Select Committee on International Development Minutes of Evidence


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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