Antwerp

The past year has seen many changes in the diamond trade, changes it will have to take into account at the dawn of 2018. In turn, some expect the coming year to be the turning point that reconnects the industry with profitability.
   Among those changes was the long-awaited carat tax, which the Belgian government instituted a year ago. The fiscal measure has simplified the process of calculating taxes, since it bases those calculations on revenue rather than profit, imposing a flat rate.
   “Although quite late implemented, it’s definitely a good measure, as it’s helping bringing more stability to the trade,” said Raphaël Rubin of manufacturer and trader Rubin & Zonen. “In doing so, it’s also an additional incentive to invite those who want to access the European market to [bring their business to] Antwerp.”

Calling the banks to account
That said, now that the era of police raids on Antwerp diamond offices is over, more needs to be done to attract new business. Michel Nasielski of manufacturer Nasielski & Son said the carat tax “was indeed too little and too late, but it’s welcome. However, you can’t expect people to start a company in Antwerp as long as it’s an absolute nightmare even for a Belgian diamantaire just to open an account [at the bank].”
   There may well be foreign diamond traders looking into options in Antwerp, added Rubin, “but what can we tell them if even our brokers are denied access to an account [when they just want to] make payments and cash in their invoices?”
   Creating accounts for diamantaires has been an ongoing issue on the Diamond Mile for a couple of years. It’s the result of an increasingly cautious and risk-averse banking industry colliding with a diamond industry that has had too many scandals. The matter is an important one to the Antwerp World Diamond Centre (AWDC), and the trade has approached a number of banks to find a solution. There is hope that these efforts will bear fruit in 2018 — possibly, rumors suggest, through the intervention of the state-run National Bank of Belgium if nothing else works.
   Another changing feature is the way money is being used in the trade. While some people complain about the difficulties they have finding credit, almost every person this writer has interviewed, be it on or off the record, has confirmed that financing is overused in the industry.
   “Credit is a wonderful tool for any company, big or small, that’s working with its own capital. But where it’s becoming a threat to the whole industry is when people keep systematically relying on leveraged [high-risk] credit,” said Rubin.
   Raj Mehta of manufacturer Rosy Blue took a similar tone. “As long as the midstream companies do not balance their business models, things are not going to improve for them. People have to get used to the new norms of working. They have to be aware that working with the old standards [of borrowing without considering their profit margins] won’t cut it for credit anymore.”
   Financing is increasingly difficult to get, he continued, and if diamantaires want the banks to keep lending them funds, they need to do a better job of keeping their inventory-buying and profit margins in line with their capital. Often, the chronic need for credit is a telltale sign of an unhealthy business — leading Mehta to conclude that “although it’s not necessarily the case for individual firms, there’s still over-financing in the trade globally.”

Dwindling sales cycles
Last but not least, polished sales cycles have been shortening, which means more opportunities for traders to do business in a given year.
   “Sales periods are like waves,” explained Nasielski. “They come and go. It’s been confirmed in 2017 that the timing between the peaks of two cycles has gone down to three to four months.”
   Some in the trade even say it’s two to three months. Since 2009, when the polished sales cycles were somewhere between six and eight months, the industry has been noticing a drop in their duration.
   “This evolution is mainly due to the changes in the way consumers buy,” said Mehta. “Before, they used to buy for specific occasions, which were Diwali, Golden Week in China, the Christmas period, or the Chinese New Year. Nowadays, people don’t buy just for the occasions. They’re doing it throughout the year, when they feel like it.”

Article from the Rapaport Magazine - January 2018. To subscribe click here.