Examination of Witnesses (Questions 44
- 59)
TUESDAY 14 FEBRUARY 2006
MR JOE
MATOME
Q44 Chairman: Thank you very much
indeed for being here. You have heard what has been happening
and I hope you appreciate that it is all part of an interesting
debate. You will know that the Committee is visiting Botswana
in a couple of weeks' time. I am not sure we will be meeting you
but we will certainly be meeting your counterparts when we are
there. This will be a helpful introduction. The success of Botswana
is as a country with high average income. The ability to turn
diamonds to advantage is fairly well documented. My understanding
is that part of this was due to the foresight of the Botswana
Government in hiring a world leading diamond valuer to negotiate
with De Beers to try and ensure a partnership that was of mutual
benefit especially to Botswana of course. Was it a tough bargain
or did you find that the deal that they wanted was compatible
with the interests of De Beers at the time; or did you have to
bargain hard to get a compromise that was workable?
Mr Matome: Thank you all for the
opportunity to be here and give evidence to you. I am Joe Matome.
I am the group's company secretary for the Debswana Diamond Company.
As a lead up to trying to address your questions, Debswana is
a 50/50 partnership between De Beers and the Government of Botswana.
We are also considered as twins joined at the hip. They may have
two heads but ultimately they have to go in the same direction.
The issue that you raise about getting a valuer, I presume on
the government side, to negotiate the pricing of a product is
like a three legged pot for us. There is Debswana producing the
diamonds. Then it values them for sale to De Beers and the Government
is the third party, the third leg of this pot, which has felt
that it should look at what we have done as a company with our
valuation, so that what we put on the table for the buyer is satisfactory
to the third leg, which is the government. If any one of those
legs is not there, the pot falls over and, in African terms, the
food is spilt. It was a very wise thing to do, to put that three
legged process in place to ensure that everybody wins.
Q45 Ann McKechin: Botswana's per
capita GDP has risen significantly in the last few years but
at the same time its position on the human development index has
fallen from 95th in 2001 to now 131st out of 177. I wonder what
steps Debswana as a company is taking to ensure that its revenues
in the future, as you are facing diminishing returns possibly
on mining, will help to reduce that poverty that still scars the
country.
Mr Matome: We have just recently
completed our five year strategic plan which has what we call
the north star in four dimensions: revenue enhancement and creation,
cost reduction, the organisation to drive all of this. One of
the four cardinal points is sustainability. For us to be able
to meet the demands of the five year plan we have to make sure
that that sustainability—call it social responsibility if
you want—is in place. The issue of HIV/AIDS is clearly one
of those elements. There is a business imperative in it but it
does have an impact on society around us. For example, we have
recently approved an extension of the assistance to cover more
members of families. We found that it has a social impact, looking
after people who do not necessarily work for us but who might
impact on us, by having some medicines given to children naturally,
which is a good thing to do. There are impacts for us and the
way in which we can prolong lives for our business and the families
concerned by extending the antiretroviral therapy to a greater
part of the family. I believe we piloted a corporate response
to HIV/AIDS around the world and I believe some government initiatives
have taken a leaf out of that.
Q46 Ann McKechin: I am focusing more
in terms of the economic benefits because the lifespan of the
mines is only perhaps another 30 years. It is how the economic
legacy that you are going to bequeath to Botswana in terms of
allowing it to continue growth and reduce poverty.
Mr Matome: In the context of HIV/AIDS?
Q47 Ann McKechin: No. I mean in terms
of growing subsidiary industries or skill bases or technical capacity.
Mr Matome: There are a number
of ways. We recognise that extractive industries are not here
for ever. Around our communities as well as in national programmes
we have looked at ways in which we can do this. I will give you
an example. This is not to say that our mines will close in 30
years. Some of them have another 20 years beyond that, even to
50. We have looked at the project together with the community
with various partners in the NGO sector in this type of subsistence
agriculture and what we can do in villages around our mines, from
whom we draw labour for creating a greater cash economy within
those rural areas. This has recently come into the form of a chicken-cum-guinea
fowl rural marketing project in the eight or so villages around
our mine. In this, there have been a number of things. One is
to get those people in those villages to do better with whatever
techniques they have, to improve their technology. Secondly, to
educate or help them with learning about how to market or how
to run their businesses. Thirdly, to leave behind 50 years from
now a model that would work to create other issues around the
mines. We also have small and medium sized business activities
around a company called PEO in which Debswana and De Beers have
a share. The way this model works is, for example, working as
a supply chain contractor to our mines and we develop the enterprise
with the business and stay with it for a little while. When they
are ready and mature, we pull back and they continue and we take
the money to reinvest somewhere else. These are two examples that
might answer your question as to what we do to try and assist.
Q48 John Barrett: Some resource rich
countries have suffered from what is known as the resource curse,
that cycle of dependency, corruption and conflict. Botswana has
been a great example of avoiding it. Some Members of the Committee
have just come back from Sierra Leone which is a victim of that.
What can we and other countries learn about how to avoid that
curse? Was there more to it than the original deal that was done
in Botswana that seemed to set things off on the right track?
Are there other factors that we should maybe learn from what happened
in Botswana?
Mr Matome: When you talk about
the original deal, that was not what established the partnership.
That was a different set of circumstances that led to the 50/50
partnership between the technical partner of De Beers and the
people of Botswana. What makes Botswana successful? From the point
of view of Botswana's business, we need an environment in which
we can survive. There is a certain degree of transparency in how
the country or the government of the country treats us and a certain
amount of governance which, in a sense, is one of the very difficult
things that Africa is grappling with in terms of accountability.
I will just deal with one participatory type of environment where
you can put your point forward. We have something in Botswana
called a kgotla system and it works by saying, "Come to the
gathering." The chief, Mr Bruce, will be sitting and listening
to what you have to say. Even a child or a woman or whoever it
is can say their piece. He then makes a decision on his own having
heard what you have to say and he becomes totally accountable
for that decision. He does not have to do exactly what you say.
Those are the pillars, in my view, that lead to Botswana being
able to have used what God has given everybody or most people,
which is what is in the ground. The question of how we have used
it has been the fortunate part for the people of Botswana. There
has been good governance as well as the fortune of finding the
stuff in the ground and a good technical partnership to mine it.
Q49 John Barrett: There has been
a range of legs to that stool that held it all together.
Mr Matome: That is quite important.
Hopefully, people might pick up some of the lessons from that.
Some of the countries, for example, pick up on one of the models
that we have which is a government, private sector partnership
in the extractive industry. Namibia, for one, has picked up on
that. I think in Tanzania they are following that as well now.
Q50 John Barrett: Is there active
discussion with other countries that could learn from the Botswana
experience? Botswana must be aware that it does stand out as having
been singularly successful in terms of economic growth and other
issues. I wondered whether there are active discussions going
on with a number of other resource rich countries that have not
managed to piece things together.
Mr Matome: We have an interaction
with Namibia. South Africa is very close to us. We do talk a lot
but I cannot say for certain what there is, between those Governments,
in discussion. I am not really in that particular arena. You do
pick up every now and then discussions about, for example, the
new Mining Act in South Africa. A lot of discussions took place
between the South African Minerals Department, the Ministry of
Minerals, and our Ministry of Minerals to see how things were
done. I am aware of those sorts of things but I could not tell
you specifically if there is active dialogue.
Q51 Mr Hunt: The difference between
Botswana which has become what some people would call a developmental
state where the conditions of development are encouraged and a
country like, say, Zimbabwe which has also had a colonial history
but, for various reasons, has gone in a totally different direction,
is very stark. I have read that one of the reasons for that, one
theory, is the role of the black middle classes in Botswana and
how they have operated and worked has been particularly unique.
I wonder if you could tell me whether you think there is anything
true in that theory or what you think it is that has made Botswana
go down a path that is so very different to other countries.
Mr Matome: You have to forgive
me for being very wary of trying to criticise some of our fellow
neighbours. I am not trying to duck your question but whatever
I say would be very personal about Debswana's point of view. I
am not in government so I could not put that as being the governmental
point of view. There is an increasing middle class in Botswana
that has an interest in making sure that the rule of law is followed
because they have a lot to protect. I would be wary of saying
that there is not the same level of middle class in Zimbabwe.
They have had people in England and other places to come and learn
things before us. There is a middle class in Botswana that makes
it possible to protect the rule of law. We must not underestimate
that Botswana is also essentially a poor country too. Even though
DFID and others are not in the country because of its status as
a middle income country, poverty is still there and we have to
be aware of the demands that poverty is going to make and the
threats that it makes to our democracy. Democracy has to be effective.
Yes, the middle class helps us with that but, despite our status,
there is still a very large body of the poor which we have to
address, whether it is corporate or governance or international,
in order to maintain and keep that good record that we have had.
I hope we will continue with it. I hope the middle class will
protect it but we have to keep an eye on the fact that we have
the poor.
Q52 Chairman: Diamonds are a very
specific commodity. I was interested when one of your colleagues
was speaking when the President of Sierra Leone was in London,
saying that deep mining of diamonds you can secure and fence in
but alluvial diamonds are a big problem. You have created this
Kimberley Process to try and authenticate and control patterns.
That is peculiar to diamonds. You cannot do that with oil as a
commodity. How can you take that forward in a way that reduces
the capacity for corruption? Diamonds in other countries in Africa
have been a recipe for war, conflict and disaster but in Botswana
and sometimes in South Africa and Namibia they have been a successful
contribution to the dynamics of the economy. How can you extend
that legacy to other diamond producing countries?
Mr Matome: In Botswana we have
been able to have certain conditions which ensure that our diamonds
are for development, unlike in some other places where that has
not happened. It is a geographical fact that our diamonds come
from volcanic pipes and therefore are relatively protected as
opposed to diamonds that have come from volcanic pipes and been
washed away into rivers and alluvial type areas. The second thing
is not about the geography of diamonds; it is about the laws that
relate to how you handle a national resource. Very early on in
the life of Botswana's Independence the first President managed
to convince everybody that diamonds were for the whole nation,
not for tribe X or tribe Y, generally applying to all mineral
resources, anything below six inches in the ground. Any mineral
resource, regardless of which tribe it sits in or which district
it sits in, is a national resource. That was put into various
legal documentation, for example, that said you cannot handle
the diamonds without permission. Of course you could still handle
them without permission and get caught for it. They made it very
clear that you cannot handle a rough diamond or an uncut diamond
without certain licensing from the state. That legal framework
assisted with that issue. Thirdly, the state in full partnership
with the extractive industry, with the professional experts in
that area—in this case De Beers—gave further reason
for a diamond not to be able to be abused. We support the Kimberley
Process in order for other people to pick up from that, even those
who have non-geographically comfortable positions, to protect
what they have. The other issue of the Kimberley Process is a
set of warranties. That would also help downstream with the people
who buy the diamonds. It also helps to police the issue. Our presidency
and chairmanship in Botswana now, this year, of the Kimberley
Process, will surely try to give those examples to those who can
look at improving. Self-policing is one thing. That is what must
happen. The rest of the world can do all it can but we have to
self-police whatever country we are in, whatever diamonds we have.
Q53 Chairman: You identified the
government issue about determining this as a national resource
and assembling a framework abroad could apply to other minerals
which do not necessarily have the specific identity of diamonds.
It could even apply to oil and gas. It is a model that could be
replicated if people wanted to follow that.
Mr Matome: I believe so. If there
are sufficient and powerful forces to prevent a good thing from
happening that will not happen. Oil, in some parts of Africa,
is extremely valuable, more valuable than diamonds. What is there
stopping a proper collaboration between governments and those
technical partners?
Q54 Chairman: The nub of what we
are concerned about is the role of our own Department for International
Development. What kind of steps could they take, working with
extractive industries, from your experience and in other countries,
that would help those resource difficulties to improve living
standards and reduce poverty rather than the opposite effect which
has been observed in some countries? From your experience, what
do you think our Department for International Development could
do? Is there anything it could usefully do to try and ensure that
we get agreements with extractive industry companies in a way
that would lead to poverty reduction?
Mr Matome: Yes. ICMM[10],
for example, is a body that is putting us all in one mind about
the box of sustainability at the bottom of our north star or our
four cardinal points of Debswana. The other day I was with a colleague
from ICMM. We were at a corporate responsibility seminar. Every
mining company, whether it has an international connection or
is home grown like Debswana, for example, is realising that it
has to do certain things for its community. We have an organisation
called PEO and its philosophy is that we will put money in with
an entrepreneur as long as he has a good idea and good drive.
He may not have the knowledge or the experience and some of the
business technical knowledge that we have. We will link him with
our supply chain to be able to go forward. This can happen with
oil, copper and gold. It is happening in South Africa. We cannot
always have the ability to monitor and keep an eye and give someone
the education and training that is required to make a business
sustainable. We stay with it. We watch it. We stay on the board
up to a certain point in time but there has been perhaps a glimmer
of hope in that people like DFID could bring to us some of the
skills that you may consider have retired but we are nowhere near
getting started; and offer that kind of assistance to those kinds
of communities that we are talking about, citing only one example.
This is the kind of role perhaps to have the technology or skills
transfer which would be funded by people like DFID, into areas
which are not particularly obvious. It is not like giving money
to education or an HIV/AIDS programme. It helps people to self-sustain.
It can be linked very clearly and very easily for those who do
want to participate with elements of the extractive industry.
The ICMM has the same problem. My colleague there was saying,
"Yes, we also want to do this but somewhere we have to pull
back." We only do a little so we can stay longer with our
projects. For those countries, like mine, particularly, in mining
where you do not get much DFID help, we have P650 million of the
resources of the last budget, for example, going to HIV/AIDS which
would otherwise have gone into development. That is diverting
resources from that and that is a role DFID could play to help
us to meet that void.
Q55 Chairman: How many of Debswana's
employees are Botswana nationals?
Mr Matome: We have 6,500 employees
and 98% are nationals.
Q56 Chairman: Presumably you have
contractors as well. Have you stimulated the creation of locally
owned and controlled contractors to the diamond mining industry?
Mr Matome: Yes. Our procurement
policies which we are revamping at the moment deal with several
grades of citizen ownership or empowerment. We do not only deal
with equity issues. We also deal with how many managers are citizens,
even if there is no equity, and how much training they do of citizens
if they do not have the managers, and give points on a scale leading
up to ownership. Preference is given to supplying various types
of goods to our mines on the basis of that empowerment policy.
Q57 Chairman: I hope we might manage
to meet one or two of those people.
Mr Matome: I hope you will, yes.
Q58 Mr Davies: This is a very interesting
case because Botswana is regarded as one of the great success
stories, if not the greatest success story, in Africa, which is
why we are going there to have a look at how it is done and yet
it is all based on an enormous state monopoly which pre-empts
30% of GDP. The conventional wisdom is that monopolies are a rather
bad idea because they are inefficient for standard economic sharing
reasons and because they are a source of excessive government
patronage and therefore corruption. Here we have a model based
on something which is supposed to be very bad for economic progress
producing very good economic progress. I am fascinated by this
particular irony. Perhaps you can explain why diamonds are a special
case, because I think that is what the argument amounts to.
Mr Matome: I will attempt to do
that. I would not call it a large, state owned monopoly.
Q59 Mr Davies: It is not only a monopoly;
it is a monopoly protected by law so anybody who goes in for informal
diamond panning presumably is sent to jail for a long time. You
have a monopoly which has not just de facto emerged as
a result of market power but is enshrined and protected by the
criminal law of the land. Is that right?
Mr Matome: No, it is not right.
I probably was not very clear and I beg your pardon for that.
What I was saying was that you cannot come off the street and
handle a rough diamond. Anyone who has the desire to do so can
apply for a prospecting licence to find diamonds or any other
mineral. Having done so, they then have very recent and good laws
protecting that investment in prospecting, giving a number of
years to prepare to extract that resource.
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