The world is in constant flux, and nothing remains static. Diamond centers, just like other kinds of trade centers, are constantly shifting. Amsterdam long ago lost favor to Antwerp, which enjoyed the benefits of Belgium’s rule over Congo.
Rising labor costs in Europe and a budding hungry diamond center in Tel Aviv led to Israel becoming the world’s largest polished diamond exporter. Diamond polishing goes where the labor costs are lowest, and pretty soon India dethroned Israel to become the leading polishing center.
For a while, there was a false sense of stability, almost an equilibrium: Antwerp is the leading rough center, Mumbai and Surat in India the manufacturing hubs, Israel the polished center and New York City and Hong Kong the entry gates serving the consumer centers.
This constant shifting partially explains last week’s tiff amongst manufacturers about India’s banking advantage. The Indian government’s requirement that Indian banks support exports cannot be ignored in this context.
A manager at a leading Israeli bank told me this week that they are decreasing their exposure to the diamond industry “because of the risks” involved. This is a threat to the Israeli diamond industry, as is the waning interest that Antwerp banks – with their pending, yet persistently delayed sale – have in the diamond industry.
De Beers’ move to Botswana is a further threat to Antwerp as a rough center.
Need for reinvention?
With shifts come new entities. Dubai entered the diamond arena more than a decade ago with the lure of a 50-year tax amnesty. After succeeding in creating an initial base, its first Dubai Diamond Conference later this month is part of its move to the next step – to become a hub connecting Africa with India. Dubai wants to grow by becoming more relevant.
In India, the government formed the “Task Group for Diamond Sector to Make India an ‘International Trading Hub for Rough Diamonds’.” The report it published in February is a list of concerns, goals and ideas. India is worried that manufacturing will shift to China, a country heavily invested in Africa and its resources. If Chinese firms take over diamond mines in Africa, as they have already started to do in Zimbabwe; they will more than likely want to transfer the rough to China for processing rather than sending it to India.
India is already asking its government for matching funds for marketing, favorable tax legislation, a duty free re-import quota for cut and polished diamonds to the tune of 15 percent of the previous three year’s average exports, the establishment of Special Notified Zones (SNZ) for import and trading of rough diamonds, simplified exports documentation and more.
China has long held and implemented a macro-economic strategy that seeks to lead to the country’s growth. This strategy is partially buoyed by the government being a partner in all major companies. In this context, a Chinese diamond-mining firm will not sell rough at auction to get the maximum price, but will sell directly to Chinese manufacturers and create jobs, wealth and margins for Chinese polishers, jewelry makers and retailers. This approach cuts out India all together.
Reinvention is as essential as oxygen. In Antwerp, the AWDC is seeking to strengthen ties with China; it opened a rough auction center, and is pressuring an inept government to stand behind it. In Israel, the Israel Diamond Exchange is holding a series of events – polished diamonds fair, rough auctions, a high-end goods event and seminars – to improve its profile.
In the U.S., specialty jewelry retailers are losing market share to onliner Blue Nile and multi-channel retailers. What can they do about it? Constantly work to reinvent themselves or die.
Israel’s first steps are good and important, and IDE president Yair Sahar deserves praise for his vision and willingness to mount that effort, despite the many hardships.
Yet, much more is needed. Israel should think long term and look further down the pipeline, reaching out to retailers and attracting buyers to Tel Aviv.
A long-term strategy, a set of goals, a five-year plan and government support that encourages banks to back the diamond industry are essential for the Israeli industry’s survival – and for the survival of any other center and company that wants to last.
