The global financial crisis originated in America continues to pick up steam. The crisis on the mortgage market flopped to the world’s stock markets having collapsed stock quotes across all trading floors. The Russian economy being part of the global system has turned involved into this process. A catastrophic slump in Russian companies’ stock quotes at RTS and MICEX brought about a multiple decrease in their capitalization. The liquidity crisis suffered by the banking system in this country may be intensified by cash scarcity experienced by Russian enterprises, which have to pay back about $150 billion taken earlier as foreign credits.
The Russian rough and polished diamond complex industriously integrating into the global diamond business will involuntarily run into problems experienced by the world economy. Due to lowered global demand and lack of opportunities to attract credits on a former scale, the diamond market is already undergoing hardships starting to manifest in slumped demand for rough diamonds, polished diamonds and diamond jewelry.
In the opinion of Chaim Even-Zohar, a well-known Israeli analyst, the slowdown in the world economy will reverberate all along the diamond industry “vertical” and every part of this vertical – from the miner to the jeweler – will be affected to different degrees; and the most difficult times are to be survived by diamond manufacturers and diamond mining companies.
To my view, the current global crisis sets different problems before various parts of the diamond business and these problems require disparate approaches in shaping up strategies and methods of action for this period. This is stipulated by the gradual expansion of crisis processes rolling from the United States to Europe and further on from developed countries to developing ones. The cross section of different markets and even that of their segments displays the same uneven expansion and development of crisis phenomena.
The slumped demand should play into the hands of the diamond mining industry, which experienced difficulties in further building up its output because now it has a chance to go over quietly to underground mining and exploring new diamond fields gearing up for their development. Most likely, this was what made diamond-mining leaders De Beers and ALROSA to give in October an almost simultaneous announcement of a cutback on their rough sales till the end of the current year.
The cutting industry, as if seated between two grindstones and linking two basic and alternately directed parts of the diamond pipeline, will most likely confront the hardest problems of all during the global financial crisis.
The last cycle, which is diamond jewelry sales, wields great financial resources and may easily switch over to more remunerative markets or re-direct its funds to other fields gaining even more profit.
Under the existing conditions, the state should render certain assistance to the rough and polished diamond complex in Russia. Besides accommodating with negotiable loans, such assistance may include adoption of appropriate laws and decrees liberalizing rough and polished diamond trade. Besides, the Gohran of the Russian Federation should buy out some part of diamonds from diamond-mining companies replenishing the country’s gold and foreign currency reserves, which in the future will bring significant profit to the state if demand and prices for diamonds will increase.
Generally, elaborating the famous motto of De Beers the whole diamond business should pursue the strategic principle expressed as “Diamonds for Ever, Diamonds to Everyone”.
Yuri Danilov, Senior Research Fellow, Department of Rough and Polished Diamonds Complex Economy, Institute for Regional Economics of the North (Federal State Scientific Entity)
