If one major trend has emerged in the modern diamond industry, it is the rise of India as the new centre of balance. India has successfully taken over the polishing business from the traditional centres in Europe, Israel, the United States and Russia and now polishes around 95% of the world diamond production, employing over one million people in the industry.
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But together with the employment and the large volume of money came the speculation. Indian banks and buyers have been accused of financing large-scale speculative manoeuvres with the acquisition of a surplus of rough diamond, and to have conceived deplorable schemes such as the round-tripping practice to earn easy cash.
The wave of outrage that this earthquake has provoked in the stable diamond business is understandable, but less understandable is the mounting proposal that India should be excluded from the rough trade business in favour of old and trusted buyers. This could not represent the ideal solution to deal with a player that has shown many limits, but also unmatchable potential.
First of all, we should make clear that the matter is very serious. Speculation is one of the worst enemies for the business, as it would jeopardise its proverbial stability and force it to follow the rollercoaster of commodity markets. It is a nightmare scenario that producers have tried to avoid not only during the De Beers’ monopoly era, but also in recent years. So, speculation has to stop.
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“The wave of outrage that this earthquake has provoked in the stable diamond business is understandable, but less understandable is the mounting proposal that India should be excluded from the rough trade business in favour of old and trusted buyers. “
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On the other hand, it is myopic to underestimate the sheer size of India. Not only the Subcontinent has emerged as major player in the industry, but it is also a dynamic and expanding market. The country is both active in the polishing and in the jewellery manufacturing business, as well as being the third largest market for diamond jewellery.
These outstanding figures are coming from a country that many believe has overtaken Japan as the third economy of the World, with an average growth of 6.5%. Indian banks boast large liquidity and are eager to invest it. This is something that developed economies cannot count on, anymore. Just to understand how higher propensity to invest is in India compared to the traditional diamond hubs, it is worth taking a look at the Gross Fixed Investment Index produced by the Organisation for Economic Co-operation and Development (OECD).
This indicator shows how India overshadows many traditional markets in terms of investments. If we read the macroeconomic data together with the aforementioned boom in the diamond and jewellery industry, we can see that India is experiencing a virtuous circle: the Indian diamond industry is on the rise, which makes banks willing to invest on it, which makes the industry grow even more compared to its competitors.
This is not a bad thing per se, and producers would be suicidal if they renounced to such a florid market; but diamond companies have the duty not to bend in front of abusive behaviour by speculators and must keep an eye on what happens to their goods after they are sold.This means that now more than ever there should be a thorough check on selected buyers to make sure that they are not using easy credit to speculate and damage the business.
All this said, it is also in the interest of the whole industry to maintain a list of geographically heterogeneous manufacturers, as concentrating the business in few areas could create dependence and distortions in the market.
Everyone should be glad that some of the traditional hubs, which have seen their business volume shrinking over the last decade, are trying to get on their feet with ambitious programs. As an example, Avraham Traub, President of the Israel Diamond Manufacturers Association, recently declared that he would do whatever is possible to recover some shares of the industry that the country has lost after the global crisis, in particular regarding the 30-pointers and above polishing business.
To do that, Israel will probably need a comprehensive restructuring plan, something similar to what has been done in Antwerp with the launch of the ambitious Project 2020. The 160-page program presented by the Antwerp World Diamond Centre proposes a profound innovation to stop and reverse the decline of the city as a diamond hub, and covers all aspects of the diamond business in the city, from trade to manufacturing, from security to financing.
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It will not be an easy task. Not dissimilarly to other labour-intensive manufacturing businesses, diamond polishing has largely migrated to low cost countries, with India taking the lead. Traditional centres such as Antwerp, Israel or New York, which can count on several generations of polishers, are facing a hard time due to higher labour cost. Such centres of excellence are still largely used for cutting large and flawless stones because their high value make labour costs almost irrelevant and because owners prefer to minimise the risks by choosing polishers with an established name. Some of them can also count on the exclusive on copyrighted cuts, but they account only for a tiny portion of the total.
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“Traditional centres such as Antwerp, Israel or New York, which can count on several generations of polishers, are facing a hard time due to higher labour cost.”
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The recent impetuous expansion of the diamond polishing business in India is beginning to take its toll on the traditional polishing centres. While the alarm was already launched years ago, it is only now that small businesses are running out of money and shutting down for good that we are seeing many countries proposing new ideas to hit back. Is it too late to act?
At the present time all hopes in a return of the polishing business rely on the mechanization of the process, which would make it less labour and more capital-intensive. The Antwerp Diamond Technology Centre has been pursuing a new technology called Grain Independent Polishing (GIP) and other robotic assistance that would speed-up the polishing process while cutting labour costs. The idea is that by creating a series of patented systems to be sold only to selected local manufacturers, the Belgian industry would be able to create a protected advanced centre.
While the idea sounds great, there are a few questions that need an answer. First of all it is all but clear how much faster or less expensive the new technique would be (considering that there are still some problems regarding the finishing phases of the polishing process); then there is the risk that, despite being patented, the new technology could spread abroad, maybe with slight modifications to circumvent copyrights; last, it is not clear how the jewellery market, which is notoriously linked to artisanal methods, would react to a “mechanically polished” diamond in opposition to an “hand-polished diamond”.
Finally, to add fuel to the fire came the recession, which made banks tie their purse strings when it comes to offering credit. As a result, in just a few years many countries lost not only great part of their cutting and polishing tradition, but also their pivotal role in investments. In the near future, the issue of finding resources to kick-start the agonising traditional centres is even more important than technological innovation.
In conclusion, the industry should finally accept that the rise of India and other new markets – as a global player is now a fact and that keeping it outside of the rough trade is not an option. It is in its own interest to engage those fresh resources and to help them understand that in the long term responsibility pays off more than the reckless speculative manoeuvres we saw in the past months. On the other hand, retreating from the traditional diamond centres would also be an unforgivable mistake. The diamond business can only benefit by operating in geographically diversified hubs and protecting centres such as Antwerp, Tel Aviv and New York is not just in the interest of a single nation’s economy, but of the industry as a whole.
