U.S. Gov't: Unprecedented Financing for Botswana Diamond Manufacturers

Finance and Trade
25/07/2016 15:32

In a major, even historic development, the United States will be guaranteeing loans to diamond manufacturers in Botswana. Overseas Private Investment Corporation (OPIC), the U.S. Government's development finance institution that, "mobilizes private capital to help solve critical development challenges and in doing so, advances U.S. foreign policy", has today issued a press release announcing a financial partnership to provide access to credit for Botswana’s diamond cutting and polishing industry. It reads: "OPIC today signed a $125 million loan guaranty which will help Botswana develop its diamond industry in a sustainable manner that will promote local job creation and diversified economic growth. Historically, diamonds mined in Botswana and elsewhere would be sorted, marketed and manufactured in other countries. Bringing these value-adding functions into Botswana has been a priority of the country’s Government, and the guaranty will help provide the financial underpinnings for this economic development strategy to succeed. The $125 million represents the first tranche of a broader $250 million OPIC loan guaranty program for these purposes."

OPIC signed the $125 million loan guaranty with Barclays Bank of Botswana, a subsidiary of Barclays Africa Group Limited, together with Lazare Kaplan International (LKI) acting through its subsidiary Botswana Finance LLC. The agreement will establish a revolving framework facility in which OPIC will share the credit risk. “This project will provide critical support to an industry that is central to Botswana’s economy and a key source of job creation,” said James Polan, OPIC Vice President of Small and Medium-sized Enterprise Finance. “Bringing the larger supply chain into Botswana will have a huge impact in local communities across the country.” This project aims to facilitate further lending to diamond manufacturing and polishing companies with operations in the Republic of Botswana. Barclays Bank of Botswana is the first lender under the broader $250 million loan guaranty program, and additional lenders may join the program in the future.

Chaim Even-Zohar, author of the Diamond Intelligence Briefing (paywall) that explores the development in great depth, writes, "At a time when several banks are exiting the diamond manufacturing and training sector, or reconsidering their exposure to it, the U.S. government's commitment to both Botswana and its diamond sector could hardly come at a more critical moment." He explains that the guaranteed funding, said to be for ten years, could actually run to 13 years, concluding that, "With economically viable rough supplies, this OPIC guaranty framework injects an unprecedented stability factor in to the calculation: it guarantees credit availability for at least ten to thirteen years." The U.S. private partner, Maurice Tempelsman of LKI, said, "this facility ... points in a fresh direction. It is fitting that this new direction should be signaled here, in Botswana. For it is Botswana that has set the global standard for responsible stewardship of mineral resources. It is Botswana that has championed the principles of accountability and transparency that our industry needs."