Convenient selection, a favorable tax environment, and a
reputation for transparency are among the reasons Antwerp is still thriving as
a platform for rough diamond distribution, according to Raymond Cohen, managing
director of the local Kristall Smolensk office.
“India has a taxation system that is not very favorable to
the Indian diamond manufacturing [sector], and therefore they are using Antwerp
and Dubai financial structures to avoid paying high taxes,” Cohen pointed out
by way of example. In addition, he said, “Antwerp has the advantage of being a
city where all diamond companies are located in merely three streets, and
therefore, clients can go from one office to another in a few minutes to check
the diamonds they’re interested in. The choice of goods available is wide.”
And it’s not just the variety and quantity of merchandise
that makes it worthwhile to do business in the city, said Maxim Shkadov, the
company’s general director.
“Because Antwerp is situated in the European Union and offers
its own security, logistics, tax and finance systems, it definitely makes sense
for us to be present there,” he explained, adding that Antwerp’s “long and
famous history” was an asset in itself.
“The city has been present for centuries on the business map
and has managed to remain there over the years,” he noted.
Transparency is another benefit, as is the local diamond
sector’s high degree of compliance with famously tough regulations.
“The transparency level only increases the credit given to
our industry,” Cohen asserted. “In the past, our reputation has deteriorated
with each scandal that has occurred. The whole industry was wrongly accused of
doing illegal activities. Now with all those obligations [such as the Know Your
Customer initiative, anti-money laundering regulations, and the Kimberley
Process], we are showing a more and more legitimate business model.”
But it’s not all positive. Some of Antwerp’s competitive
advantages have dissipated due to business and global evolutions, as well as
poor past political decisions. In order to flourish, Antwerp must maintain a
critical mass of rough distribution.
“Antwerp has huge pressure from India, and it will depend on
a strong attitude [on the part of] Antwerp to keep its leadership,” Shkadov
said. “We’d have to be blind not to see that vector of global diamond
distribution shifting to India. I am sure Antwerp will keep a leading position
[for] many years, because it provides unique services for diamond companies.”
However, he went on, “my concern is banking activities. If
banks will not trust Antwerp as a center of global diamond business, I guess
[the diamond industry will] have an unenviable future.”
Cohen drew a distinction between the efforts of the
government and the difficulties with the banks.
“The new taxation system is a clear sign that the
authorities are doing all they can to preserve the industry in Antwerp — unlike
Israel, where the government is pulling back from a system that was made
specifically for the diamond industry,” he said. “The local banks, however, are
making it difficult for small companies to open an account and work normally.
It would be challenging to see this change.”
At present, he went on, other than miners, “no one is making
a profit — just covering their expenses, or even worse, losing money, in
polished diamonds and rough. The market is borrowing from the banks at 4.5% to
6.5% per year and giving credit at 1% to 1.5% per month. As no profits are made
on the diamonds themselves, [some] companies are trying to be somewhat
profitable [by lending money when they can]. I don’t know for how much longer,
though.”
Article from the Rapaport Magazine - August 2017. To subscribe click here.