Diamonds are forever – Botswana

De Beers Company is the largest diamond selling company in the world that has established diamond mining in Botswana. It has been in the activities of mining since the country gained independence and so has been involved in the growth of the economy from the beginning. The diamond mining business has been contributing to a 50% of the country’s Gross Domestic Product (GDP) for quite some time until the economy diversified for it to stand at a third. This means that the company has been contributing to a huge section of the country’s economy and its growth. The company operates on a 50-50 venture with the government and sold the government a 15% stake in the company.

This is a new model of a joint venture where the government enters into the business as a partner (Goldsmith). (Goldsmith, Ch.4, p.136 The Botswana government has been in the business of mining as a partner to De Beer to ensure efficiency in the industry for the benefit of the country. The company has been involved in Community Social Responsibility (CSR) programs where it helped build roads, hospitals, and schools among other projects that benefit the society.

The locals have therefore enjoyed the good infrastructure and living standards as a result of success of the company in the business. The company has also establishes the biggest diamond sorting complex in the world in Gaborone. This has provided employment to 600 people. The economic and social contribution of the company’s investment and operations in Botswana support each other very well. The population provides labor availability for the company and the company provides job opportunities.

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The company requires a healthy population to utilize them for human resources and therefore engages in HIV control initiatives. In the long run, the country tends towards HIV free and healthy population as well as the economy improving due to harnessing of the human resource into the mining and other duties for the company. The company, in its joint venture with the government trains black citizens for executive positions.

De beers had had a long time session as a monopoly in the diamond business. It could buy and stock the precious stones as they were mined from all over the world. Then it could sell out to retailers only the amount to satisfy demand, holing the rest. In the event that Canada was producing high quality diamonds and declined from joining the De beers cartel, the strategy of monopoly faded. This was also accelerated by the forced mining of diamonds in Africa-blood diamonds-by rebels who used the money for arms.

These factors made the control of the market hard for the company and made it opt for joint ventures. As it changed tactics from supply control to demand control and focused on selling its own diamonds rather than buying third party ones, the company lost half the market but is more profitable than before. The reason for this is that by focusing on the buyers, controlling the amount sold out through marketing strategies, the company continues to make more sales and hence more profits.

The government was an independent one since independence promoting peace and stability in the country’s political and social-economic environment, something that helped the South-African originating De Beers Company establish and make good use of the diamond deposits. This is a clear indication of the limitation of success in government-corporate joint ventures by political instability.  It is well illustrated from the examples of African states like Congo that have unexploited diamond deposits but cannot open up for trade because of political instability and corruption.

W.T.O and the Doha Talks on Farm Subsidies

GATT was the initial body governing trade agreements. With time it failed to implement the required changes and has been replaced by the W.T.O, which was supposed to be a more active and commanding organization. In reality, that did not work while dealing with U.S.A (Goldsmith, Ch.14, p.312) and the Shrimp/turtle issue. The World Trade Organization (W.T.O) has been involved in the negotiations of trade agreement between nations of the world. The Agriculture Agreement was negotiated at the 1986–94 Uruguay Round talks.

According to this agreement, the member nations were supposed to facilitate fairer competition and a less distorted agricultural sector. Since then, the developing nations have been implementing their strategies in tariffs and subsidies towards the achievement of the agreement. On the contrary, countries like Japan, with very sensitive agricultural markets for their produce (rice), are facing troubles implementing the agreement and hence are against the talks.

The poor and rich nations of the world are largely divided in negotiations by the tariffs on agriculture. In the recent times, the developing nations have presented a proposal for the W.T.O. to discuss the reduction or elimination of these tariffs.  The developed nations (the G-6) had reached an impasse over specific methods to achieve the broad aims of the round. Due to this, the Doha talks had to be suspended. The talks were aimed at substantial reductions in trade-distorting domestic subsidies, elimination of export subsidies, and substantially increased market access for agricultural products in the rich countries.

This was too much for countries like the U.S.A, EU, and Japan among others. In America, with the incompatibility of its agricultural sectors policies with the world trade rules, there is a lot of pressure for changes. There have been various cases where the U.S.A was sued at W.T.O and lost many of them. Farmers in developed nations fight to maintain the government subsidies that help them produce and since they are the voters to the politicians controlling the policies, they hinder these policies from being changed.

 On another note, there is pressure from the W.T.O with the case where Brazil has successfully sued U.S.A at W.T.O on cotton subsidies. On the developing nation’s side, most of the markets are being opened up with reduction in protection of farm sectors. The African States are faced with a lot of trouble from the fall in the agricultural produce prices due to subsidies from the American and European governments to their farmers. In America, 25000 cotton farmers are offered about $4 billion a year as subsidies. “For the 25,000 cotton farmers in America, each of them has benefited $230 per acre" (Joint Venture, 6/02/2004).

When they produce the cotton, they are able to sell with highly competitive prices in the world markets leading to fall in prices. If the U.S.A reduced its subsidies, it will reduce its power to compete in world cotton prices and give chance to developing nations to compete in the world markets. There are about 10 million small scale cotton farmers in West and Central Africa suffering from the plummeting world market prices, as they rely on export. Since the fall of prices and exports, the population does not have money to spend and local businesses like hotels are closed and the economies continue to collapse.

As a result, the African states consider the move by the American government an act of hypocrisy, because of initially agreeing to the terms of W.T.O and still not implementing meaningful reduction of the subsidies. As a result the African states are teaming up and with support from Brazil among other interested countries, have threatened to counter-attack by getting permission from W.T.O.

References

Goldsmith A., 2006, Business Government and Society: the Global Political Economy 3^rd Edition, Thompson South-Western.

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