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DW Special: The Israeli Diamond Industry
Opening Windows of Opportunity despite the Crisis
By: By Rachel Lieberman, Content Manager, Israel Diamond Institute Portal
Jan 30 2009 6:25PM
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The crisis currently plaguing the Israeli Diamond Industry is not the result of any overextension within the industry itself, but rather the consequence of a worldwide economic “tsunami.” Unfortunately, little comfort lies in that fact.

Much like other diamond industries worldwide, the Israeli Diamond Industry is currently facing a credit crunch, dropping diamond prices, a sharp turndown in demand for rough, and buyers who are biding their time – a lethal combination.

The facts and figures speak for themselves: Polished diamond exports from Israel decreased by 11.8% from $7.1 billion in 2007 to $6.2 billion in 2008. In volume the decline came to about 23%. Rough exports decreased by about 2% in value from $3.4 billion in 2007 to $3.3 billion in 2008.

Polished diamond imports recorded a 3.9% decline from $4.6 billion in 2007 to approximately $4.4 billion in 2008. In terms of volume, the slump reached 13.7% to 3.1 million carats. Rough diamond imports declined by 11.9% from $5.1 billion in 2007 to $4.5 billion in 2008. There was a 14.9% decline in terms of volume to 15 million carats in 2008.

Despite the less than heartening statistics, the final figures for 2008 regarding the level of debt of Israeli diamond companies reflect the industry’s financial stability. In 2008, the average debt level stood at $2.3 billion, a slight increase in comparison to 2007, when the average debt reached $2.1 billion. At the end of 2008, the numbers dropped back to $2.1 billion due to the decline in exports.

There are obstacles that must be overcome - the Israeli Diamond Industry has had to cope with reduced bank credit, a rise in the banks’ LIBOR interest rate, greater risk margins on bank credit, demands for increased collateral and other problems.

Nevertheless, Eli Avidar, Managing Director of the Israel Diamond Institute, notes that the Israeli Diamond Industry was not taken by surprise when the crisis began. “We anticipated the crisis already in 2007. For this reason, the Israeli Diamond Industry shifted some of its focus to China and India. This is also why we established a representative office for the Israeli Diamond Industry in Hong Kong.”

Avidar continues: “The Israeli Diamond Industry is strong. It will withstand the difficulties and overcome the obstacles. A crisis of this kind must take its normal course. Some companies will go out of business due to conditions that existed prior to the crisis. Some players will disappear and new ones will take their place. This is the normal life cycle which has always existed in the past and will prevail today. Nevertheless, the Israeli Diamond Industry will emerge as viable and active as before and will continue to play its key role as a major trading center.”

Avidar adds that he anticipates some positive developments in the industry around Easter 2009 and even more tangible growth by September 2009.

Israeli Diamond Industry leaders have taken several steps to boost the industry. Avi Paz, IDE President and President of the WFDB, along with Moti Ganz, Israel Diamond Institute Chairman and President of IDMA, appealed to Israeli banks to loosen the credit crunch. In response, the banks have reportedly agreed to preserve current credit lines and loosen the noose.

As the representative of the Israeli Diamond Industry’s leaders, Moti Ganz approached the Bank of Israel to request its intervention. Avi Paz approached the Israeli government and requested that the sector be included in a government aid package. Deputy Prime Minister and Minister of Industry Trade and Labor, Eli Yishai, pledged his support for the plan at a meeting with the industry leaders.

Other efforts to jumpstart the industry include the Israel Diamond Institute’s initiative to host buyers interested in visiting the IDE at the former’s expense. The initiative has been highly successful and buyers from all over the world have visited the Ramat Gan complex. Others have expressed an interest in the plan.

Moti Ganz recently stated that the current period presents a window of opportunity for the Israeli Diamond Industry to reinstate its status as a cutting and polishing center. Itzhak Lopatin, veteran diamantaire and chairman of the Israel Diamond Exchange’s (IDE) Control Committee, concurs and explains the reasoning behind this proposal: “Despite the current crisis, the Israeli Diamond Industry’s basic stability is greater than that of other centers due to the fact that the industry’s debt to the banking system stands at 10% of its annual volume of activity. Israel has always served as a major trading center.”

He stresses: “But Israel also has at its disposal a unique infrastructure of polishers and cutters trained to deal with all sorts of diamonds. The Israeli Diamond Industry has the capacity to set up a viable polishing and cutting center within several weeks. Added to this is the industry’s unmatched technological know-how which is also immediately available to Israeli polishing units.”

Lopatin believes that once the industry revives there will be demand for different kinds of stones, not necessarily the sizes and types which were popular before the crisis. “I believe that the demand will be for halves, three-quarters, and one-carat to two-carat stones. Rough prices will undoubtedly decline. The Israeli polishing industry is extremely flexible and knowledgeable regarding all of the diamond sizes. Labor costs will no longer represent a cardinal issue.”

Lopatin notes that the Israeli industry is free of red tape, making import and export procedures swift. He adds that there is a good chance that the Israeli government will soon approve a Free Trade Zone, which will further boost Israel’s position as a polishing center: “Israel is halfway between South Africa and India. Many companies will prefer Israel over Dubai and Belgium. It simply makes sense for Israel to become the world’s leading cutting and polishing center.”

Jacob Kattan, a member of the Israeli Diamond Manufacturers Association’s board of directors and former vice chairman of the Board of Directors of the IDE Enterprises, has worked closely with the Indian diamond industry for 30 years. He believes that when the global diamond industry emerges from the current crisis there will be an excellent opportunity for closer cooperation between the Israeli Diamond Industry and its Indian counterpart.

He explains: “Israel is geared to deal with larger stones while to date the Indian diamond industry has dealt mainly with smaller stones. This is because it excels in dealing with bulk volumes of small stones. The Israeli polishing industry is structured differently. The work is done in smaller groups and the manager supervises the entire process. The yield is much greater. So in fact, the Indian industry could profit from collaboration with its Israeli counterpart when it comes to large stones while the Israeli industry can benefit from cooperation when it comes to smaller stones.”

Kattan elaborates that Israel holds clear marketing advantages as well as a lower debt rate to banks in comparison to its Indian counterpart. But India itself is an emerging market that holds tremendous potential. “We should take advantage of the benefits that each of these industries has to offer, whether it is specific polishing skills, advanced marketing or a new market, in order to create a unique and powerful synergy.”

Kattan summarizes: “Increased cooperation can produce significant benefits for both parties, with each side bringing its strong points. It pays to remember that the sum total of one plus one often yields more than merely two.”

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