In 2005, payments for diamonds and to suppliers amounted to US$4.97 billion. We sourced diamonds principally from our operating companies in Africa but also from the Russian state-owned mining company, Alrosa, under a trade agreement which will end in 2008. Consequently, 74% of payments went to Africa.
Local goods and services are purchased wherever possible. Local procurement policies and procedures are most developed in South Africa, Botswana and Namibia.
They are being extended to other operations including De Beers Canada. In South Africa, nearly R2 billion (US$313 million) out of a total R5.1 billion (US$796 million) was spent on HDSA owned, empowered and influenced companies in 2005. This represents 39% of procurement spend.
In 2005, over US$724 million was allocated to preferential procurement in southern Africa and Canada.
De Beers Consolidated Mines
Total procurement from HDSA owned, empowered and influenced companies during 2005 amounted to R1.6 billion (US$242 million) out of a total R3.6 billion (US$563 million) discretionary spend. DBCM aims to increase its expenditure on HDSA owned and empowered suppliers from currently 27.5% to over 40% of total spend by end 2009.
This goal was achieved for the period of January to September 2006, during which this spend was 41.7%. Total procurement from HDSA owned, empowered and influenced companies during this period amounted to R1.5 billion (US$247 million) out of a total R2.5 billion (US$410 million). At 60.2%, this represents a marked increase over 2005. Of this expenditure, R648 million (US$106 million), or 25.7% of total spend, was allocated to HDSA-owned enterprises. This too is a significant increase, compared to 13.7% in 2005.
DBCM's preferential procurement plan is informed by its relationship with the South African Mining and Preferential Procurement Forum. All procurement from BEE companies is on a strictly competitive and commercial basis. DBCM also works actively with existing suppliers to assist them in their transition to BEE owned and "transformed" businesses. Those companies with higher BEE scores will be a more attractive source of procurement to customers due to the relatively higher recognition they afford a customer in its own BEE scorecard and reporting. The systematic nature of DBCM's preferential procurement strategy is illustrated by its use of HDSA small and medium sized enterprises (SMEs) in a large SAP implementation project.
Debswana
The small size of the Botswana economy limits the nature and size of firms able to establish themselves in the country. The majority of industry inputs have traditionally been imported from South Africa, with the benefits accruing abroad. Debswana aims to address this imbalance and stimulate economic diversification by encouraging foreign direct investment and joint ventures with suppliers.
The 2006 Citizen Empowerment Policy formalises Debswana's ongoing commitment to leveraging its purchasing power in support of development and economic participation of citizens and citizen-owned companies. The policy has the following objectives:
Procurement spend on citizen-owned businesses has increased since 2002, as has spend on suppliers registered in Botswana, replacing direct imports from South Africa. In 2005, expenditure on suppliers located in Botswana was P1.3 billion (US$254 million) or 75% of total spend. Of this, 16% (P206 million or US$41 million) was spent with citizen-owned suppliers. In the first half of 2006, local spend increased to 84% of total procurement spend.
So far, Debswana has attracted 26 businesses into Botswana, with 780 new jobs created. Thirty-one local suppliers have been developed, with 1 460 new jobs created.
Namdeb
Namdeb implemented a Preferential Procurement Policy in 2004. Since July 2005, the company has been assessing the BEE credentials of suppliers using a balanced scorecard approach. Accreditation is not only contingent on an ownership empowerment strategy but also incorporates skills development, management and control of the business, SME development and corporate social investment. Accreditation is being coordinated by the Namdeb Preferential Procurement Committee.
In 2005, 88 supplier companies were audited and the BEE credentials of 46 successfully verified. Thirty-two suppliers were found to conform to South African BEE legislation but had no Namibian disadvantaged equity in place. Accreditation is under way at 42 suppliers, and 108 indicated they were not yet ready to be audited. Some larger multinational supplier companies expressed concern about the absence of legislation and did not initiate accreditation without formal government sanction.
In 2005, Namdeb spent N$148 million (US$23 million) with previously disadvantaged suppliers.
De Beers Canada
De Beers has no operating mine in Canada, but construction for both the Snap Lake and the Victor projects is under way. Construction at Snap Lake (Northwest Territories) started in February 2005. The ground breaking ceremony for Victor (Ontario) took place in June 2006.
Significant effort was made at Snap Lake in 2005 to ensure the involvement of aboriginal and Northwest Territories(NWT) businesses in contracting and procurement during construction. These efforts meant that the 35% NWT purchase target for construction expenditures in 2005 was exceeded. As of 15 December 2005, De Beers Canada had purchased C$145 million (US$120 million) in goods and services related to the Snap Lake Project, 58% of which with NWT businesses. C$62 million (US$52 million) was spent with aboriginal businesses, comprising 74% of all NWT purchases and 43% of total spend. A number of subsequent purchase agreements with local and aboriginal suppliers have been agreed. 44% of these have been designated to NWT businesses. C$104 million (US$86 million), or 64% of all NWT commitments, has been assigned to Aboriginal Authority businesses.