Reigning Is Not Forever

Spending a week in the Mumbai diamond market is always a revelation. Just prior to my arrival, traders from around the world were talking about how premiums for rough had eroded and that trading in DTC boxes was at a near standstill. The reason for this was "a lack of liquidity in the Indian market," according to many. In other words, if the Indian market decides, for whatever reason not to buy rough, the goods do not move and prices go down.

India has a number of advantages over other centers, mainly lower cost labor and more financing. The Indian industry is, however, possibly more leveraged than the other centers and it has a number of other weaknesses, still, it is the most important global diamond center today.

Just recently, India held two major events: a fashion show showcasing the country’s jewelry design and manufacturing and a trade fair that generates hundreds of million dollars in business. The events are part of a wider scheme to develop India’s gem, gold and diamond jewelry industry.

An important part of this wider scheme was an in-depth research project that examined India and its competitors, and suggested a multi-year plan to protect and grow its position.

Only one other global center, Antwerp, undertook such a project. It also started to host diamond trade fairs and has an important annual symposium.

Both centers are growing while the other global centers, which did not invest in such a plan, are not and their prospects are complicated at best. Manufacturing is shrinking to nil and financing is tough. In the case of one particular center, its main market is the U.S., which is not a growth market.

There is a direct correlation between India's growth and the restrained development of those that have not made plans for the future. If you plan, you grow, no plans equals a perilous future. To change their fate for the better, these other centers should invest in their future.

India cannot rest on its laurels because China is lurking. If you ask the leadership of India's diamond industry what is its single largest concern, the answer is usually ensuring the supply of rough.

China is making huge investments in Africa. It has already secured a large portion of Zimbabwe's goods (airlifted directly to China, where it is polished and sold locally – sans Kimberley Process oversight); it owns part of the Catoca mine in Angola and continues investing heavily in other diamond producing countries.

Imagine the following scenario. What will happen if China, with its surplus cash of trillions of dollars (!) decides to invest in Botswana, offering a lucrative deal: infrastructures (roads, water, power, etc) in return for a right of first refusal on Botswana's resources – with royalty payments equal or a little more than what De Beers can afford to pay?

Do not forget that Botswana also has Africa's largest coal reserve, in addition to copper, nickel, salt, soda ash, potash, iron ore, manganese and silver. It may also have gold, uranium and oil – all very attractive for the Chinese economy.

China also has a large polishing capacity and huge (and mostly untapped) consumer market for diamond jewelry.

Vulnerable centers that want to protect their diamond industries must actively do so. India, the reigning queen, has earned its throne with hard work. To keep it, it will need to continue planning ahead as it has done so well till now.

Have a peaceful weekend.