Debswana and its Looming Big Local Tenders; Will it End Well?

Lately, Debswana, a mining company formed in partnership between the Botswana government and the De Beers Group of companies, has been taking tenders from foreign companies and awarding them to local companies through the Citizen Economic Empowerment Policy (CEEP). Debswana CEEP is a programme that aims to capacitate citizen companies to participate in the Debswana supply chain. In 2020, 35% of procurement was spent with citizen-owned companies. The first question is why does it matter that a company report on this metric. It would also be worth addressing the pros and cons of the adjustment, who will benefit, and most importantly evaluate whether this was a good move or not. As usual, this newsletter takes a principled approach.

Debswana Diamond Company is a partnership between the Republic of Botswana and De Beers Group of companies on 50:50 shareholding. The company operates mines in Botswana, including the largest producer of diamonds in terms of value, Jwaneng mine. De Beers is owned by Anglo American mining company and the Republic of Botswana on an 85:15 percent shareholding. As a multinational company, Anglo American is committed to fulfilling international sustainability standards. This, therefore, means all its subsidiaries will comply with the group's standards. Some of these standards include the Anglo ?American’s Social Way Programme (SWP).

Sustainability is critical for every company aimed at growth. At first, it was more on compliance and the pretext that companies care for the people and environment they operate on. Since the rise in climate change, human rights awareness, and global pandemics like COVID 19, companies have grown to be aware of the risks and opportunities that environmental, social and governance (ESG) issues have on their companies. Several sustainability factors impact the growth of a mining company. Debswana, like other big companies, is heading toward capitalizing on the opportunities and minimizing the risks. The complexity of the mining environment warrants a robust and integrated ESG approach toward risks and opportunities. The biggest ESG opportunity Debswana realized is localized outsourcing. This opportunity not only build Debswana's corporate social profile but also creates value. The ESG principles addressed in this article are ethical supply chain, labor standards, and community relations. Is Debswana doing enough? Will the CEEP yield positive results?

There are already critics of the program based on labor standards and those who support it are using community relations and an ethical supply chain. The critics highlight job losses as a high risk posed by localizing the supply chain. They believe CEEP is not being implemented in the best interests of employees. They cite the Cut 9 multi-billion contract between Debswana Diamond Company and Majwe Mining as an example of CEEP that was not implemented properly. They also believe the upcoming outsourcing transition of both maintenance works and fuel supply might result in massive job losses. Though there are no specific numbers to justify the critic's arguments, it is evident that there will be job losses through the transition from foreign company outsourcing to local outsourcing. Debswana has admitted to that too. In their defense, Debswana believes the risk is outweighed by the opportunity in the long run.

Global sustainability and human rights organizations advocate for localized beneficiation of natural resources including minerals. Localizing Debswana's supply chain goes a long way in creating value for the local companies. Local companies through the CEEP build capacity to develop into sustainable companies that can create employment for the local communities. As these companies grow, they set up offices locally, expanding the value chain where other companies that offers services like, secretarial, cleaning, management, consulting, and other support for companies can thrive too. This creates a cyclic effect back to the main concern of labor standards. Most of the people who will possibly lose jobs due to the transition are in administration and management because once Debswana absorbs other employees, there will be reduced needs for contract management and administration. Though it will take a while, those employees will be absorbed into the local companies that are being contracted by Debswana. The only difference is that they will now be employed by local companies. In addition, more of them can be absorbed because all offices including head offices are local, compared to international companies with head offices overseas.

In ESG Zoomin's opinion, the CEEP is sustainable and contributes positively to ESG issues. Though the financial implications of the transition cannot be precisely commented on because Debswana does not publish its financial statements, Debswana has been reporting positive growth beyond COVID 19 implications. The value of CEEP to the local communities and Botswana's economy is also evident, the possible risks are precisely calculated and mitigative measures have been put in place. What is your opinion?