipeline.”
GOING TO BOTSWANA
With the shift to Gaborone, brokers are setting up offices in the capital city and moving personnel there to better position them to continue to serve their sightholder clients. Aggett himself expects to spend ten days a month in Botswana and says, “We will shift a part of our infrastructure to Gaborone in order to have people on the ground who will liaise with the DTC on a regular basis, arrange finance, exports and many of the other functions that have historically been carried out from London.”
Hennig, another long-time broker, already has opened an office in Gaborone that is being headed by Tshebetso Kgatlwane. Diamond industry veteran Jamie Mordaunt, formerly with De Beers, recently joined Hennig for the specific purpose of relocating to Botswana to maintain the firm’s relationship with the DTC team that will likewise relocate to Botswana. A spokesperson for Hennig notes, ”The move provides exciting opportunities to our clients beyond the mere change in location of sights. Among these is proximity to the largest single source of rough diamonds, to other rough suppliers in the regions and to other business opportunities in Botswana.” In addition, the company describes the moves as “part of our expansion plans for the transformation of our Botswana office into a major hub” for diamond business.
The added cost of doing business in Botswana is undisputed and considerable. Brokers will have to maintain satellite offices and travel frequently to oversee their operations there. Sightholders, accustomed to London, will have to become adept at traveling to Gaborone, adding considerable time, inconvenience and expense to their monthly buying trips. Whether they are coming from New York, Tel Aviv, Mumbai or Antwerp, they will have to change planes in Johannesburg for the final hop to Gaborone.
THE TRIP JUST GOT LONGER
Goldberg foresees a big change in his travels to the sights. As a sightholder in association with Leo Schachter, Goldberg describes his trips to the London sights as “a quick hop across the Atlantic. You arrive in the morning, rest a little, meet with your broker and look at the box. You can be back home the following evening.” That’s not going to be the case with travel to Gaborone.
Bonas traces its company’s founding to virtually the moment diamonds were discovered in South Africa in the 1870s. But this firm with a very long history has proven to be pretty nimble in responding to changes in the industry. According to Bonas’ website, the company is involved not only with mining, trading and purchasing of rough diamonds but also with diamond polishing, jewelry manufacturing, retailing and consumer marketing. It divides its business into two distinct areas: DTC Relationship Management and Value Chain Consulting. While its clients include retailers, governments and banks, Bonas claims its diamantaire clients produce more than one-quarter of the world’s polished diamond output. It maintains an office in the new heart of Botswana’s diamond hub, Diamond Technology Park (DTP) in Gaborone.
Bonas’ website also highlights the variety of challenges today’s sightholders face, including fragmentation of supply, emergence of alternative trading centers, upstream and downstream consolidation; impact of growing consumer markets; overcapacity of production and the increasing role played by national governments in the industry.
The move of the entire history and tradition of sights from London to Gaborone is unprecedented in size and impact. It represents a remarkable accommodation to the rapid changes in the industry and, most particularly, to the ability of Botswana — the world’s newest and most important diamond-producing nation — to secure added value for its most famous resource. More than any other nation on the African continent, Botswana’s intelligent and far-sighted leadership has enabled it not only to make the most of its diamonds, but to see the way to a future that builds upon those diamonds to assure economic growth and prosperity and provide more and better jobs for its citizens.