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Israel Gearing for Diamond Market Recovery

Five-Minute Interview: Yoram Dvash

Dec 15, 2016 6:57 AM   By Avi Krawitz
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RAPAPORT... Israel’s diamond industry has undertaken several initiatives this year to lift the level of trading, and morale, in an otherwise challenging market environment. A year into his role as president of the Israel Diamond Exchange (IDE), Yoram Dvash is confident the right platform is being built to strengthen the country’s position as a leading diamond center. He spoke with Rapaport News on the anniversary of his election to outline IDE’s strategy and program to stimulate growth in the coming years.

Rapaport News: How has 2016 been for the Israeli diamond market?

Dvash: Global trading has slowed and our polished exports have fallen 2 percent in the first nine months, but I feel the market has improved since November. That’s been driven by U.S. demand. It looks like there will be a steady flow of orders during this holiday season right up to the last minute.

Other markets remain cautious and a slowdown is evident in three geographical regions which has dramatically affected our business. China slowed after being the engine of industry growth; a weaker ruble and lower oil prices hit demand in Russia; and the Middle East also went down as crude sank.

Rapaport News: What is Israel doing to stimulate growth?

Dvash: We’re trying to create a better environment by encouraging trading and manufacturing as well as easing the regulatory environment.

Rapaport News: Explain the steps being taken to improve trading?

Dvash: We’re opening an auction center, which we believe will be the leading facility for rough and polished auctions. We already have an agreement with four or five companies to hold their auctions there. It will make supply available so our members won’t have to fly all over the world to buy goods, and it will encourage overseas customers to come here to source diamonds.

We’ll have an official opening at the International Diamond Week in Israel (IDWI) from February 13 to 16 where ALROSA president Andrey Zharkov will be the guest of honor.

Rapaport News: How important are those bourse events?

Dvash: This is the sixth time we’re holding IDWI and we expect it to be bigger than ever before. We changed its format a bit, with trading taking place on the bourse floor for three days while the fourth day has been set aside for meetings. We’re also holding eight tenders during the week.

Rapaport News: How have IDE’s online platforms been received?

Dvash: We have undertaken two important online initiatives to increase our members’ exposure to the business-to-consumer (B2C) and business-to-business (B2B) environments.

We’ve come a long way in our partnership with James Allen, an online retailer, as we now have almost 100 companies that are selling to consumers through its platform. We also launched the ‘Get Diamond’ dealer trading platform where we have almost 100,000 stones exclusively supplied by Israeli companies.

We’ve emphasized online because the way we sell is evolving. In the past, the focus was very much on selling large quantities to big companies through their offices, brokers and shows etc. Now it’s increasingly about smaller quantities sold online, either to consumers or within the trade.

Rapaport News: What is the state of manufacturing in Israel?

Dvash: Our niche area is big stones, but it’s not all that we do. We opened a factory in 2014 to manufacture polished diamonds of all sizes. We’re planning to open two additional factories next year, with about 200 workers providing services for cutting and polishing large stones.

The factories will be located in the bourse complex, and we’re implementing technology that not many companies have access to. That includes the Synova laser cutting machine, which is the most advance technology available today. We’re creating a one-stop shop to make manufacturing much easier and I believe it will push our members to manufacture much more.

Rapaport News:
Is manufacturing profitable in Israel?

Dvash: If it wasn’t profitable I wouldn’t do it. Some companies have to manufacture in Africa or Russia because it’s part of their rough supply agreements. Everyone has to make their own calculation about where to operate.

It’s certainly profitable to produce big stones here because labor cost is not an issue. The more important consideration is the control and professionalism of the cutter. In that sense, Israel is a great place to manufacture medium- and large-size diamonds since we have the expertise.

Rapaport News: Give us an update about your negotiations with the Tax Authority?

Dvash: We are close to an agreement which will relieve a lot of pressure from the trade. It will bring more optimism and inject a lot more liquidity into the local market. Diamantaires will be able to concentrate on doing business rather than on the difficulties we’ve had with the Tax Authorities in the last five years.

We’re engaging a lot with the government to protect our interests and improve their understanding of the diamond market.

Rapaport News:
It seems that lack of understanding is a global phenomenon, particularly when dealing with the banking sector. What is the state of bank credit in Israel?

Dvash: Bank credit in Israel has been relatively stable at about $1.15 billion in the last two years.

We’ve had meetings with the Bank of Israel and in Israel’s parliament, the Knesset, in which our intention has been to explain how the industry operates. People simply don’t understand it. But they need to know the diamond sector is a competitive and successful industry in Israel.

Rapaport News:
Is there a shortage of credit in the market in Israel?

Dvash: I think there is. Our challenge is that other centers have easier access to money than we do. Banks abroad are mostly state-owned, or enjoy government incentive to lend to the local diamond trade. It’s very difficult for us to compete with the huge amount of credit other centers get.

Rapaport News: How many people are employed in the industry in Israel?

Dvash: Every day more than 10,000 people come into the bourse. We believe there are about 20,000 people working in the industry if you add up polishers and all other stakeholders.

Employment has been very stable even as the level of trade has slowed. The number of new people entering the trade is not as it used to be, but the younger generation is coming in and we have a waiting list of people wanting to become members.

Rapaport News: What is your outlook for the market?

Dvash: People are worried that the depressed market is the new normal, but we have to keep things in context. We must remember that demand from China, Russia and the Middle East has dropped dramatically. If that hadn’t happened and our trade numbers still looked as they do now, there would be legitimate cause for concern. But, that’s not the case, as trading across all centers has slowed. I believe that when demand will improve, and it’s a question of when, not if, our numbers will increase once again. I’m very optimistic about the future of Israel’s diamond industry.
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Tags: Alrosa, Avi Krawitz, cutting, De Beers, diamonds, Israel, Israel Diamond Exchange, Manufacturing, Polished Diamonds, Rough Diamonds, Yoram Dvash
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