We continue to publish the opinions of reputable experts about the impact of the world financial crisis on the diamond industry. Some of the market participants were asked the following:
1. In what way is the industry (including its mining, diamond, cutting and jewelry branches) being influenced by the financial crisis and how will it be influenced by it in the future? What kind of forecast may be given for the industry in the mid-term under crisis conditions?
2. In what way may the industry “make it” through the crisis incurring minimal losses?
3. What kind of preventive measures should have been (and be) taken by the industry to avoid the negative consequences of the financial crisis?
This time the experts turned even more peremptory in their replies. The picture we got is offered to our readers’ attention.

Avi Paz, President of the World Federation of Diamond Bourses, President of the Israel Diamond Exchange (Ramat Gan, Israel)

It is certain that the global economic situation will affect the diamonds market. But he believes that because of the economy crises people will prefer to buy a diamond ring that its value will remain for many years then a fashion item in value of thousands of dollars that in few month will worth only few hundreds.
This simple sample brings him to the belief that the diamonds market will be stronger after the crises.

Paulus Shituna, Namibia Diamond Trading Company Sales and Marketing Manager (Namibia)

In what ways is the diamond industry being influenced by the current global financial crisis?

To be frank, everyone is feeling the pinch when it comes to liquidity; everyone is struggling to get their hands on money. One of the problems is that banks are not lending money to each other, and clients who need to borrow money to finance their business are finding it extremely difficult to get money therefore scaling down their operations.
Everyone knows that banks abroad have been nationalized, as governments have taken stakes in those banks, so it will take a while for us to know how this change in the ownership structure of most banks will affect the way banks operated before, as far as lending capital to the diamond industry is concerned.

How will the credit crunch impact future operations?

The future of the diamond industry given the current global financial crisis varies from one diamond player to another, that is whether they finance their operations from borrowed money or not.

Valery Radashevich, General Director of the Guild of Russian Jewelers

So far the crisis will have no impact on the polished diamond market due to the known inertia of this business: until rough diamonds will be sold and then turned into polished diamonds and then into jewelry and finally come to the merchant and reach the buyer… In recent years, demand was outweighing supply, so for the time being the situation on the diamond market is not that critical. The crisis hit the banking structure in first place – this is a speculators’ crisis; all those securities and their value (including companies’ assets, incomes and dividends) exceeding their actual value 5 or 6 times are a financial pyramid. As for Russia, this does not hit it too hard so far. Everything will depend on what’s coming and how broadly this wave is going to overwhelm all of us and how long will it last. Non-residents were the first to withdraw their funds from the stock market generating a chain reaction. For the moment, the government is taking quite adequate measures and the most dreadful thing is panic. If salaries and jobs will be cut, this may affect the purchasing capacity of the population. However, in the days of crisis, as you remember, it was traditional for jewelry demand not only to avoid decline but on the contrary, there was not a single world crisis to leave jewelry owners as losers. But I would not like to elaborate this subject any further: a feast in the time of plague is not something to thrive on.

Roni Stschik, head of Majestic Jewelry Ltd. (Ramat-Gan, Israel):

Well, this is definitely not an easy time for the diamonds and jewelry markets - when the economy slows down jewelry demand typically gets weaker. At that time of the year, retailers are usually willing to spend more and to increase orders for the coming season; however, today they are more careful and hesitating since they don’t know what kind of season there will eventually be, so they prefer to reduce their current stock (product range) and to order only what they sell. They are concentrating on less expensive items, which they know can be sold fast. The items that I am designing are moderately priced, but look as much more expensive things, so I hope this will help me going and that my personal business won’t be so much affected by the economic situation. In the diamond market, we see that prices for larger stones of 3.00 ct and above are more affected while prices of smaller stones are still holding on.

Freddy Hager, President of the London Diamond Bourse and Club (Great Britain)

Regarding the situation in the diamond business in the light of the current state of worldwide financial crisis it’s very difficult to give an intelligent and reasoned opinion, given that the whole world is in the middle of a storm of self-doubt and total inability to formulate sensible and reasoned standpoints and viewpoints on both stock, currency, commodity and all other markets.
That having been said, I feel that whilst diamond prices may well be “coming off the boil” somewhat, due to a very low volume of business at this moment (due, in turn, to the general feeling of turmoil prevalent in the world at large) diamond prices in general - and very specifically the prices for rarer, larger, fine-quality stones and fancy colour stones - will go up. This, I believe, will be largely due to the fact that supplies in the medium-to-long term will remain very limited in the face of increasing overall world demand.
Additionally, it seems worthwhile remembering the fact that diamonds have traditionally tended to be regarded as something of a safe haven for wealth in times of world turmoil.

Igor Kevchenkov, General Manager of Russkaya Yuvelirnaya Kompania

The main thing in our business is to avoid working for loans, but to live on your own money. There is nothing terrible happening around – commerce goes on. At the moment, not everyone can afford buying a flat or some other piece of real estate, but the stereotype that diamonds are a safe investment is holding true. This is why people are buying jewelry – our recent sales went up 20-25%.
Now the situation in many ways depends on how quick and precise the government will be in its reaction and on the government’s support. We must work, work and work till the New Year. The companies tied to big loans had the worst of luck – they are seriously shrinking having to downsize their personnel and production.
This is how the situation looks like.

David Kerry, Professor, University of Botswana (Botswana)
 
In what way is the diamond mining industry (including mining, cutting and jewelry branches) being influenced by the current financial crisis and how will this affect its future prospects?

I think there are two areas of impact and these include investment and sales. Investment is bound to be affected by offloading of stocks by Western investment banks and insurance schemes as the global economy shrinks.  Sales may not be too badly affected, in that when there is a global slump, investors often look to non-traditional investments as a hedge; these include precious metals like gold, but also precious stones, especially diamonds.
For the diamond industry to make it through the current crisis incurring minimal losses, they will have to do so by marketing diamonds as a hedge investment and look for non-Western investment sources (e.g. China and India). The industry also needs to examine the investment portfolios and identify potential “hollow” investors, soliciting for alternatives.

Ipumbu Shiimi, Assistant Governor and Head of Financial Stability, Bank of Namibia (Windhoek, Namibia)

Has the liquidity crunch affected Namibia’s financial sector?

Namibia’s financial sector has not been directly affected by the current global financial instability. This is because Namibia’s financial sector has limited exposure to the countries, which are the origin of financial instability.
The Namibian economy is however expected to be adversely affected by the weaknesses in the global financial system through the related slowdown in the world economy and shying away of investors from emerging markets.

Does the crisis pose any future threats to Namibia?

Despite these indirect negative effects, the bank does not see any eminent threat to the soundness of the banking sector or to the entire financial sector in Namibia.

FNB Namibia’s statement on the global financial crisis

Has the global financial crisis affected Namibia’s financial sector?

Global financial markets are experiencing challenges at the moment that were precipitated by the collapse of the real estate market in the US. As a result central banks and governments are busy providing much needed liquidity in order to restore confidence.
The good thing for Namibia is that it is well shielded from this crisis because of the limited exchange control regulations that are still in place, which have kept local funds largely invested within the Common Monetary Area market. However it is expected that the Namibian economic growth may slow further given the likely negative export demand shock as key trading partner economies enter recession.

Has your bank been affected by this crisis?

FNB Namibia is not directly affected by this crisis of confidence in the lending markets of some of the advanced economies. In fact, the recently released FNB Namibia Group results show that the institution is well capitalized and remains profitable. FNB Namibia has no direct exposure to the international financial markets in terms of both the funding and assets sides. FNB Namibia did not venture into sub-prime type transactions.

Vasily Polyatinsky, Chief of Diamond Cutting and Jewelry Industry Department, the Ministry of Industry of the Republic of Sakha (Yakutia)

1. The world financial crisis has had an immediate impact on the diamond mining industry of the Republic of Sakha (Yakutia).
Every month cutting factories buy 15 lots of diamond rough from YaPTA AK ALROSA, which is worth approximately $25.0 million.
This October, the only one among ten operating factories to buy rough was OOO DDK. The other companies were unable to take credits due to higher rates of interest or because banks stopped crediting altogether.

2. It is essential to speed up the establishment of a vertically integrated framework – a holding producing polished diamonds and jewelry. Then the managing company of this holding could attract credit funds, buy diamond rough and hand it over to cutting factories for processing on a give-and-take basis collateralizing its permanent assets.

3. a) There is a need in a specialized bank to finance cutting factories.
b) Due to higher interest rates on credits these should be offset by the state budget.