The Walvis Bay White Elephant

In Namibia we love our elephants but as with so many things, and the white ones seem greatly favored above other colors. The Walvis Bay port expansion is amongst the newest addition to the species and will cost Namibia N$4.2 billion. The project was was initiated by Namport and funded by the African Development Bank. The Chinese built port, when the expansion is completed will in effect increase the size of the port to carry 1.05 million TEU (twenty foot equivalent containers) per year. The current capacity is about 350,000 TEU  and there now seems that the expansion and the resulting debt will probably result in a further deepening of Namibia’s economic morass because Namport, which should be able to carry the debt for the expansion from revenues, may not be able to do so and the government of course has had to provide loan guarantees to the lenders.

            The problem is that container shipping at Walvis Bay is not growing but is in rapid decline. Most importantly the trans-Kalahari railway from Botswana has not and probably will not progress and container traffic in transit through the port is in decline. The transshipment to Angola was supposed to be the economic basis for the expansion of Walvis Bay port but to assume that Angola would not develop its own ports in the wake of the civil war and that Walvis Bay would continue to act as its major transshipment centre was economic folly. New ports are being constructed all over Angola by the Chinese at Cabinda with a US $600 (N$7.2 billion)  loan from China and there has been an expansion of the container port at Lobito the end of the Chinese reconstructed the US$1.8 billion (N$20 billion) Benguela Raliway to DRC and Zambia. The first shipments of manganese from DRC arrived at the port of Lobito in Angola earlier this year.

The question that Namibians must ask is how did the nation get into this mess and how do we stop the development of yet more multi-billion dollar white elephants? There are many white elephants in Namibia, this deadly species is not in any imminent danger of extinction  and we will almost certainly continue to build more.  The market section of the feasibility study for the Walvis Bay port expansion was done by Namport in 2011 when TEU through Walvis Bay peaked at 334,000 containers. Since then it has decreased to 203,000 in 2017 but according to the AfDB projections it was supposed to be 561,000 TEU by 2017. Most of the decline was because of the collapse of transshipment. This will mean that, based on current throughput, the new 1.1 million TEU port will operate at 20% capacity and that the expansion was simply an unnecessary investment that Namport will now struggle to repay. The N$3 billion borrowed from AfDB will have to be repaid by government and people of Namibia if Namport cannot. The growth of shipping in 2011 made it look possible to believe that a 1.1 million  TEU port might make sense one day in the very distant future but only so long as the transshipment traffic to Angola continued. No-one, especially the AfDB, should have assumed such a thing, which should have done its own assessment when it finally agreed to the $N3 billion loan in mid-2013 by which time shipping was already in decline. This white elephant is not just a case of unfortunate future projections on shipping demand as this could have been foreseen by 2013 if there was a proper review by AfDB just  prior to disbursement.

The only way to stop this sort of economic folly from continuing and ultimately bankrupting Namibia, which no-one should doubt will be the end result,  is for the President and National Assembly to protect the people from some of their ministers. Some, but not all ministers build white elephants out of pure vanity and hubris and the hope that it will be a ‘pyramid’ in the their name. Others have even less noble objectives such as getting kick-backs which are common in such large infrastructure projects. In theory the Ministry of Planning should be mandated to conduct an independent review of all infrastructure projects using proper economic cost-benefit analysis. But the ministry cannot be trusted not to be leaned on by one or other powerful ministers to give a favourable outcome. What the country needs is to resurrect the now defunct NEPRU (Namibian Economic Policy Research Unit) directly under the control of the National Assembly. It should change into an independent economic watchdog, based on the US Congressional Budget Office model,  that would publish an independent analysis of any proposed infrastructure project in the country. The IMF has earlier this year warned Namibia that one of  the nation’s greatest financial risks lies amongst our state owned enterprises and their penchant for such sub-economic projects. It is time for parliament and the President to protect the people and insist that proper facts based cost-benefit analysis be done by an independent parliamentary body before any large infrastructure project is approved. If we do not then the herd of white elephants we are building will destroy our economy and further impoverish the people of Namibia.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

De Beers new Nuclear Weapon

Fifty years ago De Beers and General Electric were the leading technology firms making synthetic, man-made  diamonds. It was held as a truism in the global diamond  industry that De Beers would only use the synthetic technology to produce industrial diamonds  which can readily be bought in any hardware shop and are used as cutting tools. These are an essential ingredient in construction and are manufactured in China by the billions of carats. But one De beers CEO after another would solemnly promise that De Beers would never produce gem quality synthetic diamonds because, after all, that would undermine their highly profitable mined diamond operations. While they were protesting their innocence Element 6 which is the De Beers synthetic diamond arm, was busily filing patents for gem quality synthetics and preparing for what happened in May and June

 Two months ago De Beers dropped a huge bomb on the global diamond industry and by extension the relative prosperity of Botswana and Namibia, by far the two most diamond dependent countries in Africa,  by announcing that it would establish a new firm under its existing Element 6 which would produce  gem quality synthetics. The new company called  Lightbox will manufacture synthetic diamonds for jewellery at a price range of US200 for a quarter of a carat to $800 for a one carat diamond.

These are modest prices and are aimed at tempting back ‘Millennial’ consumers who as a group are simply not interested in ‘bling’ in the same way as their parents. This new younger generation of affluent consumers looks at a range of possible luxuries when buying and diamonds are only one option and so De Beers has purposely targeted the price range that will compete with branded leather hand bags. This strategy could not be done with quality mined diamonds which are much more expensive.

For Botswana, Namibia, South Africa Angola and Zimbabwe this move is nothing short of an economic disaster because it will certainly not be long before De Beers begins to compete against more high value stones. Namibia produces amongst the world’s most valuable rough diamonds selling at unit export price of more than N$7000 per carat. The Namibian Ministry of Mines appear to have been totally silent about the De Beers move even though in one swoop the old cartel master of African diamonds has completely undermined any bargaining power that African countries have by giving itself  a ‘nuclear option’. In the three countries where De Beers has mines in Africa; Botswana, Namibia and South Africa it has seen government policy towards diamonds decrease their relative power and market position as governments try to extract ever more surplus from the industry.

As the technology for manufacturing modern synthetic gem quality diamonds matured at the beginning of this century Botswana, which already owns 15% of De Beers signed a secret  agreement with De Beers in 2004 that if De Beers ever began to produce gem quality diamonds that it would form a 50/50 partnership with the government. What remains unknown is whether this has eventuated in the case of the US$94 million plant in Portland Oregon and what will be the financial stake of the government of Botswana in the impoverishment of its people.

Why this move is the nuclear option for Africa’s mined diamond producers has to be understood in light of what has happened in the past to the price of industrial diamonds after GE and De Beers started producing synthetics. These were first developed in the 1950’s and GE went into production in the 1960’s. De Beers then entered in a big way in the 1970’s and after 1981 prices on the global market collapsed. First Japan in the 1990’s developed synthetics followed by China at the beginning of the current century. The world’s biggest producer of diamonds is not Russia or Botswana but China which manufactures what is estimated between 4- 8 billion carats per year but has no mines.

The entry of De Beers, then Sumitomo in Japan and finally China collapsed the price of industrial diamonds on the world market. Prices fell in the US from a peak in 1981 of US Synthetic industrial diamonds from a unit import price of US$26 million per tonne to approximately US$2 million per tonne by 2009. Synthetic industrial diamonds are now more than 98% of total global production of industrial diamonds. This sort of massive price decrease for mined diamonds can now be reasonably expected in the gem market once the Japanese and Chinese enter synthetic gem production in the same way they did for industrial synthetics in the last 20 years.

For Botswana and Namibia De Beers has been granted a nuclear weapon with which it can bomb the African economies. So why is De Beers now willing to in effect bomb its own diamond mines with synthetics when it made no sense before? For years De Beers has complained that its market was progressively being eroded in one negotiation after another with African governments. The rates of return on their African mines have declined massively since the heyday in the 1990’s when they were making 500% return on share capital in Debswana, its joint venture with Botswana

But this is only the beginning. De Beers is not the first synthetic gem quality diamond producer but it will for a time be the largest. But having opened what De Beers would argue was the inevitable flood gates of synthetic gem quality diamonds, De Beers will eventually lose complete control of the diamond market that it once monopolized for almost a century. The logic of the market, the often superior quality of synthetics and the competitiveness of Chinese synthetic producers will make mined diamonds much less profitable. The victim will be, once again Africa’s modest prosperity which has come from the twins of relatively good management and good fortune. One of the most important pillars of Namibia’s wealth and the very foundation of the Botswana economy is being undermined by the new De Beers policy. Diversification of the economy is now an utter necessity if Namibia and the other diamond dependent countries of the region are not to slip backwards into further poverty. These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

Namibia’s $N2.2 billion  diamond subsidy to Botswana

A wonderful thing has happened to Botswana over the last three years. As a result of its suite of agreements with De Beers and the government of Botswana signed in 2011 Botswana rather than London has become the centre of De Beers diamond aggregation activity. It is right and fitting that Africa’s biggest producer of diamonds and the world’s second largest by value should now become the centre of the trade in Africa. It is something that all Africans should celebrate. All diamonds produced by De Beers have to be sent to Gaborone. This includes Namibian and South African diamonds as well as those produced in Canada.

As a result of this De Beers- Botswana agreement however all  Botswana’s neighbors in SACU are, based on 2017-18 data,  paying a massive subsidy of ZAR 3.3 billion to Botswana. Botswana is the richest member of SACU and is being subsidized. This includes some of the poorest countries in SACU such as Lesotho which is  losing some ZAR 750 million because of the diamond trade.  

Botswana has become the third biggest export market for Namibia. In 2016 Namibia exported N$ 10 billion to Botswana. Much of this was diamonds that previously went to London. And for every dollar we export to Botswana or any other SACU member we lose money from the SACU customs pool. Why, you ask? The SACU customs revenues that each country gets from the SACU customs pool depends on the size of the pool and on the share of intra-SACU imports. In other words the more you import from say South Africa the more revenue you get. This may help explain why so many comfortable and relatively well paid servants are in no hurry to assure we produce more and provide jobs.

Of the many strange economic ideas invented by man,  the SACU revenue sharing formula must surely rank high amongst them. Countries are subsidized to import essentially from South Africa. The more you import from SA the more money you get and the more jobs SA has. But if  Botswana imports more diamonds from South Africa and Namibia then it will be richer. Botswana has gone from getting 30% of all SACU revenue before the De Beers agreement to getting 36% based on 2017/18 results.

In a recent paper sent to both SACU and the Namibian Ministry of Finance called ‘Unintended  Consequences’ the present  writer with Dr Nyambe and Dr Kalihowa of UNAM have calculated the biggest loser  of the Botswana- De Beers marketing agreements is Namibia which based on 2017 data will lose $2.2 billion in revenue as a result of the diversion of trade from London to Gaborone. For those not accustomed to such large numbers what this means is that Namibia would be able to pay the entire budget of NUST and UNAM if the trade would revert to the previous situation where we sent Namibian diamonds to London.

Normally well informed sources who have access to the De Beers-Botswana Agreement indicate that legally Namibia, or any other country,  has the right to  step away from this agreement if it so wishes. Such a measure would damage Botswana and undermine its rightful  attempts to beneficiate and aggregate diamonds. More importantly it is completely unnecessary as there are several ways to deal with this that would allow Botswana to continue to be Africa’s aggregation centre and not have an effect on SACU revenues.

The first way is for SACU members to agree not to include diamonds in the calculation of intra-SACU imports but this would create a precedent. For the small SACU members the current formula, which is such a large part of government revenues  is sacrosanct and they will do nothing that undermines that formula. So politically it would be hard to reach consensus.

Another way to do this to tell De Beers and Botswana that these completely unintended effects were not foreseen and that while Gaborone should remain the aggregation centre for De Beers diamonds ways should be developed  around the ‘SACU effect’ the easiest way to do this is to first send the diamonds to London ( or at least outside SACU ) and then send them to Gaborone. This would have no effect on each country’s share of intra-SACU imports and would add slightly to De Beers costs.

Gaborone, like everyone else in the region, is fairly desperate for revenue and might dig in its heels, even though there was not the government of Botswana’s intention of obtaining a  SACU subsidy when it shifted aggregation  from London. But now that it has a subsidy it will not be happy to give it up. In that case Namibia has the legal right to walk away from the agreement and this would be a serious blow to Botswana’s development effort.

The movement of diamond aggregation to Gaborone is what Africa wants- more economic power to mineral and gem producers. That SACU members would even think of ending it shows once again how distortionary the SACU customs revenue sharing formula is and how absolutely essential reform  of the formula must be for the sound development of the region. The South Africans have long argued that it should become a development formula and not an apartheid era subsidy to the BLNS. They are absolutely right. 

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

Namibia’s Country Club ‘model’ -The future of SOEs in Namibia?

 

Some state owned enterprises (SOESs) are fairly obvious. With entities like Nampower, Namwater and Nampost government ownership is common in many countries  around the world. Others do not exactly jump off the page and really require a second look to understand how we got there. This is certainly the case with one of the poshest establishments in the capital, the Windhoek Country Club (WCC) which is 100% owned by the people of Namibia. 

 

The most obvious question is why would the state own a casino and  country club? It is certainly not at all a likely candidate for ‘nationalization’. The reason is historic. In 1994 Namibia agreed to host the Ms Universe contest but had no place to host it so with a period of 9 short months the hotel was built. The rest is history. 

 

But from a public policy standpoint was building the WCC with public funds just for a Miss Universe contest money well spent or was it just part of Namibia’s long problem with making highly political decisions on infrastructure project? But from a narrow commercial standpoint it was one of the more profitable investments made by the people of Namibia as unlike so many of the SOEs   this has  over the last number of years made a consistent profit.

 

Mr Jooste, the Minister of Public Enterprises  frequently uses the WCC as an unfortunate source of invidious comparison for so many of the other state owned hotels which do not have  a record that looks anything like that of the Windhoek Country Club.

 

But the interesting question is precisely why the WCC is making money and the state owned Namibian Wildlife Resorts (NWR) which holds some of the finest hotel and lodges in the country does not make money? NWR has become a financial albatross around the neck of the Minister of Finance and, according to senior government officials, has never made a profit? There is one obvious answer which jumps off the page and that is management and the board. In so many countries the Board of Directors of SOEs is stacked with politically appointed hacks, many from the public sector, who have no commercial ability and whose only interest is getting their board fees.

 

In the case of the WCC the management has long been in the hands of the Legacy Group which is a South African Hotel and leisure company with long years  of experience  of managing hotels in the region. NWR, on the other hand, while having a portfolio of some very fine properties in some excellent locations has never made a profit.  It has been and remains in the hands of government appointed managers.

 

Government ownership is not necessarily the problem with SOEs. Two minimal requirements for profitability are good management and a board of directors which is financially  astute and supportive of management. Until last year the NWR was run by a board of directors which was stipulated under the act and straight out of the ‘SOE Manual for Financial Disaster’. Under the NWR  Act (1998) the board was made of the Permanent Secretary of the Ministry Finance, Tourism , Lands Parks along with just one representative of businesses and labour. And the results were predictable- no profits. Last year, using the provisions of the new Public Enterprises Governance Act (2015) the government overrode the old NWR Act and appointed a new board made up of experienced people from the private sector.

 

However, by doing that the government has created a potential governance conflict at NWR. Do those on the board now reflect Namibia’s interest or simply that of the private sector? Tourism in Namibia is a peculiar business and for some private sector operators the fact that NWR resorts may not be well managed is a blessing in disguise. So if you own a private resort outside a national park, for example, and the NWR resorts in the park are not working effectively then you have an interest in maintaining the situation  exactly as it is. But those on the NWR  board do not appear to have an obvious interest in this sort of commercial sabotage. Those on the board from Avani or Swakopmund Hotel, for example,  have no obvious interest to support the  poor management at NWR.

 

If the recipe for financial success in SOEs as in private firms is based, at the very least, on having a good board and a good experienced commercial management, then why is NWR not making a profit? It is the second part of the equation that remains unchanged and the board has not yet brought in new management. Until professional management is brought in Namibia’s fine portfolio of hotels and resorts will remain a financial liability to the people rather than an asset. The question is why the board of NWR and the government have been unable to change the management and repeat the positive experience of the  Country Club? Perhaps Minister Jooste needs to consider the reasons why progress is not made in management reform. The longer reform is delayed the more resources government will have to pour into NWR rather than using them for important priorities like poverty alleviation. 

 

 

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

Of Fish and Diamonds

Several weeks ago Mr Daniel Kali, the resident Director of De Beers in Namibia wrote an article in The Namibian in June about the contribution of diamond mining sector makes to the economy of Namibia. In that article he claimed that the diamond industry had contributed some $N3.7 billion last year to the coffers of Namibia in the form of taxes and  other revenues paid. This was out of a total sales of some $N10- 11 billion and  no-one should have much to complain about with figures like that. But then Mr Kali made a comparison with another, unnamed industry, of similar value to the diamond industry which only made a meagre contribution of N$130 million. While the industry was unnamed the only industry of comparable value is the fisheries and this questions opens a can of worms, or a just a can of horse mackerel if you prefer. Fish are vitally important to Namibia and are the source of employment for 13,000 Namibians. More importantly, if we manage the nation’s fisheries properly, and that is a big ‘if’, the jobs will be there forever, unlike diamonds which are not forever.

Some might say that it is a bit unfair compare horse mackerel to diamonds and one can only reasonably expect that the diamond sector would contribute more to the economy. There is more in common between the two industries than immediately meets the eye. The fisheries sector generated some N$ 8.8 billion in exports in 2016 and yet it paid little in taxes. Needless to say the contribution of the fisheries is small but these numbers probably do not include income tax returns from all those beneficiaries of horse mackerel quotas who simply ‘flipped’ i.e. sold  their quota to actual fishing companies and received what was in 2016, a payment  of N$3,500 per tonne which is what was paid in Walvis Bay. In 2012 the last year for which data is available, the government earned only $130 million from the fisheries and it sold the quotas for N$109 million.  That means that given the total allowable catch of some 350,000 tonnes of Horse mackerel alone the government could have received N$1.2 billion if it were to auction these quotas at the going market price rather than allocate them to firms and individuals, some of whom who have the most tangential connection to the industry. Moreover, given the extreme reluctance of the Ministry of Fisheries to release the names of beneficiaries, it starts to bear a painful resemblance to the situation in the diamond industry.

This situation of opaque transactions and prices is very similar to the diamond industry. Namdia (Namib Desert Diamonds) was established by the government for one specific purpose and that was to sell 15% of Namdeb’s diamond production. The reason is, despite what Mr Kali says about the great contribution of De Beers to the economy, there has been the long held suspicion in government circles that the price De Beers pays for Namibia’s diamonds is below the market price. This mistrust of De Beers pricing is transnational in nature because there is only one price of diamonds and that remains the price established and kept secret by De Beers. Botswana, which owns 15% of De Beers and is a far larger producer of diamonds than Namibia, has also followed this route because, despite protests to the contrary, as it also distrusts its partner De Beers and the prices it sets. It has established a firm called Okavango Diamonds but unlike Namdia, Okavango auctions its diamonds and as a result there has been no controversy like that which has engulfed Namdia since its creation with continual allegations of underpricing and commercial impropriety. These allegation may be completely untrue and merely attempts by those not getting access to Namibian diamonds to discredit the process, as has been alleged by the former Diamond Commissioner and new Namdia CEO Mr Michael Hamutenya in recent press interviews.  But if the purpose of Namdia is the same as that of Botswana’s Okavango Diamonds i.e. ‘price discovery’ in the diamond industry which means finding out what the real market value is,  then Namdia’s approach of selling to a few buyers is not fit for purpose. President Geingob and the Minister of Mines and Energy, Mr Obeth Kandjoze need to look at what Okavango Diamonds is doing through its auctions in Botswana and they will conclude that the model should be copied by Namibia.  

But one should not assume too much. In both the fisheries and the diamond industry the purpose of policy may not be the efficient allocation of resources. It may be that government simply wishes to allocate both diamonds and fish to those who, for one reason or another will do as the government wishes as in the case of Fishcor or even Namdia, or are connected to the right people. It is a common objective of many post-independence states in Africa to create an indigenous commercial elite and these sorts of policies may well be designed to achieve this objective. The creation of such an elite is, simply put, a very ugly business as it requires transferring large, often public surpluses to them. It is akin to Count Bismark’s famous aphorism about making laws and sausages- both are best kept from the public eye. This policy will be opposed because the rise of this commercial elite may have nothing to with their commercial ability and everything to do with who they know. Moreover, if the elite is devoid of real commercial ability because it has accumulated wealth by favors rather than sweat, suffering or cleverness, then these people will not reinvest their surpluses effectively and are more likely to spend them on consumption.

These are the views of Professor Roman Grynberg and not necessarily of UNAM where he is employed.

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Diamond Beneficiation – Subsidizing the Living Dead

 

Earlier this year Mr Obeth Kandjoze, the Namibian Minister of Minerals and Energy very publicly tore strips off what remains of Namibia’s diamond beneficiation companies. It was a dressing down that the industry richly deserved. The office of the Diamond Commissioner indicates that only about 20 percent of the total beneficiation sales made by the Namibia Diamond Trading Company (NDTC) during 2016 was processed locally.

 

The Minister said  “We do appreciate the need for a flexible business environment that allows you to manage your Namibian business in a sustainable manner. However, the practice of exporting in some cases 100 percent of rough diamonds meant for beneficiation purposes is in our view totally against the spirit of beneficiation and I would like to put it on record that we condemn the continuation of this practice in the strongest terms,”

 

Namibia has allocated US$ 430 million ( to the 11 so-called diamond beneficiation firms)  that operate out of tax free zones in the country. This amount is supposed to be increased annually. So why are they selling their diamonds and not cutting them? The answer is simple enough. One of the prime reasons for being a De Beers (or NDTC) site holder is you get diamonds. But you can buy those same diamonds on any exchange whether it is Antwerp or Tel Aviv or Dubai so why buy from De Beers? The answer is simple – the De Beers prices are below the prices that these diamonds are exchanged on the secondary market. Diamonds are no different from any other commodity, they are cheaper at source. How much cheaper?  In a normal market, and the last couple of years  has not been a normal market you can flip a De Beers box for a normal gross premium of 8-10%. In good years it is much higher but in the last few years it was actually negative and site holders were losing money and walking away from their  allocations.

 

The main incentive for locating a factory in Namibia is that you get an extra allocation that is less than those normal De Beers site holders get and so the gross return the industry can make from just flipping the annual allocation of $430 million is between $30-40 million.  But the alternative is that they can set up a factory, some legitimate others mere ‘Potemkin factories*’, and cut stones here but it is far more profitable to flip the whole box or send it to a factory India for cutting where cutting costs are much lower.

 

In actual fact according to normally reliable sources in De Beers only 5, and industry sources suggest it is only 3, of the 11 firms operating in Namibia actually do any cutting at all. Yet under the  new policy which was announced by NDTC all of these 11 firms, even the ‘non-cutting, cutting’  firms will be rewarded by a minimum allocation of a minimum supply level of US$15 million ( $N200 million). The stated objective is to start all local diamond cutting and polishing factories off at a level of supply that ensures reasonable viability and sustainability.  Presumably this reward is because of their stellar performance of some of these firms in doing nothing for Namibia in the past. No doubt the new Diamond Commissioner will say she will monitor these firms.

 

If you speak to these firms some will tell you the reason that they do not beneficiate is they are not allocated the right type of diamonds for the purpose of cutting in Namibia. They can only make a profit from the larger  stones. De Beers on the other hand will tell you that they give allocations specifically tailored to the needs of the firm.

 

If one looks at the trade figures for polished diamond exports it tells a very sorry story of decline. Exports from Namibia of cut diamonds have halved over the last three years from N$1.7 billion in 2014 to N$875 million last year. Diamond beneficiation is in free fall.

 

Ironically last year the government of Namibia and De Beers gave the diamond cutting industry  a fabulous concession that amounts to a massive subsidy. In 2016 Namibia decided to give all its special stones i.e those stones above 10.8 carats that come from Namibia to be cut and polished by local firms. This is literally giving the local beneficiation firms the crown jewels. These huge diamonds are geological rarities (most diamonds are much less than 1 carat) and are enormously valuable but are amongst the most difficult to value. The government and De Beers need to assure close supervision of firms to make sure they are simply not ripped off by some of the firms in the cutting industry. According to  industry sources De Beers  is selling these special stones to local cutters at their  polished prices which decreases the profitability of the cutters. Access to these special stones is something the diamond cutting firms in Namibia have long sought but few of the 11 firms have the slightest technical capacity to cut diamonds of this size in the country. Some have been placing advertisements in the local paper to get local cutters ( almost none exist) with such experience in preparation for importing these cutters from Europe. Traditionally diamonds that large were sent to Antwerp, New York or Tel Aviv for cutting by an expert given that with a diamond that valuable you do not want a relative amateur doing the job. 

 

Just three years ago when the guru of the diamond industry, Chain Even-Zohar published in  Diamond Intelligence Briefs an article stating that the reason why these firms were locating in high cost Botswana and Namibia was because they were getting a  cross-subsidy from De Beers in the form of an occasional  special stone. At the time the De Beers spokesperson strenuously denied that this was happening, Now it is not just an occasional stone but policy.

 

The response of the demise of the industry in Namibia has been ever more subsidy. This is akin treating someone with a congenital skin condition with cosmetics. It is merely treating the symptom and not the cause, which is the lack of competitiveness.  As things stand at the moment we cannot possibly compete with the Indian goliath which has 800,000 people cutting diamonds, half of which originate in Africa.  To solve Namibia’s competitiveness problems is very hard work and very politically unpopular and hence there is no appetite amongst government officials to deal with this problem. They know the political and economic constraints. If you are a high bureaucrat and you try and fail to implement such a painful policy then your name will forever be associated with that failure, so why even try because failure will end your career. And so instead the nation fails to implement hard but necessary policy.

 

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.  *In the 18^th  century Count Grigory Potemkin, Prime Minister of Russia reacted to Empress Catharina  terrifying desire to ’see how the peasants lived’. He  built a village with fake fronts of  peasants houses  with happy dancing girls along the banks of the Dnieper River and moved it as the Empress proceeded to Crimea. 

State Enterprises In Namibia, India and China - who pays the losses

Public Companies in Namibia India and China- who pays for the losses?

Namibia, India and China have one thing in common- all have had, at one point or another, a strong socialist ideology that has meant that government has created a very large number of state owned enterprises (SOEs). These were seen as vital building blocks necessary to help the country develop and transform that could not be provided by the private sector. In the case of Namibia there numbers have grown from a mere 11 enterprises in 1990 to well  nearly 98 today. The governments in all these countries have not hesitated to use state ownership and monopoly as a means of achieving its objectives.

In India there are some 244 SOEs. Few of these Indian SOEs are considered to be paragons of high productivity but the government of India has created numerous monopolies and provided considerable assistance to its publicly owned firms to keep them afloat. Some 80% of the total profit made by state-owned firms in India or 1.2trn rupees (N$300bn), comes from coal, petroleum products, power generation and oil where the government has granted considerable assistance or straight monopolies. In India SOEs made an average return has declined from over 17% of equity a decade ago and this has declined to  what is now slightly over 11% in 2016. 

 In China the SOEs are a complete contrast to the situation in Namibia and India and have been a vital engine of economic growth, government revenue and employment for the country. In 2015 the Chinese SOE sector contributed 15% of the central government’s revenue, something that would have Mr Schlettwein green with envy. Averages always tend to hide significant variation and this is certainly true in China where many of the SOEs are mere 'corporate zombies' - the walking dead . But the government of China is only willing to move slowly with consolidation into what is emerging, because of employment effects. The largest SOEs will become global economic giants that once privatized will be able to compete fully on  a global scale. In China it has been the massive profits of state monopolies such as exist in tobacco, railways oil, mining as well as the very significant returns from state owned banks that have generally provided the profits that have allowed the government to fund its operations as well as the many smaller companies that the government is unwilling to privatize.  

While the exact number of SOEs in Namibia is contested, with IMF claiming it is 33 but a complete list of the 98  Namibian SOEs on the Ministry of Public enterprises web site.  The most profitable ‘SOE’ is of course Namdeb which, the De Beers resident director Mr Daniel Kail recently claimed, contributed $3.7 billion in 2016 in taxes royalties and payments to the coffers of Namibia. But Namdeb is not really an SOE, because the government owns 50% rather than 51% of the equity in the company. That 1% is what really makes a difference because it means the government has the right to obtain dividends but not to manage the enterprise as it wishes. Because of the relationship, which comes very much from the relationship between De Beers and neighboring diamond rich Botswana, management must be by consensus and that consensus is that Namdeb must be run on a commercial basis.

But when you start to go down the list of public companies that are owned by the state there are very few where the contribution is positive. Some have made modest positive contributions like Nampower, Namport and Nampost. Others have become a financial albatross around the neck of the Ministry of Finance. Air Namibia, Road Contractors National Wildlife  and Namcor have placed a significant financial burden on the nation over the years. Air Namibia alone has needed some $4.7 billion of financial injections since 1997 and there appears to be no end in sight.

None of this is of course news and these habitual SOE losses are common throughout Africa and certainly not unique to Namibia. But these losses are only possible if you have an economic sector from which the surpluses are generated to make it possible to pay for the losses. In China and India these are the commanding heights of the economy and state monopolies which are themselves heavily supported by government. And in our case it is in effect Namdeb that pays for the losses of the rest of the parastatal sector of the economy. Without the diamonds it would be difficult for government to sustain the level of subsidies that are offered annually by the Minister of Finance to these companies. Put another way Namibia is paying for the losses of its public enterprises with something even more precious than the nation’s diamonds, it is the most valuable of things- time. It is time that we have little of, as the diamond deposits will eventually end, the time that we are prosperous and being able to make sensible decisions by ourselves. The day will come when the diamonds are gone and if we continue on the current path of unsustainable losses by SOEs the decisions will then not be made by Namibians but by those who will dominate policy making in the country and that will be the boys (and girls) from Washington, the International Monetary Fund.   

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed