Merchant Kings

by Stephen R. Bown

  They formed a limited company and were searching and scheming for a means of acquiring the entire De Beers mine site. In 1879 Rhodes met Alfred Beit, a German Jewish diamond dealer with global financial connections who had arrived in Kimberley a few years earlier. Rhodes reputedly spied Beit working late in his office one night, wandered over to see what he was up to and eventually asked him what he planned to accomplish by working so hard. Beit replied that he planned on controlling Kimberley’s entire diamond production. Rhodes replied: “That’s funny.

  I have made up my mind to do the same. We had better join hands.” The company they formed in 1880 was called De Beers.

  That same year Rhodes, now one of the leading citizens of the town, was elected to the Cape Parliament. Although he now had a budding political career, he kept a firm focus on the De Beers diamond company which in 1883 had already quadrupled its initial capital of 200,000 pounds.

  Rhodes was too busy to officially move to Cape Town, the seat of the parliament, so he spent the next seven years travelling back and forth between Cape Town and Kimberley, where he lived with a couple of business associates, Neville Pickering and Dr. Leander Jameson. He attended alternately to his business and his political interests, which, not surprisingly, occasionally overlapped. Rhodes was, in fact, attracted to schemes that blended business with politics. His efforts to push a railroad through to Kimberley amply illustrate how he directed his political efforts to improve his business prospects. Stability and increased settlement, he argued, would justify a railroad, which would in turn increase profits for businesses throughout the region. To this end, the already politically astute young man set out to better relations between the English and Dutch in the Cape Colony as a way of encouraging British southern Africa to adopt a single government. As part of his overriding objective of expanding British culture around the globe, Rhodes envisioned a grand union of all the peoples of southern Africa under the government of the Cape Colony, which would then expand north into central Africa, into territory yet to fall under the control of any European power.

  But other European powers—Belgium, France, Portugal and Germany—harboured ambitions of expanding into central Africa. Very much aware of this, Rhodes vowed to gain the territory for Great Britain, where also, coincidentally, his own commercial interests lay. “Give me the centre,” he claimed, “and let who will have the swamps which skirt the coast.” He set his eyes on the narrow stretch of land running north from Kimberley, west of the Transvaal and east of the Kalahari Desert. This land corridor, known as the Missionary Road because David Livingstone and dozens of other missionaries had travelled north into the interior along it, could provide easy access to the high plateau of central Africa. However, a conflict between the Republic of the Transvaal and the Cape Colony over control of the “road to the north” dragged on for years. Rhodes rightly saw the corridor as the key to dominating the region and wanted to ensure that it was controlled by British interests, preferably his own. Fearing that the Transvaal might block British expansion along the corridor and seize the area’s resources for itself, he strategically projected that expanding the Cape Colony around the Transvaal republic would cut the Transvaal’s communication and supply lines, compelling it to join the Cape Colony under British rule.

  Still only in his early to mid-thirties, Rhodes was an astute observer of the geopolitical situation, foreseeing the possible future moves of the many players who would seek to expand their claim to southern Africa’s geography. It was like a giant game board to him: he already knew what to do, but he still lacked the power to be taken seriously. “He was no more a conventional politician than he was a conventional businessman,” John S.

  Galbraith writes in Crown and Charter: The Early Years of the British

  South Africa Company. “The limitations imposed on government by the representative process were repugnant to his being. Governments responsible to the parliamentary process he saw as inherently weak, unworthy of the greatness of the people whom they were elected to lead. The destiny of the Anglo-Saxons could not be realized by the agency of governments; the necessary force and fire must be provided by men eager to devote their lives, their energy, and their money to the mission.” And Rhodes knew that political power would never be enough; he would need vast sums of money to make his vision a reality.

  4

  BY THE MID-1880S RHODES WAS A RICH MAN, WELL known as one of Kimberley’s leading citizens and already earning a reputation in Cape Town as a promising politician.

  His dreams for De Beers were as ambitious as his vision for a British-dominated southern Africa, but they were progressing more quickly. Under the tutelage of Rhodes, Beit and Rudd, the De Beers Company was thriving and was proving to be ever more profitable, thus providing the partners with a handsome income. But although Rhodes was rich, he was not yet all-powerful. There remained seven other claim holders at the mine site. For years the De Beers corporate strategy was to plod profitably along, buying more claims as financing became available, incrementally expanding the company’s hold on the mine and the industry. In 1887 Rhodes bought all the remaining mine concessions in the DeBeers mine, and immediately consolidated its operations and cut expenses by moving the living quarters of the African labourers, who formed the vast bulk of the workforce, into an isolated, company-run shantytown, where they were housed, fed and each day searched for illicit diamonds.

  With these economy measures, profits began to soar—as did dividends paid to shareholders, which rose from 3 per cent before 1887 to 25 per cent by 1888, even while the global price of diamonds declined slightly. Rhodes instinctively knew that the global demand for diamonds would remain constant, so increased production would eventually be met with a concomitant decrease in price. Thus, to squeeze more profit from De Beers, he would need to control nearly the entire world supply of diamonds or arrange some form of cartel to restrict supply and thereby keep prices high. Although he had not yet told De Beers’s shareholders about his patriotic ambitions, dominating the southern African diamond industry would allow Rhodes to finance his imperial dreams.

  By 1887 two companies controlled most of southern Africa’s diamond trade: the De Beers Company at the De Beers mine, and the Kimberley Central Company at the nearby and larger Kimberley mine. Barney Isaacs, a young Londoner who went by the name of Barney Barnato, had grown Kimberley Central in the same way that Rhodes and his partners had developed De Beers: by slowly buying up mining concessions over the years. Barnato was reputedly as rich as Rhodes, and perhaps even richer. The two companies would either have to fight or come to some agreement regarding production if the market was not to be flooded. Rhodes chose to fight. First, he arranged through European agents to purchase the outstanding shares of the French company that owned the remaining concessions at the Kimberley mine. Rhodes made a special trip to London and met with Lord Rothschild, through contacts arranged by Beit, and borrowed 750,000 pounds for this purpose. He then borrowed another 750,000 pounds from a Hamburg financier and contacted the head of the French company, offering 1,400,000 pounds for the entire operation, a fair price. But Rhodes always worked on more than one level. He had arranged to pay the interest on this massive loan with De Beers Company shares, but with a twist: if the De Beers shares rose in value and were higher at the end of a stipulated time period, any profit from this increase would be shared equally between De Beers and the lenders. Rhodes suspected that the shares would rise in the near future and wanted to make sure that he and his company benefited from the increase.

  Before Rhodes’s offer had been accepted by the French company’s shareholders, Barnato got wind of the deal and quickly put together a counter-offer, proposing to pay them even more for their shares. (The new telegraph lines running from Cape Town to Kimberley made all these rapid offers and counteroffers possible.) Rhodes, unperturbed, approached Barnato and persuaded him to retract his offer to the French company.

  As compensation, Rhodes promised to sell Barnato and Kimberley Central th
e French company for the same price that De Beers had paid; that is, he agreed to pass on the shares at no profit. Rhodes’s one requirement, however, was that Barnato pay him not in cash but in Kimberley Central stock. Barnato agreed. When the deal was completed, De Beers was the owner of about 20 per cent of Kimberley Central’s stock, and Kimberley Central controlled the entirety of the Kimberley diamond field. Only two companies now owned both of the major diamond mines in the world. Now Rhodes made his big gamble.

  With the help of Beit, he raised even more capital and began buying as many shares as he could of Kimberley Central. Barnato urged his shareholders not to sell and then counter-offered with higher prices. Share prices in both companies spiked (earning Rhodes and De Beers a tidy sum, as they split the difference of the share increase with their European financial backers). As the market rose, many of the investors sold their shares in both companies and took their profits. Rhodes’s backers, however, who were mostly in Europe, had a vested interest in the success of his gambit and held firm. (Most of the shareholders in

  Kimberley Central lived in Kimberley.) After a short period of hectic buying, Rhodes and De Beers held a controlling stake in Kimberley Central.

  Rhodes then convinced the shareholders of the two companies to amalgamate, the investors exchanging their shares for shares in a new holding corporation called De Beers Consolidated Mines. The only stumbling block was the trust deed of De Beers Consolidated, which would define the parameters of the new company’s operations. Barnato and others wanted the trust deed to state that the activities of the company would be restricted to the diamond industry. Rhodes wanted no such restrictions and eventually prevailed, ensuring that the new company could engage in other businesses. The list of powers available to the new company were extraordinary and unusual.

  They included the right, should the need ever arise, to annex territory not already legally held by European powers; the ability to raise a private army to accomplish this goal; and provisions to engage in banking and other financial sponsorship of suitable enterprises yet to be determined. Rhodes and his cronies, including Barnato—who some biographers suspect was a willing participant in the scheme from the start, colluding with Rhodes to drive up the value of shares and make them both an emperor’s fortune—were made life governors of De Beers Consolidated Mines. They were guaranteed an enormous income, hundreds of millions of dollars each, so long as the company remained profitable.

  Rhodes was now in control of a company that held a virtual monopoly on diamonds, about 90 per cent of the world’s supply. But he was only getting started. In a speech to the shareholders of the new amalgamated enterprise, he clarified his immediate goal. “Our ambition,” he stated, “is to make it the richest, the greatest, and the most powerful company the world has ever seen.” At this time the impoverished workers, mostly black Africans who toiled in the heat and dust extracting the diamonds from the earth, lived in abysmal conditions. They were virtual prisoners in company-run compounds, forced to spend their hard-earned wages at the company store. One commentator, John Merriman, observed that it was “a scandal and a disgrace to everyone whose moral sense is not blunted by the habit of looking at them as mere working animals.” When the amalgamation was complete, about a half of the black workers were fired, as were a quarter of the white workers. The company’s shares rose in value, profits soared and working conditions deteriorated as competition dwindled.

  But Rhodes’s money-making schemes were not limited to diamonds and De Beers. In 1886 gold was discovered in a region south of Pretoria called the Witwatersrand. The region, which became known as the Rand, evolved to become the richest gold mine in the world. A city called Johannesburg grew up nearby. Overcoming his initial reluctance, Rhodes became involved in a big way by forming alliances with wealthy and connected partners, none more connected than himself. Although he never dominated or understood the gold mining industry as he did the diamond industry, Rhodes made an immense amount of money from his initial speculation and, later, an enormous annual income from his ownership position and appointment as a managing director and chairman of the holding company Consolidated Gold Fields of South Africa. This move, too, opened the prospect of the company investing in a wide variety of enterprises, the same way De Beers Consolidated had done.

  Although Rhodes was preoccupied with commercial activities during these years, his evolving empire-building political views meshed nicely with this commercial foundation. In 1890 he became the prime minister of Cape Colony, and his views now carried new weight. He was by far the wealthiest and most powerful person in southern Africa. Anticipating that

  “occupied land”—land occupied by indigenous peoples—would be an impediment to commercial development, Rhodes spoke out against the right of Africans to vote. (They were already prohibited from voting in the Boer republics of the Transvaal and the Orange Free State.) Since he believed the world would be improved by unrestrained and unregulated industrial development, he didn’t want native Africans to obstinately cling to their land and stand in the way of “progress,” particularly industrial development and mining. Rhodes also introduced laws beneficial to mining and industrial interests as he looked north to south-central Africa. He had great plans and dreams for this “empty” land. He had access to the capital and the political clout needed to develop the land, if he so chose, and it was to this end that he devoted an ever increasing amount of his energy.

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  SINCE THE DISCOVERY OF GOLD ON THE RAND, PROSPECTORS had cast their eyes northward beyond the fringes of the European-style colonies of the Cape and the Boer republics. Why should the sources of diamonds and gold be limited to the mines already discovered? In the 1880s numerous explorers and prospectors were trickling north into Matabeleland, the territory of Lobengula, the king of the Matabele. The Matabele were an offshoot of the Zulu tribe, who occupied the prime grazing lands of the Limpopo River, southwest of the Great Lakes of Central Africa. In the 1880s they were the most feared tribe in southern Africa, numbering around sixty thousand.

  Raiders and slavers, the Matabele frequently forayed deep into surrounding lands from their central settlement at Gubulawayo.

  Antony Thomas, author of Rhodes: The Race for Africa, likens the Matabele to the warriors of ancient Sparta, and Gubulawayo to a “huge military encampment, roughly circular in shape and half a mile in diameter, surrounded by a strong stockade of Mopani poles and thorn bushes. Immediately inside this outer ring was a circle of tightly packed grass huts, six rows thick and built in the traditional beehive shape,” where the king’s attendants and warriors dwelt. The king’s inner sanctum was surrounded by yet another stockade enclosing two large brick houses. “The inhabitants lived an ant-heap sort of life,” wrote the traveller A.T.

  Bryant. “There was no such thing as privacy; their souls were not their own; they were oppressed by a great fear of offending the elephantine King or his witch-doctors, and everybody moved like a puppet twitched by his will.”

  Lobengula himself was a powerfully built and regal figure of meticulous grooming. He was sensitive to protocol and appearances. “Like all the Matabele warriors who despise a stooping gait in a man,” wrote one impressed visitor, “Lo Bengula walks quite erect, with his head thrown back and his broad chest expanded, and as he marches along at a slow pace with his long staff in his right hand, while all the men round him shout his praises, he looks the part to perfection.” Lobengula’s many appellations included “Eater of Men!” and “Stabber of Heaven.” His “great bulging, blood-shot eyes” could induce terror when he “look[ed] you up and down, in his lordly way.” The few European traders who were permitted to settle near Gubulawayo, squatted around the outer palisade. Lobengula called them his “white dogs,” and none had ever been given permission to mine in his territories.

  If new sources of valuable minerals or gems were to be found, Rhodes believed they would be here, in Lobengula’s kingdom.

  “The Matabele King . . . is the only block to Centra
l Africa,”

  Rhodes claimed. “Once we have his territory, the rest is easy.”

  The race for Africa was on, and the European powers were searching for territories to conquer and exploit, while preventing others from doing the same. Most people in Britain, indeed Europe, were increasingly of the belief that they had the right to occupy, develop or exploit any territory in Africa that was not already occupied or fully utilized by African peoples. One speaker and writer of the time, Joseph Chamberlain, clearly expressed this view: “So far as unoccupied territories between our present colonial possessions and the Zambezi are concerned, they are hardly practically to be said to be in the possession of any nation. The tribes and chiefs that exercise dominion in them cannot possibly occupy the land or develop its capacity, and it is as certain as destiny that, sooner or later, these countries will afford an outlet for European enterprise and European colonization.”

  Lobengula’s court thronged with people seeking concessions for mineral claims, though the king remained independent and disdainful of the overtures of mining companies and European governments alike. The Portuguese, however, had claimed part of his territory, and the German government sent an envoy. British missionaries sought to operate in his lands as well, while mining company representatives, sometimes affiliated with European governments, angled for permission to operate in Lobengula’s realm and with his blessing. The Europeans assumed that the recognition of a claim over African territory was determined by effective occupation. Rhodes feared that if Britain did not quickly expand northward, his dreams of a British corridor of political control from the Cape to Cairo would be dashed by the prior claims of some other European power. His greatest fear was that the Boer trekkers of the Transvaal would attempt to seize control. In 1887 they tried this very tactic by tricking Lobengula into placing his royal mark on a document that gave them exclusive trading rights to, and forbidding anyone else from entering, the territory.