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Mixed first half of 2018 for the Israeli diamond industry, but mostly positive

25 june 2018

It's been a mixed first half of the year for the Israeli diamond industry, with a range of events affecting the sector, both negatively and positively. Most recently, the World Diamond Congress, which was due to be held in Tel Aviv in June, was cancelled. In addition, Israel's polished diamond exports have not exactly been sparkling this year.

On the issue of the canceled World Diamond Congress, in a joint statement, the Israel Diamond Exchange (IDE) and the World Federation of Diamond Bourses (WFDB) said the decision had been made against the background of low registration influenced by the impact of geopolitical tensions in the region.

In line with Israel's reputation as the 'Start-Up Nation,' the IDE had planned to place a heavy emphasis on how technology can aid the diamond industry now and in the future. That would have given an opportunity to Israeli tech firms to lay their wares before presidents from the WFDB and the International Diamond Manufacturers Association (IDMA), as well as representatives from across the global diamond pipeline.

“It is obviously with very great regret that we have reached the decision to cancel the congress,” WFDB President Ernie Blom and IDE President Yoram Dvash said in a joint statement. “We had a full agenda of issues regarding the state of the global diamond industry, and preparations were in full swing.” The congress will take place at a date to be announced.

Previous to that, the IDE announced it would be losing its experienced and long-time Managing Director, Eli Avidar, who has left the position to take up a political career. Avidar, a former Israeli diplomat, has served as IDE and Israel Diamond Institute (IDI) head since January 2016. He also served as IDI head for 10 years. “My role at the diamond bourse was challenging and satisfying, but once I made the decision to go into politics, I could no longer hold that position, as it requires my full attention,” Avidar said.

But the IDI moved quickly to fill the gap with an experienced hand, appointing Aviel Elia as managing director. Elia has served as the IDI's legal adviser and company secretary since 2013, developing strategy, negotiating transactions, and managing its budget and regulations and putting them into practice. “I was fortunate to have worked under Eli Avidar, and I learned a great deal from him,” Elia said. “IDI is in a unique position to work together with all parts of the industry to strengthen the Israeli diamond sector, by initiating new projects and by providing important assistance and tools to diamantaires, as we have in the past.”

Previously, there was good news for the Israeli diamond sector when authorities announced they had agreed to lengthen the time dealers can spend inspecting polished diamonds without paying a 0.1% import duty. The Industry and Economy Ministry's Diamond Controller Danny Tal said he would allow firms up to 30 days to examine stones tax-free before deciding whether to buy them for goods worth $50,000 or more.

This is seen as helping large companies with polishing plants overseas who will now feel comfortable in bringing more goods to Israel for sorting before transporting them, IDE President Yoram Dvash wrote in a letter to members of the exchange. Before that, many Israeli diamantaires shipped goods directly to offices around the world, rather than bringing them for inspection in Israel first due to the time limit. “The time pressure imposed by the inspection period and the tax on goods resulted in merchandise not reaching Israel,” Dvash commented. The previous system also prevented Israeli companies from carrying out a thorough examination of the diamonds before agreeing to buy or return them, the IDE explained.

The new regulation went effect on May 1, and will be in force until October 31. Officials will then review the amendment and assess whether it has achieved its purpose, and therefore whether to extend it. Dvash stressed that the tax-free period only relates to the inspection of goods. If a stone’s weight or value is altered, the authorities will regard it as having been imported, and will therefore tax it appropriately.

The year started well with the Israeli government promising about $285 million in bank loan guarantees to diamond companies as a way of relaxing the diamond trade’s credit problems. Securing credit prevents growth, particularly for smaller firms which make up close to three-quarters of the Israeli trade.

The banks continue to see the diamond sector as high-risk and that is behind the sharp fall in overall lending to the Israeli trade of about $1 billion last year from $2.5 billion in 2008, a committee established to look into the issue said in its report. In addition, they are not accepting dealers’ inventory as collateral, and continuous competition from India and Belgium causes further damage to Israel’s market position, the committee reported.

The government fund will provide a guarantee for companies’ borrowing, so if they do not repay a loan to a bank, the state will pay. Eli Cohen, minister of industry and economy, said: “We have decided to allocate another billion shekels over the next five years to the diamond sector through credit guarantees."

The importance of the diamond trade to the Israeli economy can be seen in the numbers: it represents about 13% of total exports, and employs about 9,500 people, the report pointed out. “Implementing the committee’s conclusions, alongside other steps, is essential, considering the crisis the sector has undergone,” Cohen said. “Their purpose [the proposed aid] is to provide new tools to help deal with challenges in the trade and to ease regulation, thereby growing both production and exports.”

The IDE this year has been pushing ahead with plans to introduce technology into the business. At the start of 2018, it announced plans to unveil two new cryptocurrencies created specifically for the diamond industry by startup CARATS.IO. The company held a seminar during the International Diamond Week in Israel in February to describe the aim of the venture, how they could benefit the trade.

“By cooperating with this innovative startup, we’re making diamonds a viable investment channel for a whole new market,” said Dvash. “This is important for the diamond sector in Israel and the world over. Israel’s high-tech know-how is a huge resource for our industry and we’re proud to play a pivotal role in heralding the next era of diamond trading.”

One of the new coins, CUT (Carat Utility Token), will allow safe peer-to-peer transactions among diamond traders without financial intermediary assistance, said CARAT IO founder and CEO Avishai Shoushan. The second, CARAT, aims to “open the diamond industry to a huge, largely untapped market of financial institutions and cryptocurrency investors,” he added. Both cryptocurrencies will be backed by diamonds purchased through the IDE.

And also on theme of technology, the IDE in February launched a partnership with Chinese e-commerce giant Alibaba Group, which gives Israeli diamond traders the power to sell goods online to businesses and consumers globally. Between 100-200 IDE bourse members have established online stores that will sell diamonds on retail sites. The venture operates from a specially created space in the exchange. Dvash said the move was hugely important in providing bourse members with an extra sales channel, while keeping up to date with new ways of selling. The deal is similar to the deal that the IDE signed with Internet diamond retailer James Allen, in which IDE members come together to supply goods for the e-commerce company to sell.

Remaining on the subject of technology, Israel’s diamond trade – and specifically its skills in cutting large and important stones – received a boost with news that the 813-carat Constellation, the most expensive rough diamond in history, would be cut in Israel. “The Constellation diamond being brought here for laser-cutting really puts the spotlight on Israel as the technology capital of the diamond industry,” said Dvash.

By our Israel correspondent Abraham Dayan