BG reporter

Local stockbrokers have said that an Exchange Traded Fund (ETF) backed by diamonds seem to be an appealing idea to the local stock exchange since both investors and individuals appreciate the value of the commodity.
Until recently, the diamond industry has contributed well over 40% to Botswana Domestic Product (GDP).
“I think the suggestion by BSE is a good idea,” said Stockbrokers Botswana Chief Executive Officer Geoffrey Bakwena this week. At the listing of the ETF by Absa Capital Chief Executive Officer of Botswana Stock Exchange (BSE) urged local stockbrokers to develop an ETF that can be backed by a local commodity.
He indicated that an ETF backed by diamond would be a good initiative because Botswana has one of the diamond kimberlites that could be traded for profits.
In an interview, Thapelo Tsheole the product development manager at BSE indicated that a diamond ETF is good, but “the problem is that as of now its prices are somehow secretive.”
He said they have in the past thought of working around introducing the diamond ETF but they have since shelved the idea. However, Bakwena holds a different view on the secrecy of the prices of diamonds. “I think the problem is that currently the industry prices are determined by a ‘cartel” he said.
He said unlike gold prices which are widely known, only close industry players know diamond prices.
Bakwena said if a product of such a nature is conceived, prices would even become better known. He explained the other products that can be chanced upon are cattle but this would depend on various factors at stake such as availability, market demand and sustainability in the local market.
Yet another commodity, which can be tried, is coal. Botswana is currently believed to have 200 billion tonnes of coal underground. An ETF requires a product, which does not fluctuate much in terms of prices. Diamond prices are highly volatile.
“I suppose the challenge is welcomed,” said Gregory Matsake another local stockbroker.
He said diamonds are a commodity which Batswana have a comparative advantage on, and could be ideal to back a local ETF. Matsake said that an issue, which might arise, is one of legislation, infrastructure and sustainable demand for such a product.
He indicated that ETF is a totally different asset class to what the local industry is accustomed. He said it would be “foolhardy” to set up a similar thing based on a commodity and would definitely need structures to support governance, trading and handling of such a product.
Matsake said the Newgold, which has been listed at the BSE, has a primary listing at the Johannesburg Stock Exchange (JSE). He said it was much simpler since promoters were able to piggyback on South African structures.
Elsewhere, reports indicate that De Beers, the world diamond miner was keeping an open mind on discussions about launching a diamond ETF and would consider any proposals presented to it saying the move could attract investors because global diamond production was declining, with little prospect of new major mines .
The group was in discussions to roll over $1,5bn of debt that falls due next year but had no further need for funds, Penny said.