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Profile: Erez Akerman
May 18, 2014 2:37 AM
By Rapaport News
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RAPAPORT... Erez Akerman is the founding president of the Panama Diamond Exchange (PDE) that is set to open in October 2014 at the Panama Gem and Jewelry Center. The exchange will serve the broader Latin American diamond and jewelry market, which has an estimated annual turnover of between $8 billion and $9 billion.
 Name: Erez Akerman
From: Panama
Company: Panama Diamond Exchange – President
Rapaport News: What is your background and how did you get into the industry?
EA: I was born in Israel but lived in San Diego for a few years. I came back to Israel to finish high school and my army service, and then I went into diamonds and studied gemology in Israel.
I worked for a short time as a sorter with two diamond dealers and then moved to Belgium for a few months doing basically the same thing but at a more advanced level. From there I moved to New York, where I worked in wholesale, selling diamonds and some jewelry. While working in New York I traveled to many different markets in the U.S. concentrating on the Miami market, which caters to a lot of clients from Latin America. But over the years, the market in Miami dropped off as demand weakened post-9/11. When that happened, I followed the business to Latin America, which brought me to Panama.
When I got to Panama, I started travelling around Central and South America, as well as to countries in the Caribbean. I saw that the business hadn't disappeared but shifted away from the U.S. due to various policy changes in the U.S. regarding issues like immigration, the ease of transferring funds and the treatment of foreigners’ companies – particularly from Latin America. People started to feel uncomfortable and it became very hard to do business in the U.S.
Rapaport News: What influenced your involvement in establishing a diamond exchange in Panama?
EA: When I came to Panama in 2006, I asked the local and regional players why the Latin American market was so underdeveloped and their answer was that no one had ever taken the initiative. There was no major diamond trading center or educational structure for those seeking to enter the industry. I suggested that they could remedy the problem by establishing a diamond exchange and they told me that if I did it, they would support me. That is how it started.
Latin America is a diverse region of 20 countries and 23 inhabited islands with over 600 million people; the region is home to a lot of mining, manufacturing and trading of all kinds of precious stones, as well as around 11,500 stores that sell diamonds or diamond jewelry. In most parts of the region, the language spoken is Spanish, except for a few countries that speak Portuguese or French, which makes it easier to consider it one market. So it makes sense to have a diamond exchange for this large area.
Rapaport News: Where does the development stand with the exchange and the Panama Gem and Jewelry Center?
EA: Construction is well underway within a free trade zone specially designated for the exchange. Panama already has the second largest free trade zone in the world, the Colón Free Trade Zone, which serves as the distribution hub for all merchandise throughout Latin America.
While there are a lot of jewelry and diamond dealers in the Colón Free Trade Zone, it’s not a pleasant place to work because it’s mostly used for heavier merchandise that comes in from the Panama Canal. Dealers suffer because they have to share space with these businesses.
We felt that the diamond exchange shouldn’t be built in the Colón free trade area. We wanted it to be close to the airport, near the main city and thought that it would need its own set of rules and regulations.
After many years and the enactment of several laws, we received a specifically designated free trade zone. The zone is about 20,000 square meters in size and is being developed in stages over a five to seven year timeframe.
Phase 1 of the plan will be completed in October with the opening of the exchange in a temporary building. The building will have everything needed for the exchange but on a smaller scale compared to the final version. There will be a trading floor, courier and vault services, security services, restaurants, gemological services, education services and offices for companies offered on a lease basis. There will also be a specific area set aside for 60 or so international companies’ offices.
Phase 2 is the development of a much larger building that will open in 2017. We have drawn from the experience of other diamond exchanges to decide what to do and what not to do. In the end, it will be the most advanced diamond exchange in the world.
Rapaport News: How will you determine membership in the new diamond exchange?
EA: We have a core membership of regional companies, although we are not accepting international companies until the exchange opens in October. In the meantime, we're processing a lot of applications and expect there will be several hundred members once we open, including the largest and most important diamond companies.
In terms of allocating physical space, we are trying to maintain diversity among the companies selected both by geographic region and by the merchandise they sell. The number of companies that will be accepted in the first phase is limited by the amount of space available.
This doesn't mean that other companies cannot operate in Panama. They can still become members of the exchange and use the facilities even if they won't have office space during the first phase.
Rapaport News: What has your strategy been to market the exchange?
EA: It’s been a relatively easy sale, but for us it’s more important to explain to the different centers around the world how the exchange will work than to sell it to them. Latin America is a different part of the world and things work differently there. Therefore, it’s going to be very different from other exchanges. Whether that is good or bad will be for other people to judge.
The PDE is being built in a way that the exchange will serve as the only physical trading hub in Latin America. Unlike in New York or Tel Aviv where people travel and sell elsewhere, trading is only going to be done at the complex, so buyers will come from outside to the exchange and we are not going to have a lot of travelling sales people.
We can’t prevent traders from selling their goods elsewhere in Latin America, but it won't be worth their while because of all the issues of transporting merchandise through Latin America. In some places it is an issue of security, other places you have to deal with regulations, customs, taxes or currency problems. There are a lot of different challenges that arise when you think of travelling to 20 different countries, each with its own rules and regulations.
Panama is already the financial hub of Latin America and has everything going for it. It has no enemies and it is very well located geographically. The U.S. dollar is used as the local currency and the government is very stable and democratic.
Rapaport News: What incentives are there to attract international companies to the exchange?
EA: The single most important thing is the free trade zone itself. The law that enacted the free trade zone was tailor-made for the exchange. There are no import or export duties and no corporate income tax. If you sell the diamonds within the Panama market outside the zone you will pay a little bit, but 99 percent of the business of the Latin American market is going to be outside of Panama.
As for immigration, companies that establish operations in the free trade zone will get a trade license and will have the right to get immediate permanent visas for three company directors or employees and their families. After two years, these people can also apply for citizenship, which we see as a significant benefit.
Rapaport News: Pre-2008 Latin America was booming economically. Has that changed post-financial crisis?
EA: Growth in the jewelry industry and for all luxury goods is higher than before. Prior to 2008, the region was booming but the gains were going to the top 10 percent of society. After the 2008 financial crisis, a lot of capital left the U.S. and was invested in Latin American countries like Panama, Peru, Costa Rica, Ecuador, Chile and Mexico. This resulted in the creation of more jobs, higher salaries and the growth spurt in the middle class.
Rapaport News: Can you give us an idea of taste and trends in diamonds in Latin America?
EA: I think it is a lot more reflective of the U.S. market than the Far East, but it’s very diverse. Brazil is different from Mexico and Mexico is different from Chile, and so on. In some countries there is a culture of diamond engagement rings, in others less. But that is where the exchange comes in – we want to educate the market. In general, Latin America is closer to the U.S. in terms of tastes.
Rapaport News: What would you advise someone who wants to enter the Latin American market?
EA: Come with an open mind. People who have done business elsewhere and succeeded think they know what works, but Latin America is a different animal. Language-wise and business-wise it’s very different, but the potential is vast, so come with an appetite to learn.
Companies that want to succeed should take the region seriously and allocate a person who knows the language and can really work the market. If they do that, it will bring good results.
Rapaport News: What's your long-term vision for the exchange and how do you see the industry developing?
EA: My vision of the future is based on our plans for the exchange. During the next five to seven years we will continue to develop the complex until over 500 international companies have a physical presence there and many more are registered to use the facilities.
I think the retail market in Latin America is probably going to triple in size. I estimate that the prices of merchandise sold in stores will drop between 15 percent and 20 percent. However, that doesn't mean there will be less money because there will be increased demand. Education will revolutionize the market because people in Latin America don't know anything about diamonds today. Basically, I expect the region will go through the same process that China went through 10 to 15 years ago.
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