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song rhee

Diamonds Aren’t Forever

Diamonds Aren’t Forever

diamonds2_gemma-gene.jpg

diamonds_gemma gene When we recall the most influential figures in the history of Africa, we could consider state leaders such as Anwar Sadat and Nelson Mandela, or seminal figures like the king of the Zulus and Kofi Annan. We might not, however, think of Cecil Rhodes, the man who gave his name to the Rhodes scholarship, Rhodes University, and even the nation of Rhodesia before it split into Zambia and Zimbabwe. Cecil Rhodes left his own contribution to the history of Africa by leaving what many white men before him have left to Africa—a vehicle to imperialize the continent, a vehicle enshrined in exploitation of the world’s most precious stone. Cecil Rhodes founded De Beers.

De Beers, the world’s most powerful diamond mining company, has held a monopoly on the diamond market since the trade evolved into an international market, acting more as a cartel than an actual company. As a company with a fantastically successful practice, De Beers seeks to meet the incredibly high demand for diamonds at all costs. The De Beers empire is far-reaching, with interests in Siberia, Brazil, and, most notably, in southern Africa, namely Botswana. The reach of the empire has its hands in regional authoritative bodies, special interest groups, and even governments, especially in the case of Botswana.

This tiny African nation has transformed itself from a destitute post-British colonial state into a nation with one of the most robust economies and stabel governments in the continent. This transformation can be largely attributed to its partnership with De Beers in diamond mining operations through Debswana, a joint venture diamond mining company with profits and dividends split evenly between the lone shareholders, Botswana and De Beers. The revenues from Debswana provide 50 percent of all government revenues in Botswana. The case study of the relationship between De Beers and Botswana represents the intermingling of a firm and the state, the combination of economic and political interests, and serves as a modern study of political economy. It also provides an intriguing glimpse into modern imperialism.

The present economic and political atmosphere is extremely promising for Botswana, but the future could be bleak. Diamonds, as precious as they are, cannot possibly last forever, and concerns are growing about the future of Botswana’s economy after the supply of diamonds runs dry. What will Botswana do when De Beers leaves? While Botswana can continue to reap the benefits of its relationship with De Beers for the present, it must identify and come to terms with the ecological, economic, and human rights problems posed by the company, and work towards economic independence. For its future prosperity, Botswana must become independent of the influence of De Beers in order to sustain hope for the existence of an economically independent and stable African state.

A diamond gemstone has been a symbolic object of gentility throughout the course of human history. Before the 19th century, diamonds were almost solely in the hands of high-class aristocrats or royalty. They were usually stumbled upon by accident in Brazil and India, and organized attempts of wide-scale diamond mining generally went unnoticed on the world stage. However, in the late 19th century, as European nations scrambled to colonize Africa after initial exploration of the “dark continent,” a diamond rush began in South Africa that marked the dawn of diamonds as the root of a commercial enterprise. The discovery of this precious mineral in southern African lands flooded the world diamond market. In simple economic vernacular, a rush of supply drives down price, and the sudden spike in the diamond market weakened the comparative utility of owning a diamond.

Cecil Rhodes saw opportunity in this newfound market, and started buying up deeds to diamond mines, including one owned by the two de Beer brothers. Rhodes merged his fledgling company with that of his rival Barney Barnato, forming the De Beers Mining Company. By 1900, De Beers consolidated a monopoly on all production and distribution of diamonds coming out of colonial southern Africa. As time passed, more and more diamond claim holders and distributors merged with De Beers because of a compelling mutual interest: to create a shortage of diamonds and profit off of the high prices.

When the Great Depression hit, the price of diamonds fell, like nearly all other goods. To keep the demand for diamonds high, De Beers conducted one of the most successful advertising campaigns in the history of marketing, equating love with the size of a diamond and generating their famous company slogan in 1947, “a diamond is forever.” Men started buying diamonds left and right, and movie stars showed off their new diamonds in the golden age of Hollywood. This sudden spike in the demand for diamonds drove prices up exponentially and financed further expansion. De Beers, having conquered the US market, created new international markets using its same advertising model in promising markets like Japan, Germany, and Brazil.

The history and success of De Beers is intrinsically linked with the history of the Republic of Botswana. Modern-day Botswana was known as the Bechuanaland Protectorate of the United Kingdom. Established in 1885 as a method of protection for Setswana-speaking peoples from aggressive Dutch Boer expansion in southern Africa, the Protectorate sought independent and democratic self-governance in 1964. After prolonged talks with European-African advisory councils and other regional bodies, a constitution for the Republic of Botswana was penned in 1965, leading to general elections and eventual independence on September 30, 1966. Seretse Khama, a highly public figure on the road to independence for Botswana, and also a descendent of the principal Mangwato tribe, became the first president of Botswana after election in 1966. In 1967, a team of De Beers geologists found abundant quantities of ilmenite and garnet, the two chief indicators of diamondiferous presence, between the villages of Letlhakane and Mopipi Pan. In April 1967, the volcanic pipe at Orapa was found, initiating the excavation of the world’s most valuable diamond mine. De Beers saw the vast potential for diamond mining in Botswana and, previously denied access by the commonwealth for land grants, now came knocking on the door of newly-independent Botswana.

The joint venture between Botswana and De Beers, originally named the De Beers Botswana Mining Company, was formed in June of 1968. The diamonds produced by Botswana were of such exceptional quality that the government of Botswana was allowed an initial 15 percent stake in the company, which grew to a 50 percent share over the next five years. The company changed its name to Debswana Diamond Company in 1991. Today, Debswana operates four diamond mines (including the aforementioned Orapa mine) in a monopoly of diamond mining in Botswana, producing nearly one out of every four diamonds by carat. The high value by weight of diamonds mined by Debswana has cemented the company’s status as the leading producer of diamonds by value in the entire world. Debswana has become a symbol of identity for Botswana. It serves as the largest non-government employer in Botswana, employing over 6,000 people. Politicians in Botswana are swayed by the government’s biggest lobbyists—De Beers representatives. The consistency of Botswana’s ability to produce market goods has prompted major investment services to deem Botswana as the safest credit risk in Africa. Debswana production accounts for nearly one-third of the gross domestic product of Botswana, deeming the nation one of the foremost producers of diamonds in the entire world.

diamonds2_gemma geneEven though De Beers has brought on an age of prosperity for Botswana, the business practices of De Beers create negative externalities for the African nation. In the quest to establish diamond mines central to Debswana practices, De Beers has monopolized crucial supplies of water for business purposes. Botswana is an extremely arid nation often plagued by drought. Environmental projections from the UNEP conclude that the temperature of Botswana will increase by as much as 1.6 degrees Celsius by 2050, leading to an even lower rate of precipitation. Because of its drought problems, the people and government of Botswana rely on groundwater supplies to provide water for the nation. De Beers lobbyists have forced government officials of Botswana to supply Debswana with a guaranteed percentage of water reserves for business purposes, decreasing the supply for the general population. Diamond mining has also degraded land potentially useful for herd grazing; in an effort to secure lands for diamond mining, Debswana has forced owners of large herds of cattle westwards, causing overgrazing problems in western Botswana in the pursuit of diamonds.

Botswana might face a few environmental problems regarding De Beers, but the country must cope with the largest pending issue concerning De Beers: the overall diamond supply. The government of Botswana announced in 2009 that it would attempt to shift its economic focus and dependence on diamonds due to serious projections of diamonds drying out in Botswana over the next twenty years. At this time, Botswana would be devastated by a sudden exit of De Beers from its economy—diamonds, again, account for 50 percent of government revenues and nearly a third of the national GDP. Debswana employs 6,300 specially trained Batswana who would then be unemployed, affecting thousands of families. Foreign investment, capital markets, and trade flow would become heavily distorted due to the exit of Botswana’s largest contributor of capital flow. The economic effects will be devastating if Botswana fails to prepare for a future without diamonds. This precious stone cannot be a sustainable good for the future of Botswana because of its rapidly decreasing supply.

The most transparent and public problem that De Beers has faced in Botswana has been the abuse of human rights of the indigenous Bushmen, or San, tribes living in the country. Spurred by De Beers lobbyists, the government has used harassment tactics to drive them out of their native lands to give way for mining operations. After finding evidence of diamonds within the Central Kalahari Game Reserve (created to protect the native territory of the Bushmen), government officials forced the Bushmen out of the territory in three big clearances, the most recent one being in 2005. Remaining Bushmen were forbidden to bore holes to search for groundwater, forcing them to relocate in order to find water for survival. After De Beers decided not to mine expansively in the reserve, Botswana allowed some populations to start returning, but the damage had been done. Native Bushmen, once culturally and economically independent, are now dependent on government handouts, rarely able to hunt to sustain their cultural lifestyle, and many have succumbed to the rampant HIV/AIDS epidemic. This trend has caused an uproar from human rights watchdog groups, specifically by the international indigenous rights organization, Survival International, who seek to remove De Beers from Botswana because of its infringement of basic human rights.

For all the good that De Beers has done for Botswana, the presence of the diamond cartel in the core identity of Botswana will pose a problem in the long term. The relationship between De Beers and Botswana can be described as a sort of economic colonialism; while there is some sort of mutualism within the relationship, the freedom of the country to function as an independent nation is hindered by De Beers due to the firm’s massive influence on Botswana’s political and economic policies. Botswana will, one day, within our lifetimes, cease to serve De Beers as the center of its diamond empire, and, if Botswana does not prepare for that day, the consequences will be devastating.

First and foremost, the government of Botswana must take measures to reduce the influence of De Beers lobbyists on government operations. Noting the impending limit of diamonds in Botswana, the government cannot allow such influence from a foreign actor on policy decisions. Botswana must gradually reduce its stake in Debswana, either converting it to tradable capital stock or by selling it altogether in installments. Botswana will then benefit from cashing out a very valuable investment over time, instead of keeping a share of a company that will become worthless once the diamond supply runs dry in the nation. By drawing back its economic investment in Debswana, De Beers’ influence will have decreasing economic implications for policy decisions by the Botswana government, carving a path towards total political autonomy, free from tyrannically strong foreign interests.

While reducing this political influence, the Botswana government must also reinstate the land rights of the remaining Bushman population. The Bushman/San people are critical to the ancestral and cultural identity of Botswana, and measures must be taken by the government in order to preserve the land domain of those populations. Groundwater and boring rights must also be granted to these populations so that a self-sustaining civilization can once again emerge, free from government entitlements. In the long term, Botswana’s reconciliation with its indigenous peoples will positively impact the history of Botswana, much more than its relatively short-term economic benefits from diamonds.

Lastly, and most critically, Botswana must make preparations for a post-diamond economy. In 2007, significant quantities of uranium were discovered, prompting the initiative of uranium mining from the Botswana government. Uranium can serve as an eventual replacement for diamonds as a crucial export good. Botswana’s financial institutions rank as some of the most sophisticated in all of Africa; the financial sector provides plenty of access to credit for entrepreneurs. Botswana can transform itself from a goods-based economy to a service-based economy with further efforts to establish itself as a global financial center. New portfolio investment options have caused the Botswana Stock Exchange to grow. Botswana must continue its traditions of prudent fiscal policymaking, conservative and cautious foreign policy, and technical assistance on the international level. Botswana can also enlarge its market for tourism, which currently accounts for 12 percent of GDP. However, Botswana’s timeline is much shorter compared to other nations who have made similar economic transitions.

The De Beers-Botswana relationship simply is not sustainable despite the massive role of De Beers in the transformation of Botswana. In order to continue developing into a strong economy, a consciously protected environment, and civilian reconciliation, Botswana must eventually sever its ties with the De Beers cartel. Botswana represents an international hope that has been sought after for much of the 20th century: a robust African economy coupled with a politically stable state. Free from violence and tribal warfare, free from widespread corruption and government inefficiency, free from the failure of financial markets and rampant inflation, Botswana itself is Africa’s own diamond—and in order for it to shine brightest, it must one day shine without the help of De Beers.

Paki-standing Alone

Paki-standing Alone

License to Spill

License to Spill