UNCLAS SECTION 01 OF 02 GABORONE 000233

SENSITIVE
SIPDIS

STATE FOR AF, EEB
STATE PLEASE PASS OPIC
STATE PLEASE PASS USTR

E.O. 12958: N/A
TAGS: ETRD EMIN EFIN EAID BC
SUBJECT: BOTSWANA: U.S. DIAMOND FIRM WAITING OUT THE GLOBAL
CRISIS

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET POSTING.
REPORT CONTAINS PROPRIETARY BUSINESS INFORMATION.


1. (SBU) SUMMARY: U.S. diamond manufacturing and
distribution company Lazare Kaplan International (LKI)
recently completed construction of a $10 million factory in
Gaborone, but has suspended local operations and retrenched
staff due to the global economic crisis. LKI's Botswana
Managing Director Alfred Dube told Ambassador Nolan March 19
that he expects the diamond industry to suffer from weak
demand at least through 2010. However, he reports that LKI
is moving forward with plans to implement a $250 million loan
guaranty facility for sightholders of Botswana's Diamond
Trading Center (DTC) approved by the OPIC board in September

2008. Maurice Tempelsman, the Chairman of Lazare Kaplan's
Board of Directors, plans to visit Namibia and Botswana in
early April. In Botswana, Tempelsman will meet with
President Khama and other GOB officials to discuss
implementation of the OPIC loan program and possibly to
propose a plan for a group of investors to buy rough stones
and hold them until diamond demand resumes. END SUMMARY.


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LKI Botswana Operations Suspended Due to Lack of Demand
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2. (SBU) The Ambassador and Pol/Econ Chief met with Alfred
Dube, the Botswana Managing Director for U.S. diamond
manufacturer Lazare Kaplan International on March 19. Dube
explained that LKI recently completed construction of a $10
million dollar factory in Gaborone, and the company had
previously expected the factory to be engaged in cutting and
polishing operations by this month. However, because global
demand for diamond jewelry sharply declined in the 4th
quarter of 2008, LKI realized that they could not begin
production in Botswana at this time. Despite having hired
and trained staff, LKI was forced to retrench them and
indefinitely suspend operations at its new factory. Mr. Dube
commented that Lazare Kaplan's Christmas sales had been
terrible, and this left a great deal of excess inventory with
retailers and in the company's pipeline. Though Mr. Dube
predicted that demand f

or diamonds was not likely to improve
much until at least 2010, he was confident that Lazare Kaplan
and the other 15 ightholder companies that operate in
Botswana will be able to wait out the economic crisis.
Though2009 will be a very bad year, Dube believes that te
sightholders will not pull out of Botswana.

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Implementation of OPIC Loan Guaranty
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3. (SBU) In September 2008, the OPIC Board approved a $250
million guaranty facility to help Botswana develop its
diamond cutting and polishing industry by increasing
available credit. The OPIC facility was awarded to Lazare
Kaplan in cooperation with participating banks, to include
ABN-AMRO. According to Mr. Dube, LKI is still working with
ABN and the GOB on implementation of this program. ABN is in
the process of applying for a license to operate as a bank in
Botswana, which they hope will be granted soon. Though the
16 Botswana sightholders are not borrowing now as they are
not buying stones, Dube confirms that LKI is taking the long
view and preparing to implement the credit facility so that
it will aid business once demand improves. Maurice
Tempelsman, the Chairman of Lazare Kaplan's Board of
Directors, plans to visit Namibia and Botswana in early
April. According to Mr. Dube, Tempelsman will be in Gaborone
April 7-9 and plans to meet with President Khama, Finance
Minister Gaolathe, and other GOB officials to work out the
details of how the OPIC loan guaranty will be implemented.
Mr. Dube also explained that during Mr. Tempelsman's visit to
Botswana, Lazare Kaplan hopes to propose a plan to the GOB
and Debswana which may help as the country and company suffer
from the global economic slowdown. According to Dube, it is
a complex plan, but the essential idea is to use the capital
market to raise a fund to pay Debswana for a stockpile of
stones, with the agreement to hold the stones for a certain
period and then sell them once diamond demand recovers and
split the returns amongst shareholders. Lazare Kaplan has
heard initially positive feedback on this idea from both

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Debswana and the GOB, but they will present a more detailed
concept paper fleshing out the idea during the Tempelsman
visit.


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Skepticism Over Zimbabwe's Diamonds
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4. (SBU) Ambassador Nolan asked Mr. Dube about reports of a
diamond discovery in Zimbabwe's Eastern Highlands. Dube
commented that he is skeptical about the Zimbabwe find
because there is so little reliable information available.
Though the Government of Zimbabwe tries to give the
impression that this is a major discovery, Dube says that no
evidence has yet been offered to support the GOZ's claim. He
said that "some diamonds are being grabbed and sold by
corrupt government officials, but they have no idea what they
have" (in terms of mining potential). Mr. Dube does not
believe that the deposit will be found to have significant
value, and he noted that it has not yet been properly
assessed. He also confirmed that the GOZ had sought out
Russian investment in the diamond field, but that Russia had
declined the offer. Mr. Dube noted that his biggest concern
was that the Zimbabwean diamonds could cause a negative
perception of the diamond industry in western markets. He
expressed hope that the Kimberly Process will be used to keep
the Zimbabwean stones off the market to avoid any negative
perception about illicit diamonds from Zimbabwe.
NOLAN