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WFDB former president Avi Paz addresses the gathering.
World Diamond
Congress Drives
Industry To Action
The 35th World Diamond Congress that was hosted by the Bharat
Diamond Bourse (BDB) and the Gem & Jewellery Export Promotion
Council (GJEPC) in Mumbai on October 14-17 provided a platform for
discussing a range of issues pertaining to the prospects of the global
diamond industry. The meeting is expected to serve as a catalyst for
urgent action required in solving a number of chronic problems and
addressing some new challenges faced across the diamond pipeline.
Regan Luis reports.
46 INTERNATIONAL NOVEMBER 2012
COVERSTORY
The World Diamond Congress gets off to an auspicious start.
T
he problems plaguing Blom, the newly elected WFDB president. president Anoop Mehta said, “The World
the global diamond “The decisions taken and the debates that Diamond Congress, which is being held
industry today are as were launched will make sure that the in India for the first time, is an important
multifaceted as the industry can grow and prosper as we go event for the international diamond
gem itself. The recently into the new era of the diamond industry.” community. India has grown rapidly to
concluded World Diamond Congress, the Maxim Shkadov, the newly elected emerge as the leading centre in the world
joint biennial meeting of the International IDMA president, concurred, “This has diamond industry and this growth has not
Diamond Manufacturers Association been a very constructive Congress, and to only been remarkable in terms of sheer
(IDMA) and the World Federation of my memory, one of the best Congresses. I numbers, but also in overall development.
Diamond Bourses (WFDB), was an hope that the questions discussed and the The Indian industry today is at the
opportunity for stakeholders to discuss presentations made over the last few days cutting-edge of technology with large well-
these external and internal issues that will address the problems and challenges organised factories with a conducive work
confront the industry. On top of the of our business. All the countries and environment, and fair labour practices.
agenda were key matters such as collecting their member organisations must come “Most of all, it is an industry fully aware
funds to promote diamonds through a together to solve these questions and of its responsibilities – to be transparent,
generic campaign, the Diamond Source restore the profitability of our industry.” compliant and to adhere to the strictest
Warranty Protocol, re-working the The World Diamond Congress, which principles of business ethics. The latter
definition of the Kimberley Process (KP), hosted a number of delegates, observers becomes even more important today
and Chain of Custody (CoC) regulations and special invitees from across the when synthetic diamonds have entered
among others. world, was inaugurated by the chief guest, the market and are beginning to establish
“This was a successful Congress and Maharashtra chief minister Prithviraj themselves. The challenge lies in ensuring
many important items relevant to the Chavan at the Taj Lands End Hotel in full disclosure and transparency, and
future sustainability of the diamond Mumbai, on October 15. anything short of full disclosure is bound
industry were discussed,” said Ernest Speaking at the opening ceremony, BDB to impact the natural diamond industry in
INTERNATIONAL NOVEMBER 2012 47
COVERSTORY
an extremely adverse manner. Hence, it is Joint Session
up to us in the trade to remain vigilant, and The inauguration ceremony was followed
bodies like WFDB and IDMA should play by the IDMA and WFDB’s first joint
a crucial role in this.” session, which addressed subjects like
This year, the Congress chose to industry supply, transparency and
introduce a mini-conference within the synthetics. The outgoing WFDB president
main event in an endeavour to raise the Avi Paz expressed that the US market
For the first time we level of debate and discussion within the remains a difficult trading area at this
brought in this idea diamond industry. The mini-conference stage and that the instability of the global
in consultation with was divided into two afternoon sessions, market is a concern. He also noted how
the WFDB and IDMA and included presentations and the present currency problems in the local
discussions with the house. Indian market have had a negative effect
that there are some
Vasant Mehta, the IDMA vice president on the diamond industry, but sincerely
burning issues in the and former GJEPC chairman, elaborated: thanked the banking industry for the
industry and we should “For the first time we brought in this support and for being valued partners.
have a dialogue with idea in consultation with the WFDB Paz continued by describing the diamond
the audience and an and IDMA that there are some burning industry as very resilient, which has stood
interactive conference issues in the industry and we should it in good stead through difficult times and
where expert speakers have a dialogue with the audience and made the industry adaptable to changing
would debate on the an interactive conference where expert conditions.
issues and engage the speakers would debate on the issues and In his address to the first joint session of
audience.” engage the audience. We have tried to the congress, outgoing IDMA president
make people aware of the issues and have Moti Ganz urged the diamond producers
taken suggestions from the audience of to give manufacturers stronger backing
what can be done. The WFDB and IDMA by vouching for rough supplies that
would dwell upon this and may come up will in turn enable the manufacturers to
with some solutions in the coming times.” commit to their clients with consistent
Varda Shine said the DTC and other diamond suppliers needed to adapt their production outlook and to look carefully at the needs of the new
markets like India and China.
48 INTERNATIONAL NOVEMBER 2012
and continuous supplies of polished. that the detection and proper disclosure
He warned that if retail jewellers of synthetic diamonds were essential
cannot be guaranteed a continuous and for these products to become accepted
consistent supply of polished diamonds among the gemstones that are for sale in
at competitive prices, they may look the market.
at alternative gemstones – including Shine estimated that to date about 5
synthetic diamonds – that promise better billion carats of diamonds have been
profit margins. Ganz noted that a lack introduced to the market and emphasised
of sustainable supplies of rough may that the market must be consumer-driven
also push diamond cutters towards the and based on consumer demands. She
production of synthetic diamonds. Ganz continued by stressing the three points
called on the industry to unite and fight which are critical in order for growing
towards a common goal and emphasised the market: securing supply, maintaining
the retention of margins in the diamond consumer confidence, and stimulating The delegates were taken on a tour of the
Bharat Diamond Bourse and were visibly
trade as these are vital in ensuring that the consumer demand. She noted that impressed by the sheer size of the exchange
trade remains a profitable one and has the Forevermark will also be introducing a and its world-class facilities.
ability to expand in the future. new range called Halo jewellery, consisting
Varda Shine, CEO of the De Beers’ of a large centre stone with smaller stones
Diamond Trading Company (DTC), surrounding it. It is believed that the
noted that with the new markets in China marketing of this new range will stimulate
and India, the DTC and other diamond further diamond jewellery sales across
suppliers needed to adapt their production the board. Shine noted that although the If retail jewellers
outlook and to look carefully at the needs Chinese market is slowing down, growth cannot be guaranteed
of these new markets. Shine also observed of double-digit figures are still expected a continuous and
that with Botswana becoming the DTC’s from this market in the current year. consistent supply of
global rough sorting and selling centre, GIA president and CEO Donna Baker
southern Africa would become the leading assured the industry of the institute's
polished diamonds at
region for rough supplies to the global commitment to investing in people,
competitive prices, they
diamond industry since it was home to research and education. She confirmed may look at alternative
many rough diamond sources. Shine also that synthetic stones must be declared and gemstones – including
noted that the DTC did not view gem- that the GIA labs will continue working synthetic diamonds –
quality synthetic diamonds as a threat towards exposure of treated diamonds as that promise better
to natural diamonds, but emphasised and when they see them. profit margins.”
INTERNATIONAL NOVEMBER 2012 49
COVERSTORY
KP reform is nigh consensus in the KP tradition, on the other
Gillian Milovanovic, ambassador from the hand, will have a strongly positive effect on
US State Department and current chair of all segments of the diamond world,” she
the Kimberley Process said that while the added.
KP has been very successful, change must The South African minister of mineral
not be feared and that a new definition of resources, Susan Shabangu, a keynote
conflict diamonds must be developed. “I speaker at the Congress noted that on
believe that the KP must build, not simply the 10th anniversary of the Kimberley
take pride in, its achievements and that it is Process it was fitting that South Africa
time for the KP to evolve. Within the KP – and took over the chair of this organisation
that includes all of you in industry – we founded in Kimberley, South Africa in
need to discuss and eventually adopt a 2003. Shabangu expressed how African
new definition of ‘conflict diamond’, one countries benefited from the KP as this
that will encompass agreed situations of allowed them to trade in diamonds to an
conflict in which diamonds are directly international market while complying
involved. There should be a definition with all legislation. The review of the KP in
that applies clearly and predictably to Italy earlier this year was welcomed by the
Gillian Milovanovic every participant, and one that ensures minister and she confirmed that she was
that KP Certification Scheme assurances in favour of any reform as long as it did not
correspond to the evolving expectations of move away from the original concept of
consumers,” Milovanovic said. the KP. Shabangu once more committed
She stressed that a “give-and-take” herself and the South African government
relationship between parties must be to the KP and what it sets out to achieve.
formed in order to strengthen the process She further voiced her conviction that
even further. She called for positive ideas producing countries must share in wealth
and advice from Congress delegates in creation and encouraged African countries
order to develop the way forward. She also to take ownership of the KP and become
noted the importance of the KP website part of it in order to extract maximum
which remains an active tool in assisting benefit from it.
with the management of the process and Shabangu stressed the importance of
its communications. This site is used to beneficiation and wished for this to be
Susan Shabangu
upload any cases involving false certificates implemented in more producing countries
to assist officials around the world in in order to create employment and skills
managing the KP and to take action development. The minister explained
against offenders. that the South African government had
“Some have worried that change could created the State Diamond Trader in the
have a disproportionately negative effect country in order to ensure the supply of
on producer nations. Others have been rough diamonds to small industry players
just as concerned that manufacturing to ensure development and the survival of
or trading nations would be damaged small entities. She praised India for its well-
collaterally. While I understand these developed infrastructure and the example
Diamonds are the concerns, especially at what is a stressful it is setting for countries such as South
second-most monitored time for your industry, I am convinced Africa. “India and South Africa have shared
and controlled that together we can ensure that change a long history going back over many years
brings sustained improvement not and this relationship must be nurtured for
commodity in the world; destabilization to the industry. I believe future development,” she noted. In closing,
uranium is the first. And that clinging to the status quo, no matter Shabangu called for the implementation of
we are well on our way the very real achievements of the past ten the KP to be made even stronger as every
to overdo uranium, as if years, will eventually undermine the KP sector of the industry benefits by it.
this product of love and and the diamond industry it is designed Focusing on the theme of change, World
passion is so dangerous to help and protect. Changes carefully Diamond Council president Eli Izhakoff
to the world.” considered and crafted, and adopted by too supported the principle of expanding
50 INTERNATIONAL NOVEMBER 2012
the definition of conflict diamonds, but outlines the implications of the
emphasised that it must meet the ability Diamond Source Warranty Protocol
of participants to implement the in detail on page 59)
Kimberley Process Certification Scheme “The diamond industry is extremely
effectively, and be directly associated concerned about the Protocol that was
with the trade in rough diamonds. “We announced by the American organisations.
in the diamond industry do not want, We take strong exception to it. We were
nor would we have any interest, in having never party to any of the deliberations and
our products or our industry associated we are appealing to the powers that be that
with a problematic human rights this matter be reconsidered,” said Blom.
situation. Our position is steadfast, and Speaking on behalf of both
that was emphasised when we reached organisations, Shkadov and Blom added
an agreement with the Civil Society that the two bodies would need to enter
Coalition regarding the incorporation of into an immediate and intense dialogue
a statement concerning compliance with with their American colleagues to try and
international human rights law into the mitigate the perceived difficulties and
KP's Administrative Decision on Internal barriers this initiative would be presenting
Controls,” Izhakoff said. to the international gem and jewellery
business community. (Top left) Russell Mehta, Stephane Fischler,
Reuven Kaufman, Rajiv Mehta and Chaim
Super chain of custody Industry expert Chaim Even-Zohar, Even-Zohar discuss the challenges faced by
The Diamond Source Warranty Protocol, who gave a presentation at the Congress, the diamond industry. (Above) Chaim Even-
which was launched just a day before the argued passionately against the segregation Zohar gives an animated presentation.
Congress by Jewelers of America (JA), of diamonds under the Diamond Source
the Jewelers Vigilance Council (JVC) and Warranty Protocol, adding that it would
the Diamond Manufacturers & Importers lead to the creation of what he termed
Association of America (DMIA), became “apartheid diamonds”.
the subject of intense debate. The IDMA “Diamonds are the second-most
and WFDB voiced their members’ grave monitored and controlled commodity
concerns with regard to the Protocol’s in the world; uranium is the first. And we
effect on the flow of goods throughout are well on our way to overdo uranium,
the legitimate diamond supply pipeline, as if this product of love and passion is so
including the burden of increased costs dangerous to the world. What is bothering
for maintaining separate inventories. us is the lack of dialogue and engagement
(Industry expert Pranay Narvekar between the retailers and the suppliers
INTERNATIONAL NOVEMBER 2012 51
© Ya'akov Almor – MDBC
Surat’s top diamond
cutting and polishing
factories hosted a few
of the delegates, who
opted for a daylong
visit to the city.
in cutting centres. The Protocol is really and Angola, who are the very people that
a super Chain of Custody (CoC) which need help the most.
talks about sellers’ obligations and buyers’ “The entire chain of goods will have
rights, but there’s nothing in there about to be certified, not just the mining
buyers’ obligations and sellers’ rights,” source, but everything in between.
Even-Zohar said in his presentation. My main issue is with the segregation
“If a diamond manufacturer has sold of diamonds. In southern Africa,
a certain parcel and within three years segregation means only one thing –
My main issue is with he finds out that one diamond was from apartheid. And suddenly we’ll have one
the segregation of Zimbabwe, he will be in breach and can diamond that is good and one that is
diamonds. In southern be sued and will have to pay damages. bad. Diamonds are neutral and anyone
Why would a bank finance your exports who thinks he can segregate diamonds
Africa, segregation if within three years you can still be into various classes is out of his mind.
means only one thing – challenged in the court? All of a sudden, Yes, we have to find a way to have CoC in
apartheid. And suddenly we have no final business.” some form or the other, but it should not
we’ll have one diamond Even-Zohar noted that while it would be create a situation where we have good
that is good and one easy for the big companies like De Beers diamonds and bad diamonds.
that is bad.” and Alrosa to maintain CoC at the mining “Diamonds are the most profitable
level, the Protocol would end up hurting item in a jewellery store. I don’t think
artisanal miners in places like the Congo that any administration in America
52 INTERNATIONAL NOVEMBER 2012
COVERSTORY
‘Generic Funding Needs Buy-in From All Players’
The newly elected WFDB president Ernest Blom outlines his vision for the
future in an exclusive e-mail interview with Solitaire International.
What are your main goals deciding on matters. All we can do is to make it known that we
as the newly elected WFDB represent the interests of the vast majority of diamantaires
president? worldwide and are always willing to debate the way forward in
My main goals as president will a consultative manner.
be to increase the profile of the
organisation internationally, to The Mumbai Congress saw no agreement with regard
improve the communication to the funding and management of a generic diamond
and flow of information within promotion campaign. How will the WFDB address
the WFDB, and I would like to this critical need to promote diamonds to the end
add value for the members and consumer? Does it see the World Diamond Mark as the
promote our product. solution?
Generic funding needs the buy-in from all the industry’s
What are the main issues role players representing the entire pipeline. The Diamond
facing the diamond industry today and what has the Mark will play an important role as will consultation with all
recent World Diamond Congress done to address stakeholders.
them?
The main issues, in no particular priority are profitability Are there any synergies being explored with bodies
or lack thereof; future supply constraints; maintaining like the World Gold Council and the Platinum Guild
consumer confidence; and unreasonable demands placed International for generic jewellery promotions?
upon the industry, e.g. Diamond Source Warranty Protocol. I have very good relations with all the leading organisations
and as such always explore symbiotic and synergic relations,
The Diamond Source Warranty Protocol may be seen this I will continue to do.
as a serious lack of communication between two
major areas of the diamond pipeline? How can the Anything else you may like to add.
WFDB ensure that such policies concerning diamonds I look forward to my term of office to promote our industry, one
are not made in isolation in future? which we can be proud of. We need to create sustainability for
It is very difficult to ask entities who do not want to be future generations and protect the integrity of our product with
inclusive in their approach, for their own reasons, when a zero tolerance attitude.
would want a million people to lose their of which the Diamond Source Warranty Push for generic promotion
jobs because of some diamond protocol. Protocol was planned in secrecy and Filling the void left by the withdrawal of
It doesn’t absolve us from obligation without any consultation with the mining De Beers’ global umbrella advertising
as an industry; we have to be proactive or manufacturing segments. campaign about five years ago was another
and find solutions. There has to be more Dimexon director Rajiv Mehta noted hotly debated topic at the Congress. De
transparency across the industry and we that while it was necessary to have Beers, which had an annual marketing
must go forward,” remarked Even-Zohar. standards like CoC in the industry, there budget of $200 million, abandoned
“In India alone, if all of the companies isn’t room for multiple standards as they its global generic diamond advertising
decide to have two stocks only – may end up confusing the end consumer. campaign after its share of the world
compliant and non-compliant – it is going Reuven Kaufman, president of the diamond market dropped to 40%. In
to cost in the region of $500 million. I Diamond Dealers Club of New York, the last couple of years the world’s top
don’t even want to think of the costs if you said that the industry was spending a lot diamond miner has focussed almost
have any more separations,” he stated. of time and effort on issues like CoC and entirely on marketing its proprietary
In a panel discussion, Antwerp World strengthening the Kimberley Process, Forevermark diamonds.
Diamond Centre (AWDC) president while not much was being done about “The diamond industry is facing a major
Stephane Fischler pointed out that the marketing diamonds and making a profit. challenge of falling volume demand as
diamond industry had a chronically “Let’s put all our effort together to see how other products are vying for a share of the
unsynchronised pipeline that was we can sell diamonds. That should be the consumer’s wallet. The only way to tackle
characterised by a lack of information focal point and fulcrum of any meeting in this is through widespread promotion and
flow, leadership and dialogue, as a result future,” he remarked. marketing of diamonds through different
(Continued on page 55)
INTERNATIONAL NOVEMBER 2012 53
WFDB Appoints New Executive Committee
The following members of the World Federation of Diamond Bourses were appointed as the Executive Committee on the
sidelines of the 35th World Diamond Congress in Mumbai.
President : Ernest Blom WFDB Honorary Awards
Vice-president : Julien Drybooms
Secretary-general : Rony Unterman
Deputy Secretary-general : Albert Haberkorn
Treasurer-general : Dieter Hahn
Deputy Treasurer-general : Harry Levy
Executive members : Reuven Kaufman
Lin Qiang
Yair Sahar
Anoop Metha
Nikhil Jhaveri
Sergey Oulin
Rami Baron
Alex Popov Avi Paz (right) receiving his Honorary Life Dieter Hahn (right), the current treasurer-
President award from Ernest Blom (left), general for the WFDB, receiving his
Willy Rotti
the newly elected WFDB president. Honorary Life Treasurer-General award from
Willy Rotti (left).
IDMA Elects New President & Vice Presidents
The International Diamond Manufacturers Association (IDMA) elected a new board for the upcoming two years at its concluding
meeting at the World Diamond Congress. The IDMA members elected Maxim Shkadov of Russia as its new president.
Incumbent secretary general Ronnie VanderLinden and incumbent treasurer Stephane Fischler were both re-elected for
another term in office. Three incumbent vice presidents, Vasant Mehta of India; Ronny Friedman of USA; and Eduard Denckens
of Belgium were also re-elected. In addition, David de Toledo of Israel and Edward Asscher of the Netherlands were elected to
serve as vice presidents.
In his presentation, Charles Wyndham said that diamonds have underperformed in general, while polished prices had grossly underperformed
in comparison with other luxury goods, which is a deep-seated trend and it’s only getting worse.
54 INTERNATIONAL NOVEMBER 2012
COVERSTORY
(From left) Ronnie VanderLinden, Sanjay Kothari, Nirupa Bhatt, Suresh Hathiramani and Vijay Ramchandran discussed ways to raise the public
profile of diamonds, which they agreed was losing market share to other luxury items.
(Continued from page 53)
means and at all levels. There is a need for Sanjay Kothari, an industry veteran and Blom said that the WFDB has initiated
the industry to come together and put in past chairman of the GJEPC, stated, “To a pilot project called the World Diamond
place a generic campaign that will produce begin with, the WFDB and IDMA along Mark, which if successful, could provide
the necessary results and rekindle the with some of the mining companies can a strong source of income to promote
desire for diamonds,” Anoop Mehta said. collect the money. They can monitor the generic advertising. “The World Diamond
Echoing this sentiment, GJEPC fund, and according to the requirements Mark is a not-for-profit organisation
chairman Vipul Shah added, “We of each country, collaborate with the operating out of Hong Kong. It will be the
appeal on behalf of the Indian diamond respective associations to hire a marketing new marketing arm of the entire diamond
community to the WFDB, IDMA and agency that can create a campaign suited to and diamond jewellery industry, with the
the World Diamond Council to come each country’s needs. Mining companies unique mission to ensure the health and
together to create a programme for generic like Alrosa and De Beers can charge a future growth of our industry in the luxury
promotion of diamonds in the world. cess of about 0.1% or 0.25% on rough sector,” the WFDB said in a statement.
India will lend support to any endeavour sales as a tax for funding generic diamond “Obviously we will also be speaking to
that the Congress may initiate to increase promotions. In effect, the miners will the producers to discuss the feasibility on
demand for diamonds as a category. We become collection points for the funds levying rough diamonds as was originally
have to find a way to make women around and will not necessarily pay out of their proposed a couple of years ago for the
the world believe that a diamond is truly pockets, while the rest can be put up by the International Diamond Board (IDB). We
forever and is ethical.” remaining stakeholders.” need to understand that we cannot be
A panel discussion moderated by Chaim Addressing a joint press conference operating in isolation any more. We are
Even-Zohar on the generic marketing on the final day, WFDB chairman Ernest interlinked with the producers and they are
of diamonds suggested that diamond Blom noted, “We are always looking to interlinked with us. If they can’t produce,
industry players could contribute to a improve our cash flow and if there is a then we don’t have diamonds to polish and
campaign on a pro rata basis. However, no levy that could be imposed on rough, trade with. If we don’t trade and polish,
formal decision was taken at the Congress we wouldn’t say no to that. But we are then they don’t have a market. So I think
with regard to levying rough production to examining other initiatives for our industry it’s a symbiotic relationship that we need to
fund generic diamond promotions. to raise funds for generic advertising.” encourage and nurture,” Blom said.
INTERNATIONAL NOVEMBER 2012 55Speakers at the Congress also called for support for the programme. where each country’s trade association
suggestions to revive the IDB, an industry- “The WFDB and IDMA must set must be given control of the allocated
wide initiative whose sole purpose was a timeframe of around 6-9 months marketing fund.”
the generic promotion of diamonds and and take some concrete steps towards The panel also debated the possibility
diamond jewellery to consumers. Initially kicking off a generic diamond marketing of moving away from the core message
championed by Russian diamond miner campaign,” Kothari implored. “The of love to sell diamonds. However, it
Alrosa, the IDB’s overarching mission was industry is no longer just talking about was noted that among De Beers’ many
to create and sustain strong consumer doing something to promote diamonds, marketing campaigns over the years,
demand for diamonds worldwide through but it is ready to move forward and that is the only one that proved a “spectacular
effective category marketing. Its role the best sign.” failure” was its Right Hand Ring
included implementing communication Nirupa Bhatt, managing director of the campaign, which was based on the self-
and public relations activities aimed GIA in India and the Middle East, added, purchase, self-esteem route. “Personally,
at sustaining consumer confidence in “Once you have all the funding in place, I think women have found out they can
diamonds. However, the initiative had the question that could cause some issue get love without getting a diamond first,”
to be shelved after Alrosa withdrew its is how you spend that money and that’s Even-Zohar quipped.
‘Shrinking Wallet Share For Diamonds
Keeps Me Awake At Night’
Rosy Blue (India) Pvt. Ltd. managing director Russell Mehta gave a masterful
presentation on the challenges facing the diamond industry. Following are
some excerpts from his speech.
Regarding the challenges the present the industry is just regaining its balance and seeing
polishing industry is facing, I know some semblance of stability with primary producers making
that all of us have experienced a sizeable price cuts in their rough prices.
very difficult past 12 months. We
are all feeling the innumerable In 2012, the rough purchases by the industry are expected to
and insurmountable challenges be around $15 billion. However, this does not reflect the true
and hence we are questioning economic picture. The industry has overpaid about $600-
the viability of our polishing $800 million for the rough, and this cost is absorbed by the
business. The challenges as I see polishing industry every year.
are some short term, due to the
volatile economic situation, and The market has regularised today and stability has been
some longer term, which are more restored partially by the rupee appreciating and some better
industry-specific and structural. I September polished sales. However, the average price for the
want to focus on the medium and longer term challenges which third quarter is low. The pipeline may become relatively more
need to be addressed by all of us as they will have bearing on even by the end of this year, depending on the rough diamond
our future. supplies this quarter. Further, if we have a reasonable
consumer sales season, we will probably see some uptick
Some of the longer term challenges are the industry’s declining in the rough and polished prices, and a better stock-turn
share of wallet, shrinking industry, manufacturing profitability, perhaps in the first quarter of 2013. These ups and downs
industry perception and regulation, recycling of polished are all part and parcel of business cycles, which we as an
diamonds, synthetics, B2B price lists, and attracting talent. industry have ignored till 2011 and even as late as 2007.
The tough times will come to pass and we all get used to this
The first half of 2011 was one of the best periods in recent volatility. However, the fundamental nature of our industry has
history for diamond companies due to an unprecedented changed. I want to draw your attention to some tough, serious
rise in diamond prices. Both trading and manufacturing was headwinds, which we will be facing for some time – the trends
profitable and many companies got drawn into speculating on for which are all visible here.
prices. That euphoria, however, was short-lived in the second
half of 2011 and the first eight months of 2012 as prices Longer term issues may not be immediately apparent but
steadily declined. Much of the primary rough was unprofitable grow gradually and have a huge impact on business. Many of
to polish and companies were under liquidity pressures. At us either ignore these challenges, or are too caught up with
56 INTERNATIONAL NOVEMBER 2012COVERSTORY
our immediate issues to bother about them. However, we Another point to think about is that even if we get more carats,
need to take proactive and collective action on these issues where is the market today to sell them? Most projections for
now, to ensure future industry health, as ignoring them would future diamond production seem to suggest that carats would
mean faster industry decline or may prove too costly at a remain near current levels. I believe the stable level would be
later date. between 140 million carats and 150 million carats, which is
about 15-20 million carats above current levels, as all mining
The biggest long-term challenge which keeps me awake investments undertaken currently will start producing. What
at night is the shrinking share of the consumer’s wallet this means is that existing investments and capacity in terms
for diamonds. I still remember the first Supplier of Choice of factories and equipment should be more than sufficient to
meeting where all the sightholders were addressed in polish the expected rough. This calls for a huge change in the
response of the recognition that our industry is not growing mindset of banks, producers and diamond companies. Unlike
at the consumer level at the same pace as the world nominal prior years, investing in manufacturing capacity with additional
GDP growth. They set a ‘big, hairy, audacious goal’ to grow rigour may not be the best investment and perhaps not the
over the world GDP growth in years to come. We have best business case. The industry now needs to be viewed as a
collectively failed in delivering that promise. Today after more mature industry, rather than a growth industry.
than 10 years, we have not even tracked inflation, forget
tracking nominal GDP growth. That means the share of wallet I question graphs that show wide demand and supply gaps
for our industry is falling as electronics, holidays and other in the distant future. We all know that we failed miserably
luxuries make inroads into our territory. Our industry has even and could not even predict our present market situation
underperformed other luxury goods. In a twelve-year period currently. We are also unable to predict with some certainty
from 1999 to 2011, growth in the luxury goods market, at the demand-supply shortfalls over the next 1-2 years and
77%, has been nearly triple that of diamond jewellery, which price increases thereof. So how can we be so sure of expected
grew at the rate of 26.5% – and diamonds are supposed to demand in years to come? My sense is that 2012 will see
be the ultimate luxury! This was despite programmes like negative growth in diamond sales at the wholesale level if not
Supplier of Choice where diamantaires invested heavily into in retail.
downstream promotions and expansion. The more worrying
question is what happens over the next three years, when The other issue is reducing value addition by the industry
there is minimal investment in creating consumer demand. is not only leading to reduced volumes primarily of cheaper
goods, but also reducing profit margins. Perhaps very few
In the late 1990s, De Beers would spend about $200 million exceptional diamond manufacturers receiving supplies from
on generic diamond promotions, which works out to about primary sources may have made any profit from August
$350-$450 million today. Apple alone spends over $1 billion 2011 to August 2012, as rough diamond prices from primary
only on advertising. Microsoft spends over $1.6 billion on ads sources remained expensive. This is just a culmination of
as well. That is much more than our entire industry. Other a trend when manufacturing has not been profitable. It is
luxury companies like LVMH and Richemont spend about important to note that while efficiencies have increased in
10% of their top line on advertisements. The industry should diamond polishing, the margins have diminished or vanished.
wake up and take some firm steps to regain its share or our Typically, the monies made or lost in the industry over the
next generation might not have a business to run. Let us last 4-5 years were primarily due to appreciation or decline
not assume that a diamond will always be a symbol of love, of prices and not necessarily from the conversion of rough to
without the message being repeated over and over again. Out polished.
of sight is out of mind!
This year there has been a double whammy for the industry.
We shouldn’t expect only the mining companies to take on The prices of diamonds have come down across the board
this burden. I think we should all share this pro rata based on in the last 18 months forcing all of us to take large cuts on
the value addition we are making in the diamond pipeline. In our inventory. Also sustained high rough prices from primary
the current scenario, promoting diamonds as an investment producers meant that the manufacturing sector has been
is also challenging and could expose the industry to further compounding its losses. This was unlike 2009 when lower
volatility. The industry in pure carat terms has shrunk during rough prices enabled the industry to rebuild its equity base
the last five years. This reality has had a huge impact on India, and push for further growth in the following three years.
which is the biggest cutting centre. The employment potential Unfortunately for our industry, our losses are trading losses
and value addition for India in particular and other polishing and not valuation losses. We operate in a trading environment
centres in general is driven by carats actually polished and and though we call ourselves manufacturers – essentially the
not merely by amount of turnover. In a manner, this reduction conversion of rough to polished in a couple of months – hence
helped the industry absorb the loss of those who went out of the short term volatility impacts us. Also we are all here to
the industry in the 2008-2009 crisis. However, there has been do large turnovers and short margins. Hence I would define
some impact in capacity expansion in 2010 and 2011. The ourselves as traders and not manufacturers. This means
excess capacity means that polishers end up paying more for that all losses which we incur directly hit our equity in the
the rough in their desire to optimise production and in order to business. We are not building an asset like a power plant or
somehow hold on to their infrastructure in the hope of making a mine, which can accumulate losses for a couple of years.
monies in the future. I think that moving forward perhaps only Also, the trading nature of our business means that profit or
polishing business of recycled polished diamonds or synthetics even sales visibility is extremely low given the high volatile
can plug this vacuum. But this won’t happen in a hurry. environment we now operate in. This explains why private
INTERNATIONAL NOVEMBER 2012 57equity companies typically avoid investing in such trading by 20-30% from the existing industry cost base here.
businesses. We need to be aware that we live for today, and The industry surely welcomes changes which bring in
any hope to build profits at a later date by investing in losses transparency, however, the industry has to be engaged and be
today like other asset trading investments, to my mind, is proactive and develop a system which does not hurt itself.
fooling oneself.
As diamonds are forever, all the diamonds mined to date are
New and improved compliance standards and CoC theoretically still out there. One estimate is that there may
requirements, which are being applied to the industry, be about $800 billion to $1 trillion of diamonds still available
only add to the cost. The industry has always accepted with consumers. If we extrapolate that with what is recycled
improvements, but we need to ensure that compliances in gold, which is about 1.5%, I think recycled diamonds could
expected of us are implementable and realistic. CoC is also meet up to 50% of our current demand. Hence the need to
being discussed for polished diamonds with the industry expand our consumer market is even greater. It’s like another
becoming a pawn in political disputes. mine that will come on board. This can become both a threat
and an opportunity. Buying back of recycled diamonds is a
Few countries want to control the source of diamonds which sizeable business in countries like US and Japan. Additionally,
are “acceptable” in the respective countries. Currently the practice of buying diamonds from the consumers would
“unacceptable” sources account for about 5-10% of rough mean that the consumers ultimately get better prices for their
diamonds by carats. To implement CoC, all diamond jewellery, which enhances the concept of diamonds as a store
companies along the entire chain, from rough to customer, of value. Recycling and re-cutting can also serve to fill up the
need to segregate their diamonds and be regularly audited. existing polishing capacity. And I don’t even know how this
Studies have indicated that the costs in India will increase CoC will apply to the recycling industry.
‘How Do You Fire Your Son?’
Peter Leach, the chairman and founding partner of Peter Leach & Partners,
addressed a rarely discussed topic in the diamond industry – that of
complications which arise out of running a business that is family-controlled.
Following are some excerpts from his presentation titled “Family Businesses:
Preparing for the Future”.
In India, 56% of the top 100 firms family members. Families also have to be able to have some
are family-run, so this economy tough conversations. How do you fire your son? It is very
is absolutely dominated by family difficult. If you don’t have a situation where only the right
businesses. Family businesses people are working in a family business, then you end up with
contribute up to 60-70% of India’s a nepotistic situation that could damage the business and the
GDP, account for more than 85% individual.
of business in India, and 66%
of “Business India’s Super 100” So how do you govern an enterprising family? You need to
companies are family-owned. In have a balanced and professional board, which in the diamond
1947, 18 families owned all the industry is quite difficult to do because it is very closely held due
top business in India, while in to trust factors. A family business also needs a strong executive
1997 461/500 most valuable team that aligns with the leadership and talks in one voice.
companies were owned by 50
families. Currently, 18 of BSE 30 and 28 of NSE 50 companies There are some key questions that the older generation must
are family-owned. In almost 50% of cases, the splintering of an ask when passing down the enterprise, for instance:
enterprise was precipitated by the founder’s death. ● Who is to own shares in the next generation?
● Who should have control of the company?
Succession is a process, not an event. Hence, it is important to ● Can equity ownership and voting control be separated?
define the purpose of the enterprise and ensure that everyone ● How can I guarantee financial security for my spouse?
involved shares the same vision. What type of family business ● How can I be fair and be seen to be fair to my heirs?
person do you want to be, now and in future? There are three ● Does treating children fairly mean giving them equal shares?
types of family business persons: there is an owner-manager, ● What is the best way to ensure my heirs are not burdened
who manages the entire business; there’s an owner-strategist, with estate taxes?
who sits comfortably looking at the performance of the business
deciding on asset allocation and strategy; and there’s the owner- Diamond family businesses can be nimble and quick to
investor, who sometime ago might have taken the beach option. react, thereby using the ‘family-ness’ to create a competitive
advantage. Although it is a successful industry, a family-run
The responsibility for deciding on succession should have a diamond business is one of the hardest to sell because it is
process to ensure there is no falling out among the existing built on personalities. n
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