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KEYNOTE ADDRESS AT MINISTER'S ENGAGEMENT

SESSION WITH THE DIAMOND INDUSTRY

BY

HON. OBETH M. KANDJOZE, MP

MINISTER OF MINES AND ENERGY

HILTON HOTEL

March 27, 2017

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Hon Kornelia Shilunga, Deputy Minister

MME

Mr Simeon Negumbo, Ps of MME

Mrs Miina Auene- Gahutu, Acting

Diamond Commissioner

Mr Sihaleni Ndjaba, CEO of NDTC

Ladies and Gentleman,

Good Afternoon,

Please allow me to start this meeting by

taking the opportunity to wholeheartedly

thank you all for making the time to attend

this, the first of its kind, industry engagement

session. I see this as the first of many such

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engagement sessions with all the relevant

stakeholders in the diamond industry.

The Ministry of Mines and Energy together

with NDTC see you as key catalyst and

enablers of downstream diamond

beneficiation industry in Namibia and are

delighted that you made the effort to heed

our call for an honest and candid

engagement on some of the challenges

faced by the industry. The primary objective

this evening is for an open dialogue on a

number of issues and more importantly how

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we can work together in the quest to create

a conducive environment for sustainable

downstream beneficiation in Namibia.

Before I get into the specifics of today’s

meeting please allow me some time to

provide the following context.

As I am sure all of you are aware that the

Government of the Republic of Namibia and

De Beers signed the Diamond Sorting,

Valuing, Sales and Marketing Agreement in

May 2016 with one of the key outcomes

being the increase of the Local Offer

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Threshold to a price indexed annual amount

of US$430 million. In addition to the increased

Local Offer Threshold, the local diamond

cutting and polishing industry has seen NDTC

offering all the +10.8cts (including

Exceptionals) to its customers in Namibia.

It is the Namibian Government’s expectation

that the changes stated above are

anticipated to have a significant positive

impact on the growth and long-term

sustainability of the Namibian cutting and

polishing industry. Other expected benefits

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include increased opportunities for job

creation and skills transfer, investment in

infrastructure (including technology) and

further integration and empowerment of

Namibian citizens at all stages of the

diamond value chain.

Esteemed NDTC Sightholders and industry

stakeholders, let me assure you that the

Namibian Government considers sustainable

downstream diamond beneficiation activity

as crucial to achieving the national

development objectives and goals as set out

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in the National Development Plan (NDP 4 -5)

and the Harambee Prosperity Plan. It is for this

reason that the negotiations between the

Government and De Beers took the better

part of two and a half years.

I am very happy to report that NDTC

implemented in full provisions of the new

Agreement in October 2016, with you the

NDTC Sightholders seeing the impact of the

Agreement as of November 2016. On the

back of this and the sustained improvement

in market conditions compared to 2015,

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NDTC achieved record beneficiation sales for

the year 2016.

Having said this, I am sure you will understand

my disappointment when the Department of

Diamond Affairs brought it to my attention

that a significant proportion of the rough

diamonds sold by NDTC to its customers in

2016 has been typically exported instead of

being cut and polished in Namibia. Based on

export data provided to me by the Office of

the Diamond Commissioner only about 20%

of the total beneficiation sales made by

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NDTC during 2016 was processed in locally. I

would like to make it categorically clear that

the current trend of high rough exports is of

grave concern to the Ministry of Mines and

Energy and the Namibian Government.

We do appreciate the need for a flexible

business environment that allows you to

manage your Namibian businesses in a

sustainable manner; however the practice of

exporting in some cases 100% of the rough

diamonds meant for beneficiation purposes

is in our view totally against the spirit of

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beneficiation and I would like to put it on

record that we condemn the continuation of

this practice in the strongest of terms.

Furthermore, it is our belief that the continued

mass exports of rough diamonds sold for the

purposes of beneficiation is not only a loss to

Namibia but more importantly totally

undermines the concerted efforts

Government is making to eradicate poverty,

unemployment and improve the lives of

ordinary Namibian citizens. I would hereby

like to make a plea to those that are

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exporting a significant proportion of the

rough purchased from NDTC to reconsider

this practice and to refocus their efforts on

working closely with the Ministry and NDTC in

addressing some of the challenges that the

country is currently facing.

Some of you might well argue that although

you have exported a large proportion of the

rough diamonds purchased from NDTC you

continue to keep employees on your payroll;

however it is our view that just having

employees on your payroll and having them

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come in every now and then is neither

conducive to an environment that allows for

effective skills transfer nor is it sustainable. The

question that I have is how we as an industry

can talk about meaningful job creation and

skills transfer if a large proportion of the rough

diamonds meant precisely for this purpose

continues to be exported?

It is within this context that Government as a

shareholder in NDTC could no longer stand

by and support a rough distribution strategy

that does not take into consideration the

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level of rough diamond export in 2016 and

the negative impact that it has on the

diamond beneficiation aspirations of the

Namibian Government. It is on this basis that

we requested NDTC to come up with an

methodology and approach that takes into

consideration each respective Sightholders

rough exports when determining the level of

rough diamond allocation for the 2017/2018

ITO Selling Period. I can confirm that the

approach taken by NDTC has, in the same

way that it has reduced the allocations of

those Sightholders that have exported a

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large proportion of their purchases, resulted

in an increase in the allocation of those

Sightholders that have processed more of

their rough purchases in Namibia.

Testament to the fact that the allocation

methodology and process fully supports

Government’s objective of seeing more of

NDTC beneficiation sales going to those

Sightholders that process a larger proportion

of the purchases in Namibia.

What we are effectively saying is that just

purchasing rough from NDTC is no longer

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sufficient and we demand to see the

increased rough diamond supply levels from

NDTC translating into increased beneficiation

activity on the ground.

NDTC in an effort to further support

beneficiation activity will from now on be

offering a part of its ITO availability as a

Beneficiation supply allocation. Your ability to

compete for a beneficiation supply

allocation will be based on how well your

Namibian operations performs in respect to

the agreed Beneficiation Criteria relative to

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the rest of the Sightholder operations. What

this effectively means is that Government

would like to see that an increase proportion

of NDTC’s supply goes to those Sightholders

that continue to dedicate a larger proportion

of their purchases from NDTC towards their

beneficiation activities in Namibia. I can

assure you that the Ministry, as the

Government entity primarily responsible for

the successful delivery of downstream

beneficiation objectives, will be monitoring

and holding NDTC accountable in this

regard.

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You would have noticed that NDTC

introduced a minimum supply level of US$15

million. The objective of the minimum supply

level is to start off all Namibian factories at a

level of supply that ensures reasonable

viability and sustainability. Having said that, it

is also important to highlight that it is up to

each respective Sightholder to either

maintain or increase the annual allocation

from NDTC. I want to make it clear that NDTC

will not continue to allocate at minimum

supply levels to those Sightholders that either

through non purchases or significant export

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levels receives an allocation that is below the

minimum supply levels. I am sure you would

agree that this is tantamount to supporting

non-performance. To this end, the minimum

supply level will only be applicable for the

2017-2018 ITO Selling Period and that in

subsequent ITO periods the only two

considerations in determining the level of

allocation will be the Sightholder’s ability to

purchase and process in Namibia the rough

offered by NDTC in support of its downstream

beneficiations activities in Namibia.

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We do understand that some of these

measures/approaches may not have been

expected at this stage; however it is our view

that it shouldn’t come as a surprise as these

are not totally new concepts and more

importantly it underpins the overall

expectation that a larger proportion of rough

diamonds supplied by NDTC should be

utilized towards supporting increased

beneficiation activity on the ground. I

sincerely hope that when we review the

situation in October 2017, we will see a

positive impact as a result of concerted

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efforts from the industry to process more of

the purchases from NDTC in Namibia.

Finally, we understand and appreciate that

downstream beneficiation in Namibia can

only be successful on the back of a successful

tripartite partnership between the

Government, NDTC and the cutting and

polishing industry. Further to this, there is

appreciation the Ministry’s part that

Government needs to play an active role in

helping to create a conducive environment

that will support sustainable growth of

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downstream beneficiation in Namibia. To this

end we will be focusing on the following

initiatives over the next few months:

1. Effective monitoring of rough exports

and imports:

We understand the importance of timely

and accurate monitoring of rough

exports and the Office of the Diamond

Commissioner has over the last few

months been working very closely with

NDTC in strengthening the Department’s

ability to monitor rough exports. The

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Acting Diamond Commissioner and her

team will in due course communicate

additional measures aimed at making

this process much more effective and I

urge you to please support the team in

this regard.

Some of you have also raised, both with

the Department and NDTC, your

concerns around the fact that NDTC’s

allocation process does not at this stage

take into consideration import of rough

diamonds to either augment or

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supplement the rough purchased from

NDTC. I do appreciate that rough

imports ultimately supports beneficiation

activity on the ground and have tasked

the Department and NDTC to come up

with a solution around this. I would

however like to make it clear that we will

under no circumstance entertain a

situation where this is taken advantage

of and will once again like to request

your support in making whatever

solution we come up with work to

everyone’s benefit.

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It has been resolved that the Office of

the Diamond Commissioner and NDTC

will share relevant data on a regular

basis so as to enable meaningful

conversations between all concerned

parties throughout the year.

Kindly take note that the Department, in

particular the Diamond Inspectors, will

undertake regular visits to the factories

to ascertain the state of each factory

and the industry in general. In addition to

this the Department will undertake an

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official biannual technical verification

visit in conjunction with NDTC.

2. Exploring ways to streamline the process

governing the movement of rough

diamonds within the borders of Namibia:

This is an issue that has been highlighted

on a number of occasions by the

industry and we fully understand the

impact that it currently has on the length

of the manufacturing cycle in Namibia.

We will be engaging with Customs and

PRU to see how we can streamline this

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process whilst at the same time making

sure the industry continues to adhere to

the provisions of the Diamond Act.

3. Support services to the industry:

During a number of consultation

meetings with NDTC and the

Department, the industry has highlighted

the lack of funding and the fact that

none of the grading laboratories have a

presence in Namibia as two major

factors that are hampering and/or

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could further hamper the growth of the

cutting and polishing industry in

Namibia. In an effort to enhance and

improve the services provided to the

Namibian cutting and polishing industry,

I have tasked a team made up of

colleagues from the Directorate and

NDTC with the mandate to engage with

various financial institutions and grading

laboratories with the expressed aim of

finding solutions to this issue. In the

meantime Government will also explore

alternative funding mechanism aimed

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at easing some of the funding pressures

the Namibian industry is currently facing.

Allow me to conclude by thanking you for the

effort that each and every one has made so

far in helping Namibia on the journey to

realizing its aspirations of developing a

sustainable downstream diamond industry.

We have come a long way from exporting

the vast majority of our diamonds to seeing a

large proportion of our rough diamonds

offered and sold in Namibia and more

importantly contributing to the betterment of

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ordinary Namibian citizens. Having said this

we have more to do and we all need to

refocus our efforts in order to take the industry

to the next level. I am a firm believer in

partnership but of course being partners also

means having challenging conversations no

matter how difficult it may be as long as it is

done in a manner that promotes progress. It

is within this spirit of partnership that I would

like to urge you to continue engaging with

the Acting Diamond Commissioner and her

team at the Ministry as well as with NDTC on

issues effecting your businesses in Namibia. I

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would also like to suggest that we make these

engagement session a standing

arrangement.

THANK YOU.