Memorandum submitted by The De Beers Group
1. BACKGROUND
AND REASON
FOR THE
SUBMISSION
1.1 The De Beers Group is the largest diamond
producer in the world. We produce over 40% of global gem diamonds
from our mines in South Africa, and in partnership with the governments
of Botswana, Namibia and Tanzania. The De Beers Group's Diamond
Trading Company (DTC) based in London sorts, values and currently
sells around half of the world's annual supply of rough diamonds.
As a company we employ around 22,000 employees in 19 countries,
of whom roughly 17,000 are based in our southern African operations.
1.2 De Beers welcomes this inquiry into
Private Sector Development (PSD). As a private sector company
we have extensive first hand experience of operating at the sharp
end in developing countries. In Africa, one can witness first
hand the transformative capabilities of the private sector. Countries
like Botswana and Mozambique, which are experiencing high levels
of growth, owe it not primarily to aid, but to a booming private
sector which works alongside responsible and responsive governments.
Indeed, South Africa could not have developed to its current position
as the giant of Africa without the contribution made by private
investors.
1.3 Of course not all companies operate
in the same way and there is much debate about what constitutes
a "good company". On the one hand there are those who
maintain that the primary objective of business is to maximise
profits. On the other, there are those who insist that business
must earn the right to profit from its activities. At De Beers,
we don't see it in such extreme terms. We follow the maxim
"The purpose of the Company is to make profits
for its shareholders, but to do so in a way that makes a real
and lasting contribution to the countries and communities in which
it operates".
1.4 We do not see our corporate social engagement
as a philanthropic pursuit but rather as a business imperative.
As a company, De Beers has proven that it is possible to maintain
sound business principles whilst also making a lasting contribution
to the communities within which we work. Through the development
and deployment of sound policies in terms of employment and labour
practices, health & safety, non-discrimination and environmental
best practice, we believe that we stand to gain significant advantage
in terms of reputation, recruitment and investment. When coupled
with the impact of our core business activities, we feel we can
make a real difference on the ground.
1.5 However, at present there are constraints
on the opportunities for private sector development. These constraints
operate at all levels. Firstly, the issue of failed or failing
states where governance is either non-existent or weak is a major
deterrent to investing in an area. Companies committed to long
term sustainable development cannot build their business in an
area devoid of security and stability. We believe that not only
human security should exist in these countries but security of
tenure must also be enshrined in law. Once a critical mass in
this area has been achieved business can begin to develop the
medium to long term plans that are essential for scaled industrial
development. Governments intent on developing their economies
can only do so when sufficient funds are generated from a range
of profitable businesses thus avoiding the dependence on aid.
We believe that there is a role for donors in addressing the root
causes of these problems, so that the benefits of private sector
development can be achieved. On a more local level, the issue
of HIV/AIDS continues to be a fundamental problem for the business
community. HIV/AIDS places an unbearable strain on the health,
education and welfare provision of even the most sophisticated
countries in Africa. With HIV infection rates of one in four of
the economically active population, this pandemic will destroy
capacity and with it the potential economic growth which remains
Africa's only real hope of poverty alleviation. The scale of this
problem requires massive intervention by the donor community.
2. OUR ENGAGEMENT
IN POVERTY
ALLEVIATION
At De Beers we work directly with communities
to assist in the fight against poverty by reinvesting profits
generated back into these operations, thus creating and protecting
jobs and the services that are needed to sustain them. We have
a proactive programme to encourage local suppliers to our operations,
with particular reference to local SME's where possible. We have
been working in collaboration with many IGOs and NGOs in capacity
building exercises helping to develop the necessary skills that
will enable governments to accurately value their diamond exports.
We have recently embarked on a new business initiative whereby
many more of De Beers diamonds that we sell to our clients will
be cut and polished in their country of origin, rather than exported
to outside cutting centres, creating sustainable skills and businesses.
2.1 At De Beers we have a large percentage
of employees in sub-Saharan Africa and other business interests
in many countries threatened by the next wave of HIV infection.
For us, like most companies, tackling HIV/AIDS becomes a commercial
consideration as well as one of concern for our employees. Currently
our workplace programme takes a four-pronged approach:
(a) Saving Lives—our objective is to
prevent new infections through communication and the mobilisation
of employees towards changing behaviour patterns.
(b) Living with HIV/Aids—our objective
is to provide treatment, care and support for employees who are
infected with and affected by HIV, enabling them to continue a
productive life.
(c) Minimising the economic impact of HIV/Aids—our
objective is to develop an effective, integrated management control
system that measures and records the economic impact of HIV/Aids
on the organisation, enabling timely responses.
(d) Communications and stakeholder engagement—strongly
underpinning the above, our objective here is to establish mutually
beneficial relationships with key stakeholders in HIV/Aids management.—(See
Appendix i).[83]
2.2 We contribute substantially to the transfer
of knowledge to local communities. We believe it is imperative
to reflect the diversity of the communities in which we operate
through our workforce. To this end we invest in training that
will transfer skills and knowledge to the local population. As
well as the transfer of skills, the host country benefits from
money transfers to the surrounding community, not only through
employment, but through purchasing policies that favour local
communities and by stimulating small and medium enterprises, thus
nurturing the entrepreneurial spirit essential to any country's
economic well being; an attitude that we call, "a hand up,
not a hand out". (See Appendix ii).[84]
2.3 In addition to the clear benefits of
engaging in local level projects, we would argue that for a company
like De Beers the opportunity to effect long-lasting change lies
at the macro-level. That is, through engagement with governments
and international agencies, on specific issues, we have the ability
to effect positive changes in the socio-economic landscape and
thereby contribute towards the long-term goal of poverty alleviation.
It is our view that this shift in knowledge and understanding
is what will achieve long-lasting sustainable development. Throughout
the past decade, De Beers has made a significant impact to the
international mining regulatory environment which has clear implications
for development. The next sections will explore both the formal
and informal ways in which De Beers has been engaged in this process.
3. OUR ENGAGEMENT
IN DEVELOPMENT
3.1.1 The Kimberley Process
The issue of conflict diamonds came to the fore
in the late 1990s primarily focusing on Angola and later on Sierra
Leone. In 2000, the international community became aware of the
atrocities perpetrated in those countries which were fuelled by
illicit diamond activities. The reason for our action on this
was twofold. Firstly there was a moral imperative to do whatever
was in our power to end these atrocities. Secondly from a commercial
perspective, there was rightly consumer concern about the fear
that their purchases could be used to fuel a bloody conflict.
3.1.2 The Kimberley Process Certification
Scheme (KPCS) came into effect in January 2003, following a convening
meeting in South Africa in 2000. It is an official mechanism that
controls the flow of rough diamonds to, and within international
markets. The initial target was to stop the sale of diamonds controlled
by rebel armies, but it also serves to reduce smuggled diamonds
as well. Signatories are required to ensure that shipments of
rough diamonds are free from conflict diamonds. Therefore, a Kimberley
Process certificate must accompany all shipments of rough diamonds.
Participants can only trade with other Participants who have met
the minimum requirements of the certification scheme. The 45 participants
of the process account for approximately 99.8% of global production
of rough diamonds. In a remarkably short period of time, the Kimberley
Process was able to articulate a system for managing and certifying
the internal and international trade in rough diamonds. There
is of course still work to be done. It has, however, been credited
with huge increases in official diamond exports from Sierra Leone
and the DRC, and with the ending of all official diamond trade
with many countries accused of involvement in conflict diamonds.
3.1.3 The Kimberley Process is an extremely
good example of an effective cross-sectoral co-operation in action.
The private sector was instrumental in eliciting change which
could not have been achieved solely by governments and the donor
community. De Beers was one of the front runners in orchestrating
the Kimberly Process and in tandem with NGOs pressed governments
to agree to its implementation. It is highly likely that had it
not been for the actions of the diamond industry in crafting the
provisions of the KP and uniting in common cause, diamonds would
still be used to fuel conflict and destruction on a large scale.
3.2.1 Diamond Development Initiative (DDI)
Controlling the trade in rough diamonds, however,
covers only one aspect of the problems associated with diamonds.
The Kimberley Process, which operates from the point of first
export, has addressed the symptoms, but not the root causes. The
difficulties begin at the mining stage, where a huge proportion
of mining in alluvial producer countries is of an illicit nature.
Even where it is legitimate, however, artisanal alluvial mining
is problematic. Artisanal miners are largely unregulated and unregistered,
and they operate in conditions that make them vulnerable to a
variety of predators. In addition to poor remuneration, they work
in conditions where health and safety are virtually absent. (See
Appendix iii[85]).
3.2.2 Like conflict diamonds, unregulated
artisanal-mining can negatively impact on a host of issues pertaining
to development. Unregulated diamonds that are smuggled across
borders means that the government looses much needed revenue.
Unregulated mining also has implications for human rights, labour
rights and livelihood issues. As noted in the Accra document,
we believe that in fragile and poor African countries where much
artisinal mining prevails, these issues can best be approached
through a concerted international effort. Regulation of this sort
has the potential to supply major benefits for miners, the communities
within which they work, governments and the diamond industry.
3.2.3 The DDI is an attempt by international
stakeholders to provide a multi-faceted framework that addresses
issues of mismanagement in the artisanal-mining sector. It was
launched in January 2005 by De Beers, Global Witness and Partnership
Africa Canada (PAC) and the convening meeting was held in London
in January 2005. A Plenary meeting was held in Accra in October
2005. The DDI calls for socially responsible corporate and government
behaviour in the alluvial diamond-mining sector. Its intention
is to encourage and develop cooperation between governments, NGOs,
and business, on a policy level. The focus of the DDI will be
the creation of a multilateral partnership framework that will
allow interested parties to pool their resources, experience and
knowledge, and to integrate various initiatives that are being
developed in this field.
3.2.4 The mission statement of the DDI notes
that its purpose is "To gather all interested parties into
a process that will address, in a comprehensive way, the political,
social and economic challenges facing the artisanal diamond mining
sector in order to optimize the beneficial development impact
of artisanal diamond mining to miners and their communities within
the countries in which the diamonds are mined."
3.2.5 In the artisanal-mining sector, production
is carried out using simple tools and equipment, with no safety
regulations. Due to the informal nature of the work, living conditions
are insecure and wages low and unpredictable thus perpetuating
the cycles of poverty. Even though workers produce diamonds to
the value of hundreds of millions of dollars each year, most subsist
on less than a dollar a day. Within this environment there are
also incidents for child labour to be exploited. As can be seen
for the mission statement, the DDI could have a potentially large
impact on poverty alleviation as it is attempting to directly
engage in improving the living and working conditions of one million
alluvial artisinal diamond diggers in Africa.
3.2.6 Not only does the DDI address the
working conditions of the alluvial miners, it also has the potential
to address issues of peace and security. The wars in countries
like Sierra Leone and Angola left artisinal miners derelict and
destitute, thus it was no surprise to see people co-opted into
violence and crime. Brining artisinal miners into the formal sector
helps to eradicate some of the insecurities that lead to engagement
in criminal activity.
4. INFORMAL METHODS
OF ENGAGEMENT
4.1 The examples of the Kimberley Process
and the DDI highlight the possibility of engaging in development
through formalised processes at an international level. There
are other ways in which the private sector can and does play a
role in development projects. In a more informal context for example,
De Beers has worked with the Government of Sierra Leone in post-conflict
reconstruction. In a country where diamond revenues are the key
to its growth potential, De Beers has transferred knowledge and
expertise to the government in order to assist in the re-building
of the country. For the last two years De Beers has been in constant
contact with the Government of Sierra Leone with regard to assisting
in post conflict reconstruction by capacity building of the Government
Gold and Diamond Office in Freetown. De Beers employees have been
to Freetown to help train government officials. (See Appendix
5) The officials have also visited the DTC London and Antwerp
to further their technical ability. We are also a member of the
Peace Diamond Alliance in Sierra Leone.
4.2 We have also been working closely with
the UK Department for International Development (DFID) in an advisory
capacity. DFID have a contractor working with the Department of
Mines advising on reform of the Mining and Fiscal laws. We continue
to work with these initiatives in order to assist the government
and the people of Sierra Leone in benefiting from their diamonds.
4.3 It is important to stress that De Beers
is not currently commercially active in Sierra Leone and has not
been since 1985. Clearly, however, the future of this diamond
producing country is of strategic importance to both us and to
the diamond industry as a whole. We felt it was necessary to engage
for reasons that are best described as "enlightened self-interest".
Despite not being active in this country, we felt it was part
of our wider responsibility to the diamond industry and its reputation
to assist in providing the government of the country with sound
advice on how to strengthen its capacity and make the most of
its resources. This will help to ensure that Sierra Leone's diamond
resources will have a major impact on the country's socio-economic
development. From our perspective, a well developed, free, fair
and properly regulated industry and market place secures the legitimate
supply chain and provides consumers with the assurance that their
diamond jewellery purchases are free of taint.
5. RECOMMENDATIONS
5.1 We propose that the donor community,
governments, NGOs, academia and the private sector need to harmonise
their efforts in order to strengthen outcomes. We need to align
donor, government, NGO, academia and private sector actions and
work together in partnership to gain maximum leverage. When it
comes to the issues of development, despite genuine commitments
to the ideals of poverty alleviation, the private sector cannot
be expected to engage on a scale likely to make a difference,
if these ideals cannot be reconciled with sound business sense.
As the examples above have shown, the business community needs
the assurance of stability for long-term sustainable growth. The
private sector needs legislative framework and assistance from
donor organisations. Donors can assist in helping to create an
enabling environment by working closely with governments on their
political and socio-economic programmes. Establishing the rule
of law is essential to create the conditions in which companies
will choose to operate, to generate good returns for shareholders
as well as revenues and other benefits for the host communities.
The research and intellectual capacity of our academic institutions
could be more concentrated on providing practical and realistic
solutions to the issues of sustainable development working in
collaboration with industry, government and NGOs.
5.2 We believe that development assistance
must be prioritised and directed towards what can make the most
difference particularly in the area of institution and capacity
building and strengthening democracy. As our examples have shown,
De Beers believes strongly in capacity building. We have placed
our expertise and knowledge at the disposal of governments. We
have been training officials from several countries in the appraisal
and valuation of diamonds to allow them better to assess the proper
revenues due, so critical for post-conflict reconstruction. There
is only so much we can do. Business in general does not have the
developmental skill sets that are embedded in donor agencies,
IGO, NGOs and academia. There is a strong case to say that the
co-ordination and pooling of knowledge will lead to better outcomes.
Donor organisations and NGOs have much to gain from the experiences
and knowledge held by the private sector and visa versa. It is
the donor community, working with developing country governments
that has the resources, both financial and human to co-ordinate
and scale-up our combined efforts. There are many examples across
the globe where many agencies and governments are following parallel
paths on development thinking, possibly duplicating efforts and
thus wasting valuable resources. The time has come to draw these
parallels into focus and create a convergence zone where the thinkers
and implementers gather in the same place and move forward together
in a more aligned fashion.
5.3 HIV/AIDS is a fundamental issue affecting
interests in both the private and public sector and is an issue
that could benefit immensely from better co-ordination with donors.
Assisting African governments in the battle against the AIDS pandemic
and other endemic diseases such as malaria and TB must play a
central role in donor policy.
5.4 Finally, the international community
and civil society should continue to call for both companies and
governments to sign up to the Extractive Industries Transparency
Initiative, (EITI) the UN Global Compact and the World Economic
Forum's Partnering Against Corruption Initiative (PACI). Moreover,
all stakeholders should begin to think of ways to strengthen and
bind commitments to these initiatives so that they can be more
effective.
5.5 What permeates these examples is the
belief that partnerships are the key to success. Alliances, or
partnerships, are at the heart of De Beers' business philosophy.
We believe that partnerships between governments, international
institutions, business, academia and civil society are central
to the success of post conflict reconstruction, conflict prevention
and development in "weak government zones", De Beers
has, seeks and aspires to partnerships in all it does.
February 2006
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