Competition is rising between the diamond trading centers. Not only are there new kids on the block vying for a greater portion of the global rough and polished trade, but the diamond distribution channel is constantly changing. No longer are New York, Antwerp, Mumbai and Ramat Gan the obvious destinations for the diamond business as Dubai, Hong Kong, and Gaborone increase their relevance.
A number of factors are contributing to this shift. Foremost among them, globalization has resulted in a re-centralization of wealth, bringing with it significant diamond demand from emerging markets, particularly China and India. Even through the economic crises of the past four years, wealth has grown, but more significantly, it has shifted. So while the U.S. continues to be an important market, there has developed an urgent need for the diamond trade to develop, expand and promote consumption in these emerging economies.
Simultaneously, access to these new consumers became easier as the Internet brought the world closer together. The Internet has enabled small companies and isolated countries to conduct international business. Operating an office in New York as well as one in Antwerp, Hong Kong and Dubai is not as complicated as it used to be and no longer requires the logistical capabilities of a large corporation.
The ease of global communication, now with mobile technology leading the charge, has helped streamline the way in which international business is conducted. Cost and efficiency count, and countries with diamond hub ambitions have to ensure that same ease of doing business to gain a competitive edge.
A number of countries have recently fallen short in this regard. India’s new 2 percent import duty on polished diamonds has all-but killed the opportunity to attract foreign companies to operate or sell to the domestic market. Police raids carried out on behalf of tax authorities in Israel and Belgium have raised caution in their respective diamond sectors and resulted in a backlash against their leadership.
The greater the regulation and control, the less willing diamond companies are to maintain a presence in any particular center. And it has become easier nowadays for them to relocate. Already, foreign companies are eyeing tax havens such as Dubai to facilitate their trading. In recent years, a number of companies, largely Indian, have relocated from Antwerp to Dubai, including the recent move of a high profile sightholder.
Dubai is marketing itself while focusing on enhancing its profile as a rough trading hub, particularly as De Beers relocates its Diamond Trading Company (DTC) unit from London to Botswana. Peter Meeus, chairman of the Dubai Diamond Exchange, told Rapaport Newsthat Dubai’s long-term goal is to be the destination of choice between Africa and India.
The DTC move to Botswana and beneficiation in Africa is important,” he said. “We believe we have the strong assets to support this development and become a hub.” Meeus listed these capabilities to include: excellent logistics, a favorable fiscal policy, a busy airport with direct flights to most destinations – though, not yet to Gaborone – affordable real estate, and its close proximity to India, where the majority of rough diamonds is destined for manufacturing.
Still, the extent to which DTC’s pending move to Gaborone will impact the global trading network remains to be seen. An obvious beneficiary will be Botswana, where all DTC goods will be distributed to sightholders by the end of 2013 (see Rapaport Magazine July 2012 edition). In addition, around 4 million carats per year of Debswana rough will be sold by the state-owned Okavango Diamond Trading Company, when the sales are launched, expected within the year.
Almost overnight Botswana will become a major rough distribution center. Even with the inconvenience to get there, sightholders will travel to Gaborone – via Johannesburg – to receive their rough. Current market conditions aside, they will do what it takes in order to satiate their hunger for goods.
But that is for primary supply. The question of where the goods will subsequently be traded on the secondary market is more pressing.
Some Antwerp dealers dismiss that their physical proximity to London, as opposed to Botswana, has been a factor in maintaining its market position until now. However, they are concerned that Antwerp has become over-regulated, presenting an opportunity to the likes of Dubai and Gaborone to poach its members.
The Antwerp World Diamond Centre (AWDC) has responded by launching its ‘Project 2020 Antwerp Diamond Masterplan,’ in an attempt to maintain its relevance as a diamond trading hub. According to its manifesto, the strategy aims to tap new opportunities in the polished market, particularly in China; enhance its ‘Diamonds From Antwerp’ brand; promote hi-tech polishing; launch an electronic trading platform; establish a jewelry wholesale market; and expand its rough diamond trade – with plans to open a rough desk in Africa.
In short, Antwerp is seeking to diversify its diamond sector as it faces new competition in its typecast role as a rough trading center. But the fact is that fewer goods will be traded in Antwerp as a result of the DTC move and the AWDC is correct to think long-term in its strategic planning.
Other centers should take note. Certainly, Johannesburg’s diminished diamond industry has an opportunity to revive its secondary rough market and the industry there should be thinking how it can capitalize on Botswana’s growth. After all, hundreds of diamantaires will be traveling via Johannesburg to buy rough in Gaborone on an almost monthly basis. There ought to be incentive to encourage their trade while in transit.
Polished trading centers also need to improve their standing. New York’s Diamond Dealers Club is and is working to attract large jewelry retailers to buy polished local. The club is also planning a trip to Dubai to sell New York as a vibrant source of polished diamonds.
Israel’s industry has done well to penetrate growth markets in the Far East over the past decade and maintain its strong position in the U.S. polished supply. But it appears to be lacking a strategic plan to evolve with the changing market dynamic. After all, local activity has shifted and Israel is not the significant cutting center it used to be as many large Israeli companies have relocated their operations elsewhere.
Rather, Israel has become a niche market for recuts and high-end goods. However, while one doesn’t see the scores of international buyers that once defined the trade, Ramat Gan still offers a powerful trading environment as dealers there are knowledgeable, service-oriented and savvy risk-takers. Israel’s industry leadership needs to take advantage of those strengths in light of the changing global distribution network to ensure its long-term relevance.
As each center strengthens its niche, they are also diversifying their activity as market developments dictate. The global diamond industry is shifting, both as globalization trends continue to drive economic growth and as its distribution networks evolve.
Therefore, centers ought to consider their strengths and ensure that they offer the most attractive and hassle-free environment possible to do business. No matter what worked in the past, there are new and better alternatives competing for the trade. As each lays claim to being “the world’s leading diamond hub,” there’s an increasing number of centers vying for the title.