A Diamond in the Rough: The Role of the Private Sector in Sustainable Development in Africa

Tuesday, June 10, 2008

PRINCETON LYMAN:  Good afternoon.  My name is Princeton Lyman.  I'm the adjunct senior fellow for Africa Studies here at the Council on Foreign Relations.  I'm delighted to see all of you here today for this -- what I think is going to be a really fascinating program.  Let me just make a couple of housekeeping announcements.  One is this is an on the record presentation so that you can keep in mind.  Second, please turn off cell phones.  We're recording this and cell phones and things like that, you know, get in the way.  So if you could turn those off we'd be very grateful. 

It's a great privilege and pleasure for me to welcome Mr. Gareth Penny, the managing director of De Beers, to the Council on Foreign Relations and to Washington, D.C., and I also want to say a welcome to Rosalind Kainyah, the De Beers representative in the United States, who many of you know and is a wonderful representative here.  We're delighted to use this opportunity of Mr. Penny being here to launch a series of programs and studies here at the council on the role of the private sector in development.  Both our corporate program and other programs are looking at this with a great deal of interest, and Mr. Penny's appearance is particularly timely. 

Africa, as you well know, is experiencing a commodity boom that's contributing to appreciably higher growth rates than the continent had seen for some time.  But as another South African, Greg Mills, of the Brenthurst Foundation has reminded us, Africa has had these kind of commodity booms before and they have not left a legacy of growth or sustainability.  So we need to look at what it takes to go from this period onto something much more sustainable in the future. 

We're also witnessing the reopening, if I can use that term, of one of Africa's largest and most commodity-rich countries, the Democratic Republic of Congo.  And much of that country's future, indeed of the many states around it and above all the people of that country, will depend on a responsible partnership between the government and the private sector which will be heavily invested in the minerals of that country and hopefully now bringing more benefit to the people of Congo than has happened in the past. 

And finally, in this same context we have in the Kimberley process in which De Beers has played such a major role a unique international undertaking to keep one of Africa's most precious resources -- diamonds -- from ever again being the source of support for war and for grievous human rights violations.  That process, I think, gives us a lot to learn about what is possible in this kind of private/public cooperation and it may hold lessons for us in how we look at the development of other natural resources and making them more beneficial. 

So for all these reasons, Mr. Penny, we are very much looking forward to your presentation and to the discussion that will follow.  We'll have a Q and A after his presentation.  Let me now tell you about Mr. Penny.  Some of you have seen his bio.  He's celebrating, as I read it, 20 years with De Beers.  He joined in 1988.  He was the -- ran the Anglo American De Beers Small Business Initiative.  He moved on up to other appointments.  He was the managing director of the Diamond Trading Company which is a big, big, big piece of the business.  He joined the board of De Beers in 2003 and became CEO of the De Beers Group of Companies in March 2006. 

Mr. Penny is credited with shaping the vision and changing really very fundamentally the business plan and operations of De Beers and indeed of the diamond industry in general from a supply-controlled to a demand-driven -- and you can explain that better than I -- business plan.  But equally important he is a champion of financial transparency, of technological innovation, marketing and branding, and ethical accountability, building sustainable stakeholder relationships, and product integrity, and I think we're going to hear a lot more about that in this presentation. 

Mr. Penny was educated at Diocesan College in Cape Town and at Eton College he was a Rhodes Scholar at Oxford -- a man of great, great achievement -- and we are absolutely delighted to have you here, Mr. Penny.  (Applause.)

GARETH PENNY:  Ambassador Lyman, thank you for those kind words and ladies and gentlemen, it's a great honor to be here and to be able to share a little bit with you.  I've got two colleagues here -- Rosalind, as Princeton mentioned, and Stephen Lussier, who's a director of De Beers and responsible really for the whole brand of our company, our external relations, and so on and so forth.  So I wanted to share with you in the next sort of 15 or 20 minutes some more formal thoughts if you like, and then between the three of us we really welcome, I think, discussing with you a whole range of issues that are very close to our hearts and I know close to the hearts of all of you in the room about how we drive development in the African context and what we can share with you, I think, very openly about our learnings in our place of work and indeed how we could pass on, I think, the benefits of some of the knowledge that we've gained over the years for others. 

So thank you very much for having us here today.  It's an honor to be invited to share with you De Beers' perspective on the role of business in helping to create a more prosperous Africa and also to speak as a guest of the Council of (sic) Foreign Relations.  Through its continued attention to the African continent, both its struggles and its successes, this council provides an invaluable resource for those of us who have a strong interest in seeing Africa develop in a successful and sustainable manner, and I'd particularly like to mention you, Ambassador Princeton Lyman, and thank you for your leadership in these issues.  I think we all welcome it and let's put our hands together for that work.  (Applause.)

As Princeton has said, I am an African myself -- born in Cape Town, educated principally in that city, and also now the CEO or managing director of a company whose past and indeed future are inextricably linked with the African continent.  And we are grateful for the recent focus of the international community on Africa.  Dare I say Africa has become almost fashionable from international bodies like the G-8 all the way to the pages of Vanity Fair. 

Today, however, in the next 15-odd minutes I would like to focus on one very important part of the African story that we don't believe is getting the attention that it deserves, and that's the role of the private sector -- the role that the private sector must and can play in addressing the challenges of poverty and leading to a more prosperous Africa in the decades ahead.  You can't open a newspaper today without reading stories about some of the suffering that is found on the continent, and whilst of course these challenges are immense there is another story, one that we call Africa Working, where Africans not only are lifting themselves out of poverty but collectively lifting their nations to a new level of sustainable prosperity.  So I want to start this talk just focusing on Africa Working and give some, I think, particular proof points to evidence that statement. 

In 2007, African continental economic growth averaged 5.7 percent with the best performance close to 7 percent.  Let's compare that for a minute to the dismal performance of Africa in the '80s and '90s when growth hovered at just 2 percent with negative growth in many years.  What's more, last year's growth was broad based and one of out of three countries grew by more than 6 percent.  I think that's a pretty remarkable achievement. 

Secondly, 25 years ago there were just three democracies on the African continent, namely Botswana, Senegal, and Mauritius.  Today, more than 40 African countries have held multiparty elections and yes, they may not be perfect but I think the trend is clear to see.  Thirdly, good governance, the rule of law, independent judiciaries, a free press, and civil society are growing in confidence.  And they are, of course, despite some important exceptions these are increasingly the norm, encouraging vital foreign capital investment and reducing dependency on overseas aid. 

In diamond-producing countries in particular we have seen some truly remarkable changes with presidential elections in the DRC for the first time since independence, in Sierra Leone and in Liberia.  And De Beers has been pleased along with others in the industry to assist in the establishment of government diamond offices in these countries and to ensure that these are fully fledged members of the Kimberley Process which aims to ensure that conflict or blood diamonds never enter the legitimate diamond trade.  We look forward to these countries benefiting fully from their membership of the diamond-producing communities.

Angola, one of the most prospective diamond-producing countries, has emerged from years of civil conflict and is now increasingly active on the world stage, and again, we look forward to the forthcoming presidential and parliamentary elections there.  And then, of course, we need to mention the established southern African democracies, those countries where De Beers has its major mining operations today.  South Africa, the home of De Beers, which has seen tremendous transformation since 1994, and Botswana and Namibia where De Beers is privileged to work in joint ventures with respective governments, both of which I believe are models of fiscal prudence and sound resource management. 

So taken together, these points show a picture that I think is more optimistic than the one one would often read about -- a picture of Africa working and starting to make progress whether economically or politically.  Of course, there remains much to be done and the question really that follows is how do we contribute to this growth and development. 

Recently at Davos, Bill Gates issued an important challenge to the private sector.  He called on business to engage in what he called creative capitalism which he went on to explain was a new system with a twin mission of making profits and improving lives.  We at De Beers believe that we have some relevant experience in this area and something to contribute to the debate, and if you would allow me a few minutes I would like to describe how we see creative capitalism in the African context. 

Firstly, De Beers has been a successful African-based company for more than 120 years, and I might say we plan to be there for a long time hence.  The sort of joint company ownership that we've established in a number of the African countries has a dual benefit of ensuring that African citizens have a strong stake in development of their own mining sector and an understanding of business fundamentals whilst also helping ourselves to gain a better insight into national goals, aspirations, and the important long-term strategies of the country itself. 

Much like the African continent, De Beers has evolved quite dramatically in recent years.  In the late '90s, De Beers underwent an historical transformation, completely altering its business model.  We shifted from a controlled -- a supply-controlled business -- which Princeton, you mentioned -- to a demand-driven one.  In brief, what that meant was that we no longer sought in any way to try to regulate supply to the market but simply engaged in a process to say we would ensure to the extent that we could that demand was driven hard in the major consuming markets around the world. 

At the same time, we moved from a centrally-controlled business to a far more locally-led business in Africa and around the world.  De Beers with its joint venture partners today employs 21,000 staff worldwide.  Nineteen of the -- 19,000 of these are employees that are Africans based in Africa.  Our operating companies in Africa today are all run by Africans, and what's more, in the past 10 years we've moved many of our skilled diamond sorting and valuing jobs from London, to Gaborone in Botswana, Johannesburg and Kimberly in South Africa, and Windhoek in Namibia.

Today, De Beers with its partners contributes more than $4.6 billion to African economies every year, and in some ways diamonds represent one of the largest transfers of wealth from rich Western consumer markets to developing African producer countries.  To put that in perspective, the diamond industry in Botswana accounts for some 33 percent of gross domestic product and approximately 70 percent of government budget.  De Beers is also investing heavily in exploration in countries like Angola and the DRC. 

But we're also involved actively in international and local initiatives designed to promote transparency and good government, and I think it will be good in this room to have a discussion around the Kimberley Process, which as I mentioned earlier aims to ensure that conflict and blood diamonds never enter the legitimate trade.  I think what's important about the Kimberley Process is it stands as a beacon not just for the diamond business but I think its lessons and its applicability go far beyond the diamond sector and actually one could imagine that is a system and a process that could be used across other minerals and metals both in Africa and in other continents around the world.

De Beers has joined with public/private partnerships like Partnership Africa Canada, Global Witness, and others, and we are signatories to the U.N. Global Compact and an active participant in the Extractive Industries Transparency Initiative -- a variety of measures working with civil society.  So today I truly believe De Beers is a transformed company deeply engaged in what Bill Gates has called creative capitalism.  But our transformation is not confined to business practices.  It is broader in scope and ambition.  Much of it falls under heading of what many call sustainability.  Now, that's a word with a lot of new currency behind it and one which seems to lack a lot of precision. 

So let me describe what sustainability means for ourselves, and to start with it might be easier to tell you what sustainability is not.  It is not a program add-on or siloed somewhere in our corporate social responsibility office, nor does it only apply to certain parts of our business, like environmental practices, and not to others.  But rather, it informs how we operate across our entire business, and for those of you that haven't picked up our Report to Society you will find it just outside the room with, I think, very considerable number of case studies as to the sustainability practices and measures that we're putting in place across countries in Africa and in other parts of the world.  For us, sustainability is a core part of our business strategy.  We believe in the diamond industry in order to be viable in the long run business must deliver a sustainable contribution to the communities in which it operates. 

Let me elaborate.  Diamond mining, certainly as De Beers does it, is a high-risk business, demanding large amounts of up-front capital and extremely long-term horizons.  Once a diamond deposit is located, which in itself could take many, many years, it can take up to $1 billion and a decade before the first diamond is recovered.  It could take another decade before we see a return on our investment.  So in order for our mines to function effectively and profitably for generations we need an operating environment that is stable for employees, for health, for governance, for infrastructure.  It's not an optional extra. 

Essentially, our business is strengthened by diversified economies in flourishing communities.  The diamond industry must be a catalyst for further economic development in the countries in which we operate.  In an effort to encourage this style of growth, an example is De Beers' sponsorship of a company called Payo (ph), a venture capital business in Botswana which invests in small and medium-sized citizen-owned businesses in a great variety of industries -- everything from restaurants and automotive repair shops to forensic science labs.  We do this because we understand the important role these enterprises play in spurring economic growth and prosperity in the communities in which we operate, and we call this the Diamond Economic Flywheel and we do it because it makes business sense. 

Increasingly too, African countries are seeking a more extensive role in managing their own resources -- a sort of resource nationalism, if you will.  We understand that effective management of a country's resources is an essential part of building a more prosperous Africa, and we have embraced that desire by establishing joint venture partnerships with the countries where we operate.  In places like Botswana, for example, through a company called Debswana, we have a 50/50 partnership with government whereby 82 cents of every dollar from diamond revenue stays in that country, and that directly translates into funding spent on health care, fighting AIDS, education, infrastructure development, and the like.  In fact, the government of Botswana and thereby its people are one of De Beers' direct stakeholders with a 15 percent ownership stake in the holding company of De Beers -- (inaudible) -- across the world. 

So by turning national resources into shared national efforts this requires more than just ownership of those assets, and on the operation side we run into some familiar and heart wrenching challenges which I do think I need to touch on in this speech.  We work primarily in southern Africa where prenatal health care is woefully lacking, where literacy rates are low, and where more than 46 million children are not in school.  Three-quarters of the world's AIDS deaths occur in southern Africa and the prevalence of HIV/AIDS among staff and their families is a huge challenge to sustainability of ours and all other businesses in the region. 

And so it was for this reason that De Beers was the first mining company in the world to offer free anti-retroviral treatment to HIV-positive employees and their spouses from 2001.  In the past year, more than 80 percent of our employees and their families participated in voluntary counseling and testing programs that we offered and we're working with a considerable number of local and international organizations to continue to manage the risk of this infection and improve the quality of life for those living with HIV/AIDS in the communities.

So to be a viable business in Africa we need a healthy, educated, skilled, and motivated workforce as well as good governance and stability.  Our ability to train and hire local staff, provide proactive health care, encourage economic growth diversification and skills transfer, and preserve our working environment contributes to a stable and prosperous state.  In turn, it protects and it maximizes our investment.  To put it another way, our sustainability model at its core is driven by a belief that by creating wealth and sharing it we actually add to our own position. 

Our commitment to sustainability doesn't end with mines, and so I wanted to share finally with you a concept that we call beneficiation in the countries in which we work.  In more familiar English this means that we're helping to ensure that more of the value addition that occurs after diamond mining -- activities like sorting, cutting, polishing -- remain in the country from whence those diamonds come.  The most spectacular example of this of which we are particularly proud is the opening in March of this year of DTC Botswana, an $83 million state-of-the-art diamond-sorting facility in Botswana's capital --  The most sophisticated facility of this type anywhere in the world and one that will bring 3,000 highly-paid, well-skilled jobs to Botswana and an insourcing which accounts for some 30 percent increase in diamond industry jobs in Botswana and a 10 percent increase in the country's total number of manufacturing jobs. 

Our investment in Botswana is bringing other businesses and jobs in downstream industries to the region.  In fact, for every one job De Beers or its associate companies like Debswana or DTC Botswana creates another five are created in relating industries like diamond cutting and polishing as well as in financial, security, technology, and logistical services.  And that has a lasting impact on the economy and on the people of Botswana. 

To encourage further job growth we offer our customers additional supply (of rough ?) for the factories they open there.  This is the incentive for them to move their diamond-finishing operations and the thousands of skilled jobs they create to Africa.  In this year alone our clients will have opened some 16 cutting and polishing factories just in Botswana alone.  We believe this facility represents the future where natural resources can fuel growth of a strong, middle, and entrepreneurial class which in turn becomes the new bedrock for national prosperity.

So De Beers' approach to sustainability I believe is a good example of Africa Working -- working to create a new stakeholder -- the African employee at senior management levels -- working to ensure revenues contribute to sustainable development, poverty reduction, and good stable and transparent government, and working to build a new class of ownership in Africa where people have access to what you in this country call the American dream -- a good job, health care, a safe place to live and work, education for your children, and security in retirement. 

Well, that is African dream as well, and its coming is true in more parts of the continent than we may realize.  The results of this ownership society are profound in the countries where it is taking root and they offer hope to those societies still struggling with the legacy of poor governance or disease and poverty.  As The New York Times' columnist Tom Friedman once wrote, nobody ever washed a rented car.  Ownership creates stable prosperous societies, and that's what our sustainability model is helping to do. 

We don't claim to have all the answers but what we do have are some insights from a long period of doing business on the African continent, and we are hopeful that by sharing what we have learned along the way we might serve as a model for others seeking to do business successfully in Africa -- a model we can all build upon as the world community continues to debate how best to encourage sustainable economic development in the African continent. 

So if I sum up my thoughts I believe passionately that the private sector is not just helpful but essential towards good governance and the rule of law in building a prosperous Africa.  It's not just doing business that will make the difference but how we do business that is the key.  And today -- so today we have focused on Africa Working, creative capitalism, the transformation of our own business and of the continent, and on the value addition that natural resources can bring by using the diamond business as a case study.  This assessment leads to eight principal insights for the role of business in Africa which I wanted to conclude and share with you as a summary. 

Firstly, form strong relationships or partnerships with governments so that you both learn from what succeeds in business and within the country as a whole.  Without strong partnerships I don't believe De Beers would be succeeding in Africa.  Two -- commit to building a citizen-run organization to build local skills at managerial level.  It is no good parachuting people in and out -- the expatriate community where a glass ceiling is seen to be there for local management.  It just doesn't work. 

Thirdly, help small citizen companies develop by outsourcing as much of your supply chain as you possibly can.  We have found that it can work and actually there are significant cost savings in doing so.  Fourthly, look to shift appropriate skilled value-adding jobs to Africa.  We have found the benefit of moving out of a very expensive city like London is that our costs are lower by relocating those jobs to the African continent.  Fifthly, play an active role in leading the fight against HIV/AIDS and in supporting education and training.  It's key to your business and to the community's long-term success. 

Sixthly, focus on the impact of climate change in Africa.  In our case, this is all about water or should I say lack of it.  Take necessary action early.  Seventhly, support international evident -- efforts to eliminate corruption and support good governance which will multiply the positive impact of your business tenfold.  Again, I think the Kimberley Process is an outstanding example of this kind of initiative.  And eighth and lastly, of course, to share the wealth in a sustainable manner you have to create it first.  But for business the how of how you create it can make a big difference when it comes to sustainability. 

So these are the eight points that we think we've learned over a long period of time of doing business in Africa in a way that today adds very significant value to the countries in which we operate.  I thank you for your time and I look forward to any questions that you may have.  (Applause.)

LYMAN:  We're going to do the Qs and As right here as a kind of conversation and if you'll allow me to use my privilege here of asking the first question.  I'm going to ask you a tough question if you don't mind because you've given some wonderful examples but a lot of the most exciting examples come from Botswana, and Botswana is a very nice country -- democratic, peaceful, talented, well run.  Could you share with us a little bit within -- without revealing proprietary information how do you proceed in a country like the DRC, which is a much more unstable country, does not have a good history of good governance, has provincialism, regional powers, et cetera?   How do you proceed with those principles you described in a country as complex as that?

PENNY:  Princeton, let me start by, I think, if you'll forgive to making my way there so I'm going to go from Botswana to Namibia.  You know, although we've used Botswana as something of a case study in this talk it's by no means the only one, and I think, again, many of the points that I've made here about Botswana apply as much to Namibia and if you look in terms of contributions to GDP, you look at the foreign exchange revenues, and the nature of the environment that we have with government in Namibia today is an extremely positive one and I think the contribution is enormous. 

If we go north from Namibia to the country immediately on its border --Angola -- I think Angola provides an interesting in between state of affairs, if you like, between the DRC and Namibia and Botswana.  As I mentioned in my speech there are democratic elections there.  We are finding in Angola that it is a place we can do business.  I think the clarity around land rights -- a lot of the other issues that allow business to operate successfully are evident in Angola and we are investing very substantial sums of money. 

I'll give you one case in point.  We have shifted from Johannesburg our in-field exploration activity into Luanda and again before -- and essentially the point I've tried to make again and again in the speech -- both because it's beneficial to Luanda and Angola but because the time that it takes to take -- (inaudible) -- samples out of Angola and ship them all the way to Johannesburg means that from a cost point of view it's a much more efficient way to do business.  So in Angola I think that's -- it's an environment in which we can comfortably do business.  We are finding many, many kimberlites -- the host rock in which diamonds are found -- and we're optimistic that within a relatively short space of time we should have a diamond mine and have a benign environment or an enabling environment in which we can mine it successfully. 

Obviously, DRC goes beyond that and requires, I think, a way of operating that is going to be appropriate for the environment there, and again, I know many of you are familiar with the DRC -- you visit it.  It is an extraordinary complex environment that President Kabila is faced with and I think you're seeing steps that are showing progress but nevertheless going to be a very challenging environment.  What we're doing in the DRC is we've got exploration teams on the ground.  We are meeting with mixed success because in some areas we've been able to secure our mineral rights reasonably well and in others there's an ongoing commission where some of the allocations of mineral rights have been challenged -- not for us but for the country -- and which makes it a very difficult environment. 

So I don't pretend for a minute, Princeton, that the DRC is an easy place to go and do business.  It is an extraordinary prospective place to go and do business and I would encourage those of you in the room that are advising others or thinking about how to do this that you need to take the steps progressively and appropriately for the type of business that you want to run there.  But really, you know, in laying out these different countries I guess the point I'm trying to make is that Botswana isn't -- it may be just a particularly good example but it's one of many countries that I think are utilizing its natural resources in a sensible way.

LYMAN:  Okay.  Thank you.  I'm going to open it up and come back to you with another question I have but I feel I have to open up.  When I call on someone if you would stand up and give your name and affiliation and your question and we'll start right here with Don -- Reed.

QUESTIONER:  Reed Kramer from AllAfrica -- Global Media AllAfrica.com.  I'd like to take Princeton's question and make it more specific to the beneficiation process you talked about starting with Botswana.  What portion of the output of Botswana is being cut, sorted, and polished in Botswana and how far do you think that can go, and then what other countries are -- is this likely to take place?  And Namibia's been mentioned but taken it -- taken it further afield.  How far can this go vis-a-vis Africa?

PENNY:  Reed, in Botswana's case the commitment that -- the agreement that we have with government and with the industry with these 16 factories -- and I should just mention Mr. Maurice Tempelsman who's sitting in the audience here is in fact one of those so he would be a good person to hear from as well in this discussion -- the commitment we have with government is that $500 million U.S. per annum would be -- would flow through to these factories. 

Now, that represents about 20 to 25 percent of the total Botswana production but what's important is that the basic sizes -- bigger sizes, better colors and qualities would constitute that $500 million.  So it represents a very significant part of the kind of production that you could add value to in Botswana and that -- that's the number north of 50 percent.  Again, back to this question about, you know, making sure that economic strategies are viable ones it wouldn't make sense to take very, very tiny diamonds where the value addition element was relatively small and try to do that in what is a higher cost environment than it may be in places like India or China. 

So again, what we need to constantly do in this whole strategy is make sure that it has a strong economic underpinning because we're not going to get a thank you and neither is anybody else for producing something that falls over in five years' time.  The strategy in Namibia and in South Africa is absolutely similar so really almost anything that can be economically cut in those countries is now being made available to the local cutting industries.  We don't have mines in Angola or the DRC yet but our expectation is that that will be the way of business that we would operate in those countries as well.

LYMAN:  Let me go here and then I'll come back to Hank.  This gentleman right there on the aisle, yes.  (Inaudible) -- somebody have a microphone?  Here we go.

QUESTIONER:  Joe Bell with Hogan & Hartson and also working with Revenue Watch.  I just wanted to come back to the DRC example.  Obviously in the DRC there are now 40 to 60 companies that have contracts in the mineral sector in the DRC representing a various great variety of company culture, shall we say, and a great variety of nationalities, few of which would have the kind of relationship that you have talked about.  And I'm wondering how a country or a government goes about rectifying or working to establish the kind of relationship that you're talking about, particularly where it has by legacy a wide range of what might be called suspect relationships -- relationships that are -- certainly need improvement.

PENNY:  Joe, as you say, I mean, your number -- 40 companies -- and there may be many more and there are many different projects that are at different stages of development in the DRC.  Some have gone faster forward, run into trouble, had to pull back a bit.  Others are successfully being implemented on the ground.  And as I did say to Princeton, I mean, I think the DRC is a particularly complex place to do business given its whole history, given the sort of geographic makeup of the country, given the infrastructure. 

Having said that, I don't think the learnings that I've tried to put across to all of us in the room are particularly different.  I mean, the advice I would give any CEO and indeed I would give a regulator is to say let's look at that particular industry.  I mean, clearly some of them will lend themselves to a greater degree of value addition than others.  In many it will come.  I mean, we've been operating in Botswana for 40 years and the infrastructure is being built.  The environment is such that the kind of value addition programs that we're talking about are achievable. 

You know, I guess in the DRC my advice to, you know, a CEO setting up or the regulators just get this thing up and running to start with.  Make it work.  Get the infrastructure in.  Get the returns back to the investors so that they feel that they've got a viable project where they've got, you know, a decent return on their capital.  Obviously, at the same time things like building management skills and training and, you know, working with the community and so on are very important.  Steps like beneficiation or value addition may take longer. 

So I think you need to look at these eight insights and say which ones are applicable at which stage.  In an advanced state and with a more established infrastructure I would say they're all applicable.  But I think you need to phase some of them in.  I mean, let me just touch on one which I didn't particularly dwell on in the speech and that's working with the community.  In a place like the DRC or in Angola if you don't get the community on your side the amount of time and effort you're going to spend trying to manage -- (inaudible) -- people overrunning your property, trying to defend your borders, trying to -- you know, it's just immense. 

And so what we're finding is that the more we engage with the community up front -- the more we make them part of the stakeholders -- I mean, in Angola for example we've actually got communities involved as shareholders in some of the ventures that we have.  So I mean, it's they that come to us and say, have you found anything yet.  And that's the kind of community that we have to establish because we need to make it in their interest not to be overrun by a huge group of people that may come from some other area and you need to bake that into the mix up front because if you try and invent it afterwards it's very difficult.  So again, I would say it depends on the nature of the particular set of circumstances and where you're operating.

LYMAN:  Hank?

QUESTIONER:  Hank -- (off mike) -- consulting to U.S. companies in Africa.  I'm interested in what you said about the ancillary businesses that are generated by a company like De Beers or mining industries.  My experience in Africa is that the entrepreneurial African who wants to get in on this system has a very difficult time getting financing.  I've seen that all over Africa.  Some very vigorous, intelligent, dynamic people -- they just run into a brick wall in the bank.

PENNY:  I think that's true.  I mean, it's one of the reasons why we set up this company Payo in Botswana because what that is doing -- I mean, not our business to set up, you know, repair shops or whatever.  We don't want to be involved in those businesses.  We have no equity in them.  We're not running them.  But what we are doing is providing seed capital and we've done the same in Namibia and we've done the same in Botswana -- in South Africa in a different kind of way. 

I mean, I would hope that if people had a sustainable business model, if they were providing products or services to an established mining company -- an Anglo American, a Rio, a BHP, and Xstrata River -- and if those companies were embracing the kind of philosophies that I'm espousing together they would form some kind of smart partnership that would actually be able to go to financiers and say, you know, we've got a contractual commitment here -- please would you finance.  So I agree.  I mean, left to their own devices a little business trying to start up, no contracts, very little infrastructure, you know, probably not particularly well equipped to put together a sophisticated business plan that a bank manager would want to see, it's very difficult.  And again, I think that's where there's an important role for large corporates like De Beers to play a catalytic role in these things.

LYMAN:  Can I -- sorry, hold on one second.  Taking -- and I don't want to overdo the DRC because they're -- (inaudible) -- and others are important but this I think is a general question.  You've been talking pretty much like an individual company coming in with your philosophy and cultures, working through the -- (inaudible).  To what extent are -- do you look to or expect or get help from a larger environment -- let's say the World Bank's role and advice to the government -- or a business consortium of several companies coming together or what is the best way in approach -- in setting up on, let's say, from the host government's side the kind of conditions, understandings, principles around which you can pursue the principles that you've put forward and hopefully other companies as well?

PENNY:  I think it, again, depends on the nature of the circumstances and what you're trying to achieve.  If we took something like the Kimberley Initiative -- Kimberley Process -- there are 74 sovereign governments involved in that process and over 100 NGOs and members of civil society.  We could never have done that on our own.  And frankly, if we tried to do it on our own it, you know, probably would have been discredited seen as some kind of De Beers initiative and the like. 

It is only the collective working of such a wide group of members, the American government not least, that has allowed that kind of process to be put in place.  So there's an outstanding example of an extreme need for a huge amount of cooperation.  At the other extreme you're going to find that on an individual property it may be that, you know, you can go it your own and in between I think there are going to be many different examples. 

I mean, part of the reason why I'm here is because I think we recognize as a company that we want to reach out to yourself, we want to share the things that we've learned, we want to reach out to a broader base of people in Washington, regulators in the EU, in the U.K., et cetera, and see to what extent collective efforts can be brought in appropriate sets of circumstances.  So again, I don't think there's -- there's not one answer to that but I think sometimes it makes sense to work on your own as a business, sometimes you need to work in partnership, and sometimes you need to work in a large collective.

LYMAN:  Okay.  Some other questions -- (inaudible) -- right here and then I'll get Dan behind you.

QUESTIONER:  Edith Brown Weiss -- Edith Brown Weiss, Georgetown University Law Center.  I want to turn you back to DRC.

LYMAN:  (Laughter.)  Can't get away from the DRC.

QUESTIONER:  And I want to turn you to the communities in which the mining operations take place, and the word human rights has not been mentioned.  But I want to ask you what do you do to ensure that human rights violations do not now take place?  What happens if you hear word that they are taking place, or someone says that they're taking place what steps do you to do to protect them, particularly relevant in Congo where Global Witness has documented the threats to people who have been exposing human rights abuses?  And in connection with that, what steps are you taking or do you favor or not favor transparency in the whole review process of all the mining concessions in DRC?

PENNY:  Edith, I mean, I'll give you a couple of thoughts but Stephen, I might ask you just to add in because Stephen is the director who, you know, would focus on exactly that kind of issue, and again, in terms of our Report to Society it's tabled there.  Let me speak first just for De Beers.  We would not go into an environment -- we would rather not be in a project or not take up an opportunity that meant that we have to change the way that we are doing business.  We would forego that opportunity if it meant that we couldn't -- we have an expression in our company that says we need to -- (inaudible) -- up the diamonds. 

We sell a particular product that we have to make sure and a particular image and a way of thinking comes with it so we -- it's not a choice for us.  It's not -- as I said in my speech it's not a kind of nice optional extra or an add-on.  If we were required to behave in a way that wasn't consistent with our values and our -- and the principles with which we do business we would forego it.  Now, in an environment where -- (inaudible) -- in the DRC where you've got huge numbers of artisanal diggers -- very complicated types of environment -- it's a very big challenge, and so mining companies that come in need to understand the environment that they're in. 

They're going to have to make appropriate plans, they're going to have the right kind of partners, they're going to have to do the right kind of deals with communities, and then they get what we call a license to operate -- a social license to operate.  I can't comment on other examples of other mining companies and not behaving in that way.  But, you know, that is the role of civil society, it's the role of the regulator, and indeed it'll be the role of other businesses, I think, such as ourselves if we saw that to actually raise it and say we don't believe that this is an appropriate way, particularly if it were in our industry and then we would take, I think, necessary corrective action.

LYMAN:  You know, I'd love to ask you that.  Do you want -- (off mike)?

QUESTIONER:  Thanks.  Thank you, Gareth.  I think, Gareth -- we should just clarify what he said.  We would forego those.  He should have probably said we have foregone them.  We exited the business of buying artisanal diamonds that did not come from our mines back in 1999 and have not reentered.  So we've left that business principally because of these ethical challenges.  We need to be confident that our diamonds as mined and sold by De Beers that we know exactly where they came from and the basis on which they were mined.  So that's, I think, the first step. 

So it's this area of artisanal diamonds.  And while we're not in that business we recognize that it is an issue for our industry so we engage principally through something called the Diamonds for Development Initiative which, again, is a civil society and private sector solution, trying to find in effect models that can improve the role and lives for artisanal miners actually beyond diamonds.  I mean, there are far more artisanal miners in gold than in diamonds.  And they -- and it is a very difficult life but it's a very difficult life because there's nothing else to do.  So this is a significant developmental issue.  People wouldn't participate in that life if they had a better option for doing something else. 

And so what are the models that can try to bring some improvement to that business?  We're testing something -- the one area where we do have a mine in Tanzania around which there are artisanals is this Williamson mine in Tanzania and we developed something as part of the Clinton global initiative called the Mwadui Diamond -- MCDP -- Mwadui Community Diamond Program -- (inaudible).  But in effect that's a series of principles which is trying to bring some in effect self-regulation and development and integrate it with developmental agencies and with civil society to improve the lives of people working in the community but not for De Beers.  But make no mistake -- artisanals -- artisanal mining in general is a very challenging area and one that is not going to be solved by the private sector alone or the government alone or civil society alone but only through this sort of tripartite type approach that succeeded in Kimberley.

LYMAN:  Dan, and then I'll come back to Hillary and then Callisto.  Dan O'Flaherty?

QUESTIONER:  Thank you, Mr. Penny.  I'm Dan O'Flaherty with the National Foreign Trade Council and the U.S. South Africa Business Council.  I have a question specifically about South Africa.  Clearly, for many years now increased beneficiation has been an objective in South Africa and has been controversial because there's been, I think, a disappointment in some extent.  So I wondered if you could specifically let us know the kinds of beneficiation progress that's been made in South Africa -- what the limits are and what the opportunities are.

PENNY:  Don, thank you, and as you say I mean, beneficiation -- value addition -- has been an aspiration of government in South Africa, particularly post-1994 with the new government.  It's not easy.  It's a highly competitive environment.  Cutting and polishing for the most part has shifted towards very low-cost countries.  Where I think the strategy has to focus in South Africa is cutting diamonds as I said earlier that where there is sufficient margin in terms of the cost of cutting them and the kind of product that one is talking about to be able to be beneficiated successfully. 

What I think you've seen over the last -- particularly the last two or three years is a much greater awareness of that.  There was a desire that sort of all diamonds would be cut and polished in South Africa and that's not achievable.  And so I think there's been a process of development on all sides -- the industry, government, and so on -- looking for what is appropriate.  What government did do is set up something called the State Diamond Trader where they are able to request mining houses to turn over up to 10 percent of their product which could then be placed with local factories.  And by doing this, I think they themselves have seen where the dividing line is between what can and can't be cut. 

So I think it's a process of understanding.  I think there is a greater engagement by the local cutting industry to focus on adding value to diamonds,  and there's also now, I think, a much broader-based attempt to go beyond just cutting diamonds but setting them and creating branded pieces of jewelry that could be sold to a quite substantial tourist market.  So I think the process is going deeper and, you know, places like the Cape Town water front and so on are being made part of all of that.  So I think there is progress there too.

LYMAN:  Hillary?

QUESTIONER:  I'm Hillary Thomas-Lake.  I'm the managing director of LTL Strategies, an international development consulting firm, and I was interested when you were laying out your eight principles.  You already spoke a little bit about what sounds like a bit of mixed modeling depending on the circumstances, depending on what's going on in a particular country.  My question is are you developing -- have you developed or are you in the process of developing because you're involved in Angola now -- you're looking at the DRC -- developing processes or some kind of a learning model for dealing with conflict, conflict transition, and post-conflict countries?  Because even if -- (inaudible) -- about Angola which is, you know, calmer than it was, let's say, in 1992 but still, you know, you have pockets of issues. 

It sounds as though the way that you're proceeding you've got good relationships with the communities, let's say, in a case like Angola but you could still have some surprises not because there's anything wrong with the way you're doing business but because of the nature of the infrastructure and some of the way that the country has been in conflict before, and then in the DRC, which is really more like five countries instead of one, it sounds like you could bump into some of those as well. 

So given how well you've done sort of laying out the eight principles is that something that's going on in house at De Beers -- sort of thinking about this conflict, conflict transition, and post-conflict countries and what kinds of strategies you're using there?  Anything you can share with the rest of us as time goes on?

PENNY:  Hillary, thank you for that and where you're absolutely right is -- I mean, I've given eight sort of generic principles which I actually do think probably apply to anywhere.  But with -- but as you drill down into each of them you will find that they have to be applied for that set of local circumstances.  I mean, if you take South Africa it's a far more developed economy.  It's at a very different place to the DRC or Angola.  The model that we've gone with there which, again, is consistent with government thinking is that of the South African mining company we've got a 26 percent equity partner.  It's not government, which it is in Botswana and Namibia, because given that where those countries are that was appropriate given their stages of development. 

In Botswana, our partners are local black business people and the company is called Ponahalo and it's an empowerment -- black empowerment company.  And that is -- (inaudible) -- forms of government.  We didn't actually talk to government -- (inaudible) -- if you want to be a partner with us in a precious natural resource and they said no, we're actually in the process of getting out of things in the economy -- we're privatizing.  So, you know, this would be something in the opposite direction -- doesn't make sense. 

In something like Botswana, given Botswana 40 years ago was one of the five poorest countries in the world, the partnership that we had there was appropriate to have with government.  There wasn't a developed economic sector in Botswana with whom we could have partnered and so on.  Probably in Angola and the DRC, given their stage of development, I mean, in each case we have -- in the DRC 49 percent government partner and in Angola we have 51 percent government partner.  So probably that's right. 

What I think you'll see over time is that those governments may say when they get to a certain point -- may say -- I mean, it's their decision -- we want to privatize this now.  We don't feel we need to hold this.  We're actually happy for this company to be a taxpayer.  You know, we'll place our -- maybe part or all of our investment into some kind of, you know, private sector entity or make it over to life companies or whatever it may be because we'd rather redivert that cash into some other part of the economy.  So it's a dynamic process, yes.  Each country one looks at and does on a different basis. 

Can I just say -- I know the focus of this discussion is Africa but it would be very wrong of me to paint a picture that this is only in Africa that we're operating like this because it isn't.  I mean, if we go to Canada, for example, resource nationalism is as strong in many ways in Canada as it is in other places.  I mean, we're operating in Yellowknife. 

We just bought two big mines in Canada, and I mean -- (inaudible) -- speak with a lot of experience recently because it's been such a focus.  I mean, in terms of First Nation communities -- in terms of the way they're operating -- in terms of, you know, getting on side of the local environment -- in terms of environmental issues -- even in terms of supply, you know, in Yellowknife not that far from here we're actually supplying Canadian diamonds to local factories in Yellowknife and we're going to be doing much the same in Ontario. 

So this is not peculiar to Africa.  I mean, Africa has its own particular challenges but it's something that we are having to deal with and I think -- again, I don't believe De Beers or the diamond business is particularly unique.  I think it's something and again, I think my message is that these are generic lessons that I would hope are applicable for consultants in the room advising people -- for other CEOs of natural resource companies.  If you're in a natural resource company you're taking a national treasure that lies below the ground and is not replaceable and you're using it up, and with that comes certain commitments that maybe aren't the same if you're running a telecommunication company. 

But in our business we have to recognize that and we have to operate accordingly, and if we don't want to do that we're not going to be successful.  I mean, diamonds are particularly, I think, regarded as a national treasure more than coal or copper, and so it's behoven of us to operate even more in a way that makes people feel, okay, you know, that mine has got 20 or 30 years to run but at the end of it, you know, we know that that social contract would have been fulfilled and actually, you know, in terms of other jobs, education, infrastructure, et cetera, we can see the benefits.

LYMAN:  Callisto, did I see your hand up?

QUESTIONER:  My name is Callisto Madavo.  I teach at Georgetown.  I was wondering what impact the development in Zimbabwe have had on the business environment in these other countries because most of the countries we're talking about are in fact countries in the southern region.  What impact has Zimbabwe had on private sector investment, climate issues, and how are you managing the spillovers -- the potential negative spillovers as far as De Beers is concerned, if any?  Perhaps De Beers isn't involved with Zimbabwe anyway.  But I'm just curious.

PENNY:  We -- the answer is that I think the impact that Zimbabwe has had on the whole of southern Africa is profound, and from many points of view.  I mean, firstly, for all the good that I've been fighting for the fact that we've gone from three countries in Africa to 40 that have democracy -- you know, you turn over any page in the U.K. Sunday Times and you get an entire page devoted to whatever has happened in Zimbabwe that previous week.

Now as an ever optimist I believe that, you know, in due course I don't know whether it's one year or five years, there will be a different government in Zimbabwe and it will be a country that actually many of us will be looking to invest in because it's got wonderful natural resources, it's a tremendous place in terms of tourism and so on.  And I know many of you would know it.

But in the short term it's having a very profound impact way beyond I think its immediate economic impact that it might be having on the region.  I think in Botswana it's had limited impact, I mean the borders of Botswana I think perhaps are more secure, perhaps it's a more homogeneous society and so you haven't had the same influx of people.  In South Africa, one of our mines is right on the border, right on the Zimbabwe border on the South African side.  And we've seen a huge influx of people coming through, I mean, some estimates 5,000 a day of people just coming across that border, desperate people looking for food, housing, anything they can get.  And that has placed, I mean, not specifically our company but I think the whole of South Africa under enormous pressure.

And then local people have reacted with xenophobia and the other things that you've seen because they've seen jobs and they've seen other benefits you know disappearing to what they perceive as kind of a big foreign influx.

So these are all collateral damage that I think has happened in Southern Africa.  What I think is encouraging is that increasingly there is now a combined and unanimous approach emerging from African leadership to say actually we're not accepting this.  I mean, -- (inaudible) -- as being the most vocal critic, but he's actually being joined by this saying we need to look for a solution where there's going to be some form of power sharing and some form of transition to, you know, a government that can resolve the Zimbabwe issues.  And I really do believe that will happen and it won't be many, many years ahead.

LYMAN:  Lady -- (inaudible) -- back there, yes, yes.

QUESTIONER:  Carolyn Campbell with Emerging Capital Partners and we've been investing on the continent since 2000.  I wanted to ask you about Chinese investment on the continents.  Chinese businesses have been extremely aggressive in several years in investing there and they have vast sums of money to go.  Last year the Chinese announced they were going to be giving $5 billion to the DRC government, it wasn't surprising that very shortly thereafter the mining review sort of took off.  And I was wondering Chinese companies are not noted for following very many of your eight points in your philosophy -- (laughter) -- certainly in terms of the parachute model of investing corporate governance transparency, and how do you think the role of Chinese investment will play out in the continent?  And in light of that, what if anything should the broader business community and political community do?

PENNY:  Yeah.  I mean, obviously it's you know a really important question and I think, certainly if you rewind ten years, five years, you found huge influx of Chinese coming in in a situation where African governments were reaching out, welcoming them in and very few constraints and tremendous I think optimism and excite about the way in which Chinese would do in business in Africa.  That may still be true in some parts of Africa, but we've been experiencing increasingly, African governments are becoming somewhat -- (inaudible) -- and actually demanding the same standards of Chinese companies coming in as they are of any other foreign investor.  And are being more I think -- (inaudible) -- of what the tradeoffs are.

And I think the Chinese clearly recognize the importance of Africa.  They see that in terms of the position where as they bring hundreds of millions of Chinese into a middle class, the drain and the pressure on natural resources across the world isn't go to go away in probably in our lifetimes.  Africa is a continent that is endued with immense natural resources and so clearly there is huge need for strategic alignment between China and Africa.

And so they see it as a massively important strategic partner for them to have.  I think the way that they have gone about it hitherto has been such that within a relatively short period of time, they probably won't be successful because actually I don't think African governments are just going to roll over and say we're very happy for you to take all our natural resources, you know, give us a check or a (rowerline ?) you know don't worry about the rest of us.  I think those days will come and go.  Yes, they're still there to some extent, but we would give them, I mean, we've had meetings with them and they've asked for our advice in Beijing and we've actually said this is the way we do business and actually we think it's important that you operate in the same kind of way.  Now, that won't be true in every case, it won't be true in every country and there will be some countries where actually they're prepared to you know, sell out almost any cost.

But if the Chinese are looking for a long-term sustainable successful strategy in Africa, they're going to have to follow these kind of principles.  It gives me the cue to say with an American audience that I was interested -- (inaudible) -- in something that you'd written 15 percent of America's oil comes from Africa, and astonishingly 15 percent comes from the Middle East.  I mean, given the relative priorities that we seem to attach to the two, I'm not, -- (inaudible) -- I was familiar with -- (laughter) -- which I had to say sent me straight back to the drawing board to say is America giving sufficient focus to Africa and it's importance given just that statistic?  And of course, the enormous need for natural resources that will exist and you know, perhaps they'd give us all encouragement to say let's think very laterally, let's think in a very open minded way about how we engage in a way that is beneficial to everybody. 

But forgive me if that's -- (inaudible) --

LYMAN:  No, no, no.

PENNY:  You know, I felt this was a good audience to make that statement.

LYMAN:  No, I'm happy to hear you say it.  (Laughter.) 

I want to follow up if I can on that question and take you in a slightly different direction back to the Kimberly process and some of its lessons.  Some of us have been all too engaged with Chinese over a period of time my colleague has witnessed, I've been part of a project on that.  And when we've taken up these issues with the Chinese, one of the things that they question are global kinds of compacts like Extractive Industry Transparency Initiatives.  Their action is eh, you know, they're not quite sure that's the way to go.  And I wonder if your experience with Kimberly process, looking at something let's take EITI the Extractive Industry Transparency Initiatives.  Do you see that as having the kind of impact do you think it's good or should have, or do we need something different to pick on the kind of success you've had with Kimberly Processing?

PENNY:  Once again, Stephen, I just ask you, Stephen has been so much closer to the EITI than I have been.  If you don't mind, I'll refer to --

LYMAN:  That'd be terrific, terrific.

PENNY:  -- knowledge on this matter.

STEPHEN LUSSIER:  I think there are two separate points.  The first is how will we succeed in engaging an important player like China in the sort of initiatives be it EITI or to be honest any of the sorts of codes that and principles that we've outlined today.  And it's useful sometimes to put yourself in their shoes for a moment and think well, you know, what would you say if someone collectively from the western world came to you and said we sorted it all out, here are the rules and you have to follow them. (Laughs.)  And it's perhaps not surprising that they reject that almost out of principle, almost irregardless of what the ideas are.

So part of the challenge we're all going to have in engaging with the new players in the African space is to back up a little bit on some of these initiatives and redevelop them together with them because you're not going to sign up to something that you don't feel you were part of and constructive in.

So that's not an easy process but I think it's just reality and privatism has to play a role here.

EITI we are strong supporters of because as Gareth said in his speech, you know, the private sector can do so much, it can make a big impact in its local community almost regardless of the national governments.  But unless there is governance, we've seen that the efforts in the end will come to naught and to the country as a whole.  So finding ways to drive good governance is important and EITI we think is an important one.

Whether it transforms into something else in the years ahead, I think is an open question.  Some governments are supportive of it, we know Botswana's going to come on board, DRC perhaps under some pressure but in any event getting on board, Angola I think is going to be long resistant and it could well take some different approach to achieve the same end goal.  And again, what is the end goal to drive more responsible use of revenues from the extractive sector, which historically have been easy to hide and we need to find a way to do that.  We'll keep supporting EITI while it's the best solution but I think an open mind is a good thing as well, be pragmatic and work toward the desired results.

LYMAN:  Thank you.  (Inaudible.)

QUESTIONER:  I'm Mac DeShay (ph) with the Lockheed Martin Corporation.  My question is about risk assessment, risk management and I wonder if you would share with us the process you go through of whether you have a risk management, risk assessment framework that you integrate into your decision processes as you do business in African countries?

PENNY:  Yeah, and Mac thank you.  I mean point eight of my insights was you've got to be creating value and you've got to be making money because otherwise points one to seven all fall away, so -- (laughter) -- I mean perhaps I should have made it point one.  But I mean we are in Africa unashamedly to create value for our shareholders, I mean otherwise we have no -- (inaudible) -- we have no raise -- (inaudible) -- to be there.  But we want to do it in a way as -- (inaudible) -- suggested that is creative capitalism.

So every project we do, we ever do, whether it's in Africa or Russia or you know Canada, we're looking at it and saying risk weighted return are we getting.  And we know what our cost of capital is in each different country.  We'd be looking to get a, you know, an appropriate internal rate of return on each of these projects.  We look at all the risks, and we would be very straight with our partners and with government and whatever in terms of saying we are or we aren't going ahead with that.  And we've got to be commercial.  Because the one thing if we're not commercial, actually governments don't trust us because then they say now what is going on here, I mean, why is this company prepared to do a three or four percent project?  Are they making their money somewhere else?  Are they transfer pricing it or what is going on?

So we read open books, but if you come to you know any part of the operation you will it find it you know a huge number of different people from different communities or countries because we want them to be aware of the business, we're not going to in a black box over here that's kind of off bounds.  And then we want to be absolutely frank with any government -- (inaudible) --, if it's not we're not going ahead with it, we may park that project and come back to it.

You know, there's some tough discussions right now in Southern Africa around power, electricity, and if there isn't electricity for a new project, we want to put it on to a care and maintenance basis until there is.  And if we've got an open and transparent relationship with government, then they're going to say well fine, okay, we need to get the power back up again then we'll go ahead with that project.  So absolutely we look at risk.  If it doesn't make commercial sense on a risk way to basis we're not going to do it.

LYMAN:  Did I see your hand up?  Yeah.

QUESTIONER:  Thank you.  Vivian Lowry Dereck (ph) the Academy for Educational Development.  And I particularly appreciated your eight insights, your principles, because I've been working on public/private partnerships for several years now.  But I am also you should be commended for your work on HIV/AIDS, your fifth principle because it's really been pioneering and a model for others.

But within your eight principles, I notice that you did not say anything about education.  Education clearly is important, not only for a workforce, but also for the good governance that you talked about, labor force participation, et cetera.  I'm wondering are you thinking about any public/private partnerships in that area.  Are you working with governments or are you working with communities?  Thank you.

PENNY:  I think -- (inaudible) -- on education and training -- (laughter) -- and just in the interest of time, I actually, I left it out.  (Laughter.)  -- (inaudible) -- that might help me off of the discussion.  You're absolutely right.  Education and training is critical.  We did actually it was sitting under one of our points where we said -- (laughter) -- in fact it was point five -- (laughter) -- we resaid play an active role in leading the fight against HIV/AIDS and in supporting education and training.  And so you're absolutely right.  I mean, unless you have raw focus on education and training, you're never going to get the senior management that you're looking to to be the role model if you want to pull the whole thing up.

So the other interesting thing that we've learned is very often we can't get the level of managerial expertise or training if we only lead people in a country say a Motswana in Botswana.  And what we actually now making is the precondition of getting to another level of management but you have to work in at least two countries.  So it's a requirement that you can't only work in Botswana, you're going to have to come and work in the U.K. or you know, and principally not just in the Mumbai, I mean somewhere completely different, maybe even in Canada.  So if you went to one of the projects that we've got up there Gogatchkwa (ph) the guy running that project is actually from Botswana.  And we've got to increasingly do that kind of thing to get you know that global standard.

But I'm absolutely with you.  Training and education are fundamental.

LYMAN:  Can I bring you back to Angola for a minute, I'll come back to you.

We did a report on Angola here at the Counsel last year and there was a lot of, lot of debate about is the glass half full half empty and Angola is moving forward in a number of ways.  But actually, one of the questions that came up over and over again was in fact the diamond sector.  There was a feeling or at least reports for some people that while transparency was improving in the oil sector, it was not improving in the diamond sector.  And I wonder if your experience in Angola, you can talk about the degree of transparency on the part of the government and how the revenues are being brought in and used, et cetera.

PENNY:  And was this comment specifically about Angola?

LYMAN:  It was specifically about Angola, yeah.

PENNY:  I'm surprised by that because I mean Angola is a member of the Kimberly Process.

LYMAN:  Right.

PENNY:  I mean, their industry is properly regulated.  I mean if you went back some years, I think that would be absolutely true.

LYMAN:  Right.

PENNY:  I don't know when the comment was made, if it's a recent comment --

LYMAN:  It's a recent comment.  We didn't, we couldn't clarify it but it came up.

PENNY:  Yeah.  I mean again you know with the alluvial diggings they've got challenges, but you know, I think we believe that they're making a lot of progress.  I mean, they've got one or two major established mines, which I think they're operating successfully.  Stephen are you aware --

LUSSIER:  They published their export -- (inaudible) .

PENNY:  They do?

LUSSIER:  Yeah, so there are official export figures.  I mean, at De Beers again we're not mining there, so it doesn't particularly apply -- (inaudible) -- lot of transparency, much more than -- (inaudible) .

PENNY:  Mm-hmm.

LYMAN:  Okay.  That's very helpful.  The gentleman -- (inaudible) .  And then someone right back there.  Okay.

QUESTIONER:  Joe Grimes, Enterprise Works, which is an NGO, which support entrepreneurial activity in the developing world.

Interested what kind of arrangements have you had with NGOs; you've mentioned the government with companies, and I could look at my own experience, I spent many years with Honeywell around the world, and we had all kinds of deals going in the private sector, and really nothing directly with NGOs.  And with this one I'm connected with now on the board of directors, you've things going with Gates Foundation, Shell Foundation, Diagio (PH), but nothing with any big companies.  The developing entrepreneurial activity in these countries is manufacturing small things, putting in distribution systems, but the big companies like yours are not directly involved, or like Honeywell.

PENNY:  Stephn, do you want to take that?

LUSSIER:  I'm glad I'm sitting near the mike.  (Laughter.)  No, it's a, the Kimberly Process has changed our approach toward working directly with NGOs.  Up until that point, we didn't do much.  And the Kimberly Process I would have probably say started off rather confrontationally and still has an element of confrontation, but that's probably not a bad thing and it keeps us all, keeps us all true to the spirit of it.  But through that process we found out what actually could be achieved, working with NGOs.  And part of this goes back to the, and it has changed our thinking about the future, the current and the future.  Historically if we were building a mine, basically the sort of miner's view is you do the whole thing yourself, you know, you build a hospital and if you go to Botswana you'll see we built the hospital and we run it and it's principally the community hospital, the mine hospital as well.  But you built your own power, you probably built your roads in and out and if you go back a long way, you know, you sort of ran the town, it was your approach.  And when we look at Angola, and part of your question you're saying how do we focus in on Angola, we're doing impact assessment studies now, trying to assume what happens if we do find something, what will the impact be, will it create more conflict in the local community as people come into the region?  We try to predict these impacts and plan for them.

But what we've decided is that actually we're only going to do one bit of this solution.  Our contribution is going to be to build the mine and get the diamonds out of the ground.  We're going to then look for developmental partners to do the rest.  We're going to look now and we're starting partnerships with different, I guess call them, I forget the phrase, implementation NGOS, NGOs that are on the ground, developmental NGOs.  And rather than us do the health care, we're going to bring them in as partners in the community from the beginning.

And the same with some of the developmental projects, rather than us be responsible for building power et cetera, we're going to look for developmental partners willing to invest in those sorts of issues.  So you get this in effect tri-partied solution.

But it's new to us, it's not our historical operating model but I think it is the operating model for the future.  Because the end you need is like anything, you need to find the people who are best at doing what they do.  And we're good at some parts of delivering for example HIV/AIDS testing programs in house, but when it comes to the community there probably people who are better at extending.  So can we form those partnerships and can we use them?  And we're experimenting now on places like South Africa through our De Beers fund, where rather than doing things ourselves we're financing civil society groups to do things for us in Africa.  And our view is it actually works better, they're better at it than we are.

LYMAN:  Okay.  Time for two more.  The lady back there and then Don over there.

QUESTIONER:  Thank you.  My name is Mercedes Fitzship (PH) with the Department of Defense and thank you so much to you and your colleagues for being here today.  Being here in Washington, DC with the presidential election taking place in November, what would be your top four, five recommendations to the next president to continue these positive trends in Africa?  Thank you.

LYMAN:  Oh, very good, very good indeed.

PENNY:  Mercedes, thank you.  I'll start by saying one recognize the important strength forward of the continent, because Africa is going to play an increasingly important role in the years ahead, in many different ways.  And find a sustainable engaging model. 

I would say secondly I think actually America in the last years has engaged with Africa more successfully perhaps than hitherto and I think there are many of the current policies that need to be continued.  I know the current administration is you know under fire for a lot of things that it's doing but actually I think in Africa there is much that has happened over this last decade that is commendable.  And so things like African lease kinds of things I think play an important role.

I'd say thirdly this kind of forum I think for the administration to have a way of encouraging business to look for investment opportunities in the right kind of way and with it -- (inaudible) -- insight for some other, but a way that engages positively transparently insures that you know, governance is followed I think is very important.

And then I think clearly there is a role for aid.  You know aid has been quite discredited in many ways but if it's the right kind of aid that is you know, targeted, that is supported with the other three elements of the strategy that gets to where it's supposed to be going, then you know it can play an important supplementary role.

What I don't think is the strategy can be based around AIDS.  I mean, I would be far more optimistic with the strategy that was based around the extraordinary ability of you know Americans to create commercial value.  And if you can do that, and American businesses can really engage into the African continent, I think it will have immense long-term benefits.  And if it's done in the right way, America doesn't have perhaps Cold War aside, it doesn't have a lot of the colonial legacy that some of the other countries have and I would like to see America putting you know, a lot of importance on Africa.

I -- (inaudible) -- your statistic at 15 percent oil, but in that same article you went to say -- (inaudible) -- it's going to 25 percent of America's oil in, you know 10 or 20 years ahead.  So I mean, that's underciting one particular statistic, but clearly the importance of Africa to America I think is going to grow in importance.

LYMAN:  Don, you get the last question.

QUESTIONER:  Thank you, I'm Don Shirk (PH) with Johns Hopkins.  I very much enjoyed Mr. Penny your remarks and it clarified my view of De Beers immensely, but what struck me that the natural partnership that could be created between the African development bank and De Beers would make a great deal of sense in many of the countries, not only in Southern Africa but in the rest of Africa.  Have you had dealings with the African development bank and are they progressing in a certain way you could care to talk about?

PENNY:  Don, firstly thank you for that comment and I'd like to say it was something about it at the end.  I mean, I'm actually not aware of, I mean, we may have had but I'm not aware of any direct engagement.

Part of what we're thinking about and it's something that's Stephen's very focused is what is brand De Beers?  What is actually going to be in the next 10, 20, 30 years?  You know, our brand obviously De Beers is a diamond brand, that's what we are, we believe that we're the world's leaders in finding diamond mines and developing diamond mines, all manner of them, we find diamonds under the sea and we find them you know, in open (ground ?) separations and underground and so on and so forth.  And we sort them, expertise isn't cutting and polishing, we leave that to our customers, but you know, we've got a retail chain of businesses now that we're starting to develop.  And slowly we're looking and saying to ourselves what is the brand extension?  And it's not inconceivable that we could team up, it just made sense with, you know, financial institutions to say how do we bring our learning and how do we bring, you know, our expertise to maybe facilitate as I called it in the speech the diamond fly wheel to create a developing environment in Africa or perhaps elsewhere.

And I think it's part of this recognition that the way in which we do business has to reflect the product that we are mining and we're selling.  When people think about our product, they've got to be positive and they've got to think this is something that's doing good.  So you know it's not kind of airy-fairy, wish-washy, you know, left field kind of stuff.  It's absolutely core and central.

And so it's an idea that we'd certainly be prepared to think about.  I mean, if I can just say just from my side and I speak for my colleagues, I know, I mean to thank all of you for your time and for you know all of your questions.  We all our contact details are on the documentation, and you know we don't have all the answers.  We, I've said that, we are very open in saying that, we're trying to be part of the solution, part of the solution.  And we need to work with yourselves, we need to work with many other parts of civil society, we need to work with investors, and we need to work with governments and people in the continent.  But we are absolutely determined that in the way in which we do business is going to leave a positive legacy and that you know, when people look back 10, 20, 30 years after we've been involved in a particular operation that they should feel that you know, that's been done positively.  It's not always easy.  But it is essential part of our strategy.

Thank you, Princeton.

LYMAN:  Okay.  Thank you.  (Applause.)









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