The rough diamonds market is taking on quite a polish. A week ago, we learned that diamond merchant Lev Leviyev had obtained a concession from the government of Angola to market all the rough diamonds extracted in that country's mines. The estimated value of that output comes to $800 million - $1 billion per annum. While the De Beers diamond syndicate's marketing power is estimated at $5 billion, Leviyev has undoubtedly become a key player in the global rough diamonds market.
For years, Leviyev has stubbornly refused to be dependent on rough diamond supply from De Beers. And his triumph can now be scented in the wind. A few weeks ago, at a general meeting of diamond manufacturers, Manufacturers Association president Yigal Hausman noted with satisfaction that the supply of rough diamonds to Israel had increased and that the syndicate was showing preparedness to continue supplying Israel with large quantities of diamonds. This was not the case five years ago, when Israeli diamond merchants had to content themselves with whatever De Beers sent, not exactly in the quantity or quality they desired. Within the Diamond Exchange, people complained at the time that De Beers was sending Israel leftovers.
Leviyev refused to be dependent. He and some other Israeli diamond merchants separated from the syndicate. Using his widespread connections in Russia, Leviyev started importing rough diamonds direct from that country's mines. For convenience sake, he also set up a diamond polishing plant in Russia, abandoning the syndicate altogether.
Furious, De Beers demanded that the Ministry of Industry & Trade and the Diamond Manufacturers Association boycott manufacturers not purchasing diamonds from De Beers. They clearly meant Leviyev.
The payoff now seems to be coming through. In the past year, De Beers has not enjoyed such firm standing as in the past. The syndicate that used to control 80% of the global rough diamond market now has a more modest market share of 65%-70%. Private mines, as in Angola, Russia and Mauritania, that declined to co-operate with the syndicate, are marketing rough diamonds themselves and are successfully competing with the syndicate.
The syndicate recently announced that a reorganisation process was under consideration. The nature of the reorganisation is not clear, and the whole world is a hive of rumours about it. Its purpose is to restore the syndicate's predominance. Leviyev's marketing agreement with the Angolan government will surely be no help at all. Under this agreement, Leviyev and the Omega company of Belgium, likewise managed by Israelis, incidentally, will be responsible for marketing all of Angola's rough diamonds, in co-operation with the government.
Leviyev has already given his assurance to Minister of Industry & Trade Ran Cohen, and Ministry of Industry & Trade supervisor of diamonds Uzi Sheintal, that most of the diamonds will be marketed in Israel. The price of rough diamonds, itself, will almost certainly not be low, but since they will be marketed direct to Israel, rather than through agents and marketers in Belgium, agency fees will be sliced and Israeli diamond merchants will pay less.
It is meanwhile reported that Leviyev intends to market the diamonds from Israel, by means of tenders and a system of permanent buyers, who will be constantly in touch with Leviyev's marketing network, similar to the De Beers sight-holders network. Leviyev's marketing system will operate out of offices located at the Diamond Exchange in Ramat-Gan, definitely making Israel a diamond "Mecca". The market estimates that the Angolan diamond marketing capacity, centred in Israel, could transform it from one third of the global diamond industry into a very respectable one half of it.
Leviyev will market worldwide, evidently focusing, however, on three targets other than Israel. One will be Russia, which is likewise assuming a dominant position in the rough and polished diamonds market, and earned Leviyev's favour in the past when he boycotted the syndicate, by selling him rough diamonds. A second target will be India, where most small stones are polished today. The polishing of small, relatively cheap stones requires a major effort, but labour is cheap in India, rendering the operation economic.
Most interesting of all, however, is Leviyev's third target. Leviyev took his first steps in the diamond world as a 16-year-old polishing apprentice. Since then, he has founded LID, which has become one of Israel's biggest diamond exporters, beating De Beers in the most sensitive chink in its armour: the United States.
Generally speaking, the US Anti-Trust Commissioner has pending some very severe charges against the syndicate and does not permit the global monopoly to operate in that country. Any senior De Beers executive entering the United States is liable to be arrested by the border police, and pay the price of the ongoing struggle between the syndicate and the US authorities. In various inner sanctums, an effort is being made to find a solution that will enable De Beers to operate in the United States. But this has been going on for years, and the public attention, especially in the United States, that sanctifies free competition and battles monopolies, will not let the affair peter out with a meek voice.
Another advantage for Leviyev's force is diamond quality. Even if De Beers is currently trying to satisfy demand in quantitative terms, the quality of the diamonds is still a cause for complaint. Sector sources explained that De Beers markets mainly slightly imperfect diamonds, not as good as the sought-after flawless type. The latter, it transpires, can be mined in Angola. Quality also finds expression in price. The per carat price of an Angolan diamond is $300, compared to $140 for a Namibian diamond, $80 for a Canadian diamond, $72 for a Russian diamond, $60 for a Congolese diamond, and $12 for an Australian diamond.
By reaching his marketing agreement with the Angolan government, Leviyev has also resolved the thorniest problem in Angolan diamonds, namely the United Nations ban. UN resolution 1173 prohibits the purchase of diamonds from Unita, the Angolan rebel organisation, and every Angolan diamond purchased must therefore be accompanied by source certification from the government.
The sweeping resolution posed a thorny problem for the Angolan government, since the astronomic costs of supervising diamond marketing amounted to $25 million annually, while revenue from taxes on diamonds hardly came to $12 million. Since Leviyev concluded his agreement directly with the government, under an exclusive contract, the diamonds will be legal in terms of the UN resolution and the Angolan government will happily pocket another $100 million a year in taxes.
Leviyev, as usual, declined to have anything to do with this write-up. But people in the diamond industry say the thing to do is to jump on board his wagon as it waits outside the Diamond Exchange. Leviyev, they say, regards diamonds as a kind of high-tech, calling for quality, the development of technologies and adaptation to demand. This may be the best opportunity for the Israeli diamond industry to get up on its hind legs and take a stand against De Beers' dictatorial absolutism, and become a force to be reckoned with.
Published by Israel's Business Arena on 5 March, 2000>