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Profile: Shmuel Schnitzer
Apr 6, 2014 5:27 AM
By Rapaport News
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RAPAPORT... S. Schnitzer Diamonds is a polished diamond manufacturer and exporter. Shmuel Schnitzer serves as president of the Israel Diamond Exchange (IDE) and is a former president of the World Federation of Diamond Bourses (WFDB).
Name: Shmuel Schnitzer
From: Ramat Gan, Israel
Company: S. Schnitzer Diamonds – CEO and Chairman
Rapaport News: What is the current state of the diamond industry and what are your expectations for 2014?
SS: It should be a positive year as there is good demand globally. The Far East continues to be okay, the U.S. is looking up and Europe is much better than it was a year or two ago. The main problem for manufacturers is not to sell but to make a profit. I hope producers will be aware of this issue as the lack of profitability has become an endemic in the industry. I would say that most of the people you ask in the exchange will say their biggest challenge is profitability.
Rapaport News: Aren’t manufacturers the ones bidding up rough prices?
SS: Yes, but there is a benchmark and manufacturers know that if they bid on anything below that benchmark price, there is no chance that they will get the goods. The benchmark needs to be lowered and there is a need to encourage manufacturing, not just in Israel but also in India. I understand that there are fewer manufacturers in India today than a few years ago. It’s not because they don’t want to manufacture but because they don’t come out with profit from the rough. It is a very unhealthy situation that cannot endure for long.
We need the cooperation of the producers and I would like to see them take it easy for all our sakes because at the end of the day, if manufacturing shrinks, the producers will suffer as well.
Rapaport News: How was the inaugural International Rough Diamond Week that took place in Ramat Gan in March?
SS: The first Rough Diamond Week was successful and we received very positive feedback. The manufacturers and the producers were happy so it was a win-win situation.
Rapaport News: How is Israel navigating the current environment to stay competitive?
SS: We are doing everything to promote the Israeli trade, especially to increase manufacturing in Israel. In particular, we are encouraging rough diamond producers to sell their goods here. The first question manufacturers ask when we say we want to increase cutting and polishing in Israel is: where will the rough come from? Our answer is to host the Rough Diamond Week several times a year so that we can bring rough to Israeli manufacturers.
We are also going to train younger employees to work in cutting and polishing because the average age of manufacturers in the industry today is 55. So we will be opening a factory in Ramat Gan in the next month or two to employ these young people with their wages subsidized by us. Manufacturers will be able to employ the younger generation at a discount, as the project will be funded by the Israel Diamond Exchange (IDE) and the Israel Diamond Institute Group of Companies (IDI). During the first stage we expect there will be about 100 employees and from there we will have the facilities to gradually enlarge the program up to four or five-fold. Our mission is to bring manufacturing back to Israel because I believe that a center that is based only on trading and not on manufacturing is not sustainable.
Rapaport News: Can Israel compete with India as a manufacturing center?
SS: The manufacturing centers like India and China have cheaper labor but that is not necessarily an advantage with the categories of goods that we’re trying to manufacture in Israel. The cost of labor for these goods is probably not any cheaper than the cost of manufacturing here, especially for the higher quality goods, like triple EX or triple VG goods. So what is their real competitive advantage? The one difference, I admit, is financing. It is very difficult to get the right financing in Israel today. The banks are very cautious and it is still easier to attain bank credit in India.
Financing for the entire industry in Israel today amounts to about $1.5 billion, which is definitely not enough for an industry with an annual turnover of $20 billion. This is a weak point and if we can effectively address this, then I don’t see any reason why we cannot manufacture on the same terms as everywhere else.
Rapaport News: What impact has Bank Leumi’s decision to withdraw its financing of the diamond industry had so far?
SS: Bank Leumi used to provide $400 million to $500 million in credit to the industry. Now, I understand that they provide less than $80 million, and they are trying to reduce that number to zero. Fortunately, the other banks have expressed their belief in the industry. They see the results from last year and look at the future and see no reason why they shouldn’t continue. At least three of the banks that we have talked to recently are interested in expanding their credit.
The decision by Leumi, which is still partly owned by the government, was felt more on a psychological level. No one believed that such drastic, negative action would come from such a prestigious bank.
Rapaport News: What is Israel’s long-term growth strategy for the diamond industry?
SS: Israel will become a much stronger diamond center. The number of people dealing diamonds in Israel will grow as more dealers move here.
What we are doing with our manufacturing program will yield results not today, but in two to three years. It will create a much richer industry. There will be more diamond manufacturing in Israel not only of large diamonds but also of high-quality smaller diamonds. I also foresee a jewelry center developing alongside the diamond exchange. It just makes sense that if you have diamonds here, you should also have jewelry.
Rapaport News: Can you give us an update regarding the ongoing negotiations with the Tax Authority?
SS: The problem with the Income Tax Authority started with the unofficial bank that was operating on the premises of the bourse. The investigation has been going on for almost two and a half years now, and not a day goes by that we are not doing our utmost to end this crisis. We are trying to reach an overall agreement with them to not only clear the chapter of the unofficial bank operating in the bourse but also to move toward twenty-first century business standards in the local diamond industry. The negotiations are therefore not only intended to bring a short-term solution to the problem but also to set a standard regarding how business will be done in the future. This means changing the way many things are done in the industry. We don’t think that only the government has to change but we must change as well.
Transparency is the key word. I cannot give any details yet because we are still in negotiations with the authorities. It is not just for the Tax Authority. It also affects how we deal with the banks because some of the banks are not so happy with the lack of transparency in the industry.
Rapaport News: What has the Israel Diamond Exchange done to address the problem of the use of diamonds for money laundering?
SS: We are promoting the new Diamond Law to update regulation in the industry, which is in its final stages and should be passed within a year. The current regulations are outdated and we want everything to be done by the book in the industry.
We are definitely part of the war against money laundering and have been cooperating with the Anti-Money Laundering Authority. We do not want any link between the diamond industry and money laundering, even in perception and public opinion.
Rapaport News: What are the biggest challenges you face during your current term as IDE president?
SS: My priority at the moment is to bring the crisis with the Income Tax Authority to a conclusion and to remove any uncertainty that it might bring to the diamond business. My second goal is to expand manufacturing and make Israel a bigger rough trading center to complement our polished trading. Thirdly, we need to solve the bank financing problem as the low level of available credit does not make sense, especially when you consider the positive attitude that banks currently have toward the industry.
Finally, and probably my most important challenge, is to change the atmosphere in the bourse. Over the past eight years since I was last IDE president, I have seen a dramatic change in the environment of the bourse. There used to be more unity among the exchange’s members. During my campaign for the presidency last year, I already realized that separate camps had developed and at a certain point people forgot that the aim was to push the Israeli diamond industry forward. The lack of unity is very harmful for the industry, so my mission from the first day in office has been to create a much friendlier, quieter atmosphere in the exchange itself, and to prevent internal squabbles.
This is no less important than the first three issues. The internal atmosphere is important because success is built on common effort and it takes more than one person to do the job. If everyone participates and works together toward a common goal, it’s a win-win situation.
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