Diamond Exchange Polishing Up For a Comeback

Diamond manufacturing is a dwindling trade in Israel. The country has one of the world’s hottest diamond exchanges, but polishers and cutters of the precious stones have been replaced by cheaper workers in newer hubs like India and China.

Israel wants to bring them back.

Bumi Traub is president of the Israel Diamond Manufacturers Association, and entrance to his office requires a fingerprint scan. Security is tight in the four-building exchange where the turnover of trading reaches $25 billion each year.

About a third of rough diamonds produced in the world each year pass through Israel and diamonds account for more than a fifth of the country’s industrial exports.

The plan to revitalize manufacturing will cost millions of dollars and the diamond sector, for the first time, is turning to the government for help.

The global financial crisis has taken a toll on the diamond trade, and Israel was not spared. Turnover was nearly halved at the outset in 2009, though in 2011 it returned to pre-crisis levels. A smaller drop is again expected for 2012.

The damage has been moderate compared to other major hubs such as India, according to Yair Sahar, president of the Israel Diamond Exchange.

“In other centers the leverage was tremendous, as opposed to here where we were much more conservative,” he said, referring to the low level of debt among Israeli firms. “We entered the crisis more prepared, so to speak.”

The diamond trading floor in Ramat Gan, a suburb of Tel Aviv, is the biggest in the world. Armed guards escort non-members and on one wall are mug shots of problematic dealers whom customers are cautioned to avoid.

Diamonds change hands freely across the rows of long dark tables that line the hall. On one side a seller could be local. A buyer across the way could represent some anonymous client on a different continent.

They scrutinize the stones under a magnifying glass, weigh them on sensitive scales and when a deal is reached they say “mazal u’vrachah.”

In 2011, rough diamond imports to Israel topped $4.4 billion and $7.2 billion in polished diamonds were exported. Every second diamond sold in the United States, according to value, came from Israel.

But only $1.5 billion of the stones were cut and polished locally, a much lower percentage than a decade ago. The rest were sent abroad to foreign firms or Israeli-owned factories.

“Once, everyone who sat in this room was a manufacturer,” billionaire dealer Lev Leviev said at the opening of a Gemological Institute of America (GIA) laboratory in September. “There was not a diamantaire who was not a manufacturer, and over the years we lost it.”

Salaries were just too cheap to compete with, he said, first in India, the world’s biggest importer of rough diamonds, and later in China.

Israel has subsisted on larger, high-end stones whose owners pay more to have them manufactured close to home. But industry leaders hope to change that, in part because polishers in developing countries are demanding more money.

“I think we are there, more or less. With rocks of one carat plus, I think we are in a place where the [wage] gap doesn’t justify running to manufacture abroad,” said Sahar.

The GIA decision to open its lab in Israel was a first step. Manufacturers can now have their diamonds graded and evaluated in Israel rather than sending them to the United States.

“It’s critical for the growth, for the international branding of the export business, and we think that we’re a good partner to help
the manufacturing grow,” GIA President and CEO Donna Baker told Reuters when the lab opened.

By cutting costs and allowing increased turnover, it will add between $30 million and $50 million a year to the industry.

At the peak of manufacturing in the 1980s, there were 20,000 people cutting and polishing diamonds in Israel. That has dropped to about 2,000.

“There is no new manpower. Most polishers are 50 years old and up,” said Roy Fuchs, who owns a factory a few minutes walk from the exchange. “If they don’t invest and bring in new blood, there simply won’t be manufacturing.”

To make it happen, the industry realizes it needs help, and for the first time, it is looking for assistance.

The Trade Ministry’s diamond controller, Shmuel Mordechai, said the government backs the idea and has funded similar programs in other financial sectors.

One of the more advanced plans Mordechai described is that of an independent service plant where dealers bring their rough diamonds. Such a plant would cost $1-$2 million and employ 30-40 workers.

“In any plant they set up here and bring employment, we will give help with salaries and other incentives,” he said. “If two or three are set up, it will catch on. If the first one succeeds, others will follow.”

Traub, from the manufacturer’s association, intends to create dozens of new private factories. The recruitment focus is on the chareidi community.

This article appeared in print on page 6 of the January 3rd, 2013 edition of Hamodia.