Soon, Lisbon will see a new diamond exchange start its operations in Portugal. So far, it exists only on Facebook as a formal community of Lisbon Diamond Exchange. But Project Manager Vitor Rita told Rough & Polished, that this diamond exchange may begin trading in 2 or 3 years, while its stakeholders are currently busy obtaining all the necessary licenses.
Under this project, the diamond exchange will spread out over an area of 30,000 square meters near the Lisbon International Airport and will trade in rough and polished diamonds, as well as gold and jewelry. It will host diamond manufacturing companies, diamond laboratories, diamond schools, security companies, banks and so on. The diamond exchange will have the capacity to accept from 150 to 200 companies from anywhere in the world. The project manager said that it would be "a small Dubai".
According to Vitor Rita, the diamond exchange in Lisbon is a "private project with private investors," and it will be ready to deal with any customers, wherever they may come from, if they have to do with diamond business. In an e-mail conversation with Rough & Polished Vitor Rita, born in Luanda, did not elaborate on what kind of diamonds it was planned to sell in Lisbon and what kind of buyers this diamond exchange would be aimed at. However, judging by his profile on social networks, he is currently the head of PortDiamonds, which "sells diamonds with Kimberley Process certificates from Africa," including those from Angola.
In itself, the emergence of a new diamond trading platform is a positive event. Even the leaders of the largest existing diamond hubs have always stressed that "the emergence of new players is always to the benefit of the market providing more and more opportunities to its participants." Nevertheless, one needs to think seriously about the complexities, including those reputational, which this project may await.
Dubai has always positioned itself as a platform, which has a very good geographic location for the diamond industry. Taking into account that the major part of the world's rough diamonds come from Africa, and most of these diamonds are cut in India, the location of Dubai seated between these two regions, make it an alternative to the "distant" Antwerp.
Of course, Dubai attracts merchants not only geographically. There are other advantages - for example, the tax amnesty for 50 years with a zero tax rate on personal income and corporate tax. A few years ago, when the Dubai exchange was gathering momentum, Indian diamantaires openly declared that "Antwerp is overregulated and the tax authorities there are extremely strict and hard-hearted." They liked the free trade zone of Dubai much more.
However, the free trade regime has its drawbacks. Market stakeholders have repeatedly said that the Dubai trading platform was practicing transfer pricing: African diamonds are imported to Dubai at discounted prices and then resold at market prices, or even at a premium.
According to the Kimberley Process metrics, Dubai imported 68 million carats of diamonds at an average price of $ 86.7 per carat in 2014. Almost all of this amount - 67 million carats - was exported from the country at $ 124.3 per carat, resulting in a revenue of $ 2.4 billion only due to increased prices in commercial transactions. Among all the other diamond hubs covered by the Kimberley Process statistics, Dubai is the only one, where we can see such a sharp rise in diamond export prices. For comparison, the average price of diamonds exported from the European Union exceeds their import prices by mere $ 2.
First and foremost, transfer pricing is tied to rough coming from Zimbabwe, bought by Indian diamantaires in Dubai well before Zimbabwe settled its dispute with the Kimberley Process. However, according to market players, a similar discounting pattern is applied to rough diamonds shipped from Angola, including the country’s largest diamond mine of Catoca. And if in the case of Zimbabwe, the discount was due to the sanctions and "semi-legal" status of rough, in the case of Catoca it was only due to the opaque sales system practiced by the company. The diamond exchange being established in Lisbon may turn into another trading floor for re-selling Angolan rough diamonds. Especially in view of the fact that in recent years Angola has been the source of hefty private investments in various projects in Portugal, and numerous journalistic investigations directly connect them with the political elites of Angola.
This week, Angola will host the plenary session of the Kimberley Process, passing its Kimberley Process chairmanship to Dubai. This session could be a good opportunity for the Kimberley Process participants to discuss the responsibility of diamond-trading countries for the transparency of our market once again. Will Portugal, which joined the Kimberley Process Certification Scheme in the summer of 2015, be able to avoid transfer pricing for diamonds in the free trade zone of Lisbon? May it be that this project forebodes reputational and pricing risks for the diamond trade in the European Union? It is better to pose this question now, so that in a few years this new venture could really make its contribution to the development of our market.
Elena Levina for Rough&Polished
