Ari Epstein, the current CEO of the Antwerp World Diamond Centre (AWDC), joined it in 2005 as director of the diamond office, which provides customs services on behalf of the Belgian government. In his interview to Rough&Polished he shared his views of the role played by AWDC in the global diamond industry.
Can we say that the industry is completely out of the crisis?
I would say that the industry has managed the crisis well and is in relatively good condition, but whether it is over or not depends on what transpires in the world markets. Ultimately, it is what happens at the consumer level that will decide whether the crisis is behind us or not.
There certainly are positive signs. The turnover of the Antwerp diamond sector in 2010 was $41.9 billion, which was 38.3 percent above the amount reported in 2009. Prices are up again, but their recovery has been much sharper with rough diamonds than they have been with polished.
With that said, however, we should not lose sight of the fact that this was no run of the mill recession. It was considerably more profound and we are still experiencing the aftershocks.
According to the World Bank, global economic growth in 2010 was 3.9 percent in 2010, and the bank forecasts that it will continue throughout 2011, although at a lower average rate of around 3.3 percent.
What this all means is that we can afford to be optimistic. But we also need to be on guard. Above all, we have to gauge our activity according to what is happening in the consumer markets.
What is the main task of the AWDC as you see it in the current situation in the diamond industry?
AWDC’s main role is to act as an advocate, catalyst and facilitator on behalf of the Antwerp diamond sector.
We have in our city a community of businesspeople who collectively possess the largest volume of experience, knowledge, financial capacity, business acumen and available stock of both rough and polished diamond in the diamond business worldwide. Our job is to provide that community with a safe, stable and transparent working environment, and to develop tools that will enable it to optimize its capacity.
We do this in good times, as well during the more challenging times. At the onset of the global financial crisis at the end of 2008, for example, the AWDC acted to facilitate the all-industry dialogue by organizing a symposium that brought diamantaires, mining companies and the banking community into one hall. It was from there that the message first went out that rough output would be curtailed in order not to flood the market and that credit facilities would be maintained. It was
those two strategies, and the confidence that they instilled in the industry, which largely is credited with having maintained stability in the industry during the crisis.
Today, our primary focus is upon enabling the Antwerp diamond sector grow with the recovering world economy, and at the same time adapt to the changes that are occurring, such as the increasing share that is being taken by the developing markets in Asia.
Antwerp itself has changed, but it remains the nerve centre of the world diamond trade, with its critical mass of diamond companies, rough and polished diamond suppliers, and financial, technical and strategic service providers. Our role is to provide Antwerp with the visibility it provides, and to protect and defend it whenever necessary.
Do you foresee any troubles for the industry in the short and middle term?
I am not a prophet of doom and gloom, and do not foresee imminent trouble. But I can look at where we need to be careful and what we need to avoid.
First we should heed the lessons we learned over the past several years. It has been said before that one should never waste a good crisis, and I would urge us not to do so. In 2009 the industry responded to the financial crunch by reducing its bank debt, shortening the payment schedules it provides its clients and being more selective about what and to whom it provides goods on consignment. The result was a industry that was less leveraged, less exposed and better equipped to deal with adversity.
With the markets picking up, I would greatly suggest that the industry remains prudent and conservative. Bank debt, which had fallen to between $8 billion and $9 billion in 2009 is now over the $10 billion mark. This is manageable, but it needs to be watched carefully.
Also important is not to allow the margin between the respective growth rates of rough and polished diamond prices to get out of hand. What we do not want to is create a bubble, which could again burst. The markets are improving, but the recovery remains fragile. We must not lose sight of that.
What do you think of the ALROSA decision to sell polished diamonds above one carat at auctions only?
Rough producers adopt the auction of tender method because they perceive it to be an efficient and lucrative means of generating revenue. This is their right.
But it is always in producers’ interest to maintain the long-term health of diamond industry and trade, and it is for this reason that the auction and tender systems need to be looked at very carefully. Producers should ask to what degree it is psychological pressure that pushes up the price of goods sold at auction, and whether those prices can be sustained in the wholesale and diamond jewellery markets.
If the end-result is shrinking profit margins, then the industry is weakened. Producers need to weigh short-term gain against the longer term stability of the industry.
For buyers of rough diamonds, the auction and tender methods add an element of uncertainty. It becomes more difficult to undertake marketing programmes if you cannot ensure that you will be able to obtain the necessary merchandise at the correct price. Less marketing spend does not serve anyone’s interest — certainly not the polished diamond exporters, but also not rough diamond producers.
What I am essentially saying is that producers need to consider all the consequences.
What would you like to wish to the participants of the diamond industry in 2011?
Essentially I would wish the industry a year of good business. This would mean stable economic growth in the North American, Asian and European markets, leading to confident jewellery consumers; the continuing growth of the developing markets, led by China and India; a stable and steady supply of rough diamonds at prices that maintain profit margins for the industry; and a year in which the ethical systems of doing business in the diamond industry result in jewellery buyers’ recognizing our insistence on maintaining the moral high ground. If all this happens then we will have an excellent year.
This is not simply a wish list. In Antwerp we know that we are able to make many, if not most of these things happen. For example, it was just announced that, in May, Antwerp will be formally recognized by the United Nations Institute for Training and Research as the Centre of Excellence for Corporate Social Responsibility in the diamond and jewellery industries. This is a first for our business and it will be happening in Antwerp.
What kind of impact may have the disaster in Japan on the diamond industry, including diamond mining and manufacturing?
I think it is too early to say. I am also reluctant to discuss the consequences for our industry at a time when Japan is just coming to terms with a human tragedy of massive proportions.
I also think it is too early to jump to conclusions. I understand that the economic cost of the earthquake and tsunami could climb over the $300 billion mark, and that clearly will pressure the Japanese financial system. But we should not automatically assume that this will write off the Japanese jewellery market.
In the United States, for example, we have seen instances in which economies have been kick-started as the result of insurance and recovery money flowing in after a natural disaster, such as a hurricane. That is not necessarily the model that we will see in Japan, because I do not believe that we have ever witnessed a disaster on the scale of that which has just occurred. I am just pointing out that more than one scenario is possible.
I also would point out that that the Japanese diamond market has under-performed for more than a decade, at least compared to where it stood in the 1990s. From that perspective I would suggest that, at present, it is unlikely that the disaster in Japan will have significant effect on our industry.
But, as I said, it is premature for us to be considering business effects. Right now our thoughts should be with the victims and their families, many of whom have been our clients, partners and friends for many years.
Alex Shishlo, Editor of the Rough&Polished European Bureau in Brussels
