Lev Leviev’s diamond factory, Moscow September 19, 2000.
“A diamond gives you a special sensation when you hold it,” Leviev says, trying to express feelings in words. “It has a very calming effect. When I need to make the right decision, I handle diamonds; I like to touch and play with them.”
Leviev, 44, has good reason to feel comfortable and make open personal remarks. He’s delighted. Last night, I was present at his outstanding success the gala inauguration of the Jewish community center in Moscow attended by tens of thousands of people, including Russian president Vladimir Putin, who thanked him during a speech he made in honor of the occasion. It was a demonstration of Jewish and personal strength and the prestigious culmination of a project he has promoted and escorted for several years.
We’re sitting in his diamond factory in Moscow, the largest in Russia and several times larger than any in Israel. One thousand workers and 50,000 karats reportedly produced each month, an almost legendary amount, which by a very rough estimate gives an annual turnover of more than $1 billion. No journalist has visited the factory, I’m told. I’m the first and it required considerable persuasion to gain entry.
I ask why there were reservations about agreeing to the visit, and Leviev replies, partly by way of explanation and partly philosophically, “Unfortunately, jealousy exists. We have a saying: ‘when you don’t have anything, people pity you but don’t help and when you have, everybody is jealous.”
The previous evening, when Putin arrived to inaugurate the Jewish community center, he remained standing as an upright soldier throughout the speeches, not as a curteous gesture, but as a show of strength.
Leviev is the biggest Israeli investor in Russia, both through Africa-Israel, which he controls, and personally. He has also served as chairman of the Israel-Russia-CIS Chamber of Commerce for the past year. Several days prior to our arrival, we learned about a Leviev project to set up a telephony network worth tens of millions of dollars, in partnership with Gandan Investments (Nohi Dankner) and local partners, reportedly the first of a series of communications and telephony projects in Russia. The king of diamonds, representing money, investments, connections and jobs has come to town.
Today, however, we’re in the Moscow factory, one of Leviev’s many factories worldwide. I am being proudly guided around and shown the software which determines how to polish the raw material into a finished gem with the least waste. The individual with the software says a true diamond expert can still see it with his naked eye.
Leviev says, “Look what high tech means in the diamond sector. We have the best control over the work. A diamond is one of the world’s most expensive minerals and each unnecessary touch reduces its value.”
”Globes”: You seem to love diamonds more than all your other activities.
Leviev: “Yes. While most of my time is not spent on diamonds, I’m used to them. I grew up in this business from an early age. I started as a simple apprentice and was even accepted with great difficulty. I had to produce guarantees that I would pay for the tuition. We started working on hard chairs in dark basements, two to a table with one primitive polishing instrument, under the harshest conditions. When you grow up in this setting, it’s your adolescent business. I also believe I understand it the most.”
”If you depend on DeBeers, you’re in trouble”
At Leviev’s factory, the entire production process is concentrated in his hands. Without favors, without being dependent on anyone, certainly not on the DeBeers diamond syndicate, and the sole manufacturer who owns diamond mines and mining rights (in Angola, Russia and other locations), Leviev is DeBeers’ major competitor. “A one-stop shop,” he says, “from the raw material in the ground, right up to the piece of jewelry.”
Vertical control, or in the words of a popular old Jewish saying: ‘it’s better to need others as little as possible’ is extremely important to Leviev and his subordinates.
Leviev is reported to have been granted the franchise to mine in Russia simply because he was the only one to commit himself to buying all that the mines produce. He simply says, “There was a tender, and I’m known as an excellent professional with a talent for various joint ventures.”
Are diamond merchants a special breed?
”Any diamond merchant surviving in this difficult sector has to be talented, particularly at negotiations, an excellent trader. Without this, you have no chance for survival. Competition is extremely fierce, especially as nowadays, less and less raw material reaches manufacturers directly. They depend on the raw material, prices are constantly rising and there is a continuous pursuit of raw material in order to survive.”
Is this the reason you wanted to own mines?
“If you don’t have a constant source of raw material, you’re in trouble. ”
Now that you have a constant source, you’re a threat to the DeBeers monopoly.
”I don’t think I’m a threat to them and I don’t hate anyone. I think DeBeers is a very important concern, controlling over 70% of diamond mining in the world. It’s true that I’m regarded as number two after DeBeers and that I’m the only manufacturer with mines and large quantities of raw material. Perhaps this disturbs DeBeers, but there are no hostility, disputes or wars between us.”
What about their new strategy, requiring customer commitment from mining to end product? It creates a situation in which customers must work with them exclusively, and be unable to buy some from them and some from others. Isn’t this a war against you?
”That’s correct, but they won’t say it in so many words, only through hints. I think DeBeers understands that the diamond sector is going to change. For twenty years (since 1980), it was very difficult for those without technologies or special manufacturing processes to develop. Even those who succeeded were totally dependent on DeBeers.
”In other words, I can build the biggest and best factory, but the moment I lose favor with DeBeers, I stop being a sight-holder (with the right to purchase diamonds from the syndicate). The moment I cease to be a sight-holder, I might as well turn my factory into a pickles plant. Without raw material, the factory is worthless and even if I want to sell it, diamond buyers will think twice about purchasing from me, since perhaps DeBeers won’t like it.
”This was one of my considerations in continuing to develop alternative raw material supply sources. I don’t want to be dependent, I believe it’s not healthy. Anyone looking into the long term has to develop his own sources and raw materials to build up manufacturing. I have to protect my business the best possible way.
”The method DeBeers is currently using will, in my opinion, leave 50-60 sight-holders. This means that trade with Israel will shrink. Power will be transferred to the economically biggest and strongest diamond merchants, with broad manufacturing infrastructure. The Israelis diamond industry will greatly suffer when this takes place and many small and mainly medium-size merchants will close or cease to function. Only a small group of merchants will remain. I don’t think more than ten will remain.”
What will happen to the others? Will they leave the industry?
”I’m afraid so.”
The Moscow Jewish Community Center September 18, 2000.
The question hovering over everyone’s head this morning is whether he’ll attend or not. Only towards lunch time when tarpaulin covered trucks filled with troops appeared amid the already congested Moscow traffic, forced to bypass the streets leading to the Jewish community center, did it become clear that Vladimir Vladimirovitch Putin intended to grace the inauguration with his presence.
Putin thanked Leviev directly and the Federation of Jewish Communities of the CIS, which Leviev heads. He said that in the past, as part of the wish to consolidate the Soviet Union, minorities could only study their heritage in secret. It sounded almost like one of the apologies to minorities currently being made by superpowers with a conscience.
At the Bolshoi the following evening, a premiere was presented, with the following story: Kozaks attacked Hassidim, who were saved by the rebbe. Imagine Bolshoi ballet dancers in full Hassidic costume, dancing a traditional Hassidic dance.
At the inauguration, real Hassidim are dancing the traditional Hassidic dance in the hall of the Jewish community center, where we are gathered for a gala dinner. Olga Leviev, Lev Leviev’s wife and mother of his nine children, urges me to try another dish and a brother-in-law appoints himself responsible for refilling the vodka glasses. Almost everyone else at the table are employees, “veteran immigrants” to Israel of the 1970s from the former Soviet Union, all claiming that they are temporarily in Russia, and taking offense at the casting of any doubt about their “Israeli status”.
Leviev, deliriously happy as a groom on his wedding day, joins us and picks up a glass of wine (which merely touches his lips politely). He later asks if we are aware of what is taking place outside. He is referring to the other, public side of the center, which is open to all, and the huge Chabad happening, in which thousands are celebrating the center’s opening with stormy entertainment by local rock and roll stars.
”Mafia? Be serious”
We have arrived in Russia at an extraordinary period. Like all countries starting a development surge, Russia offers broad opportunities for investments in infrastructures, computers, telephony and anything old and in need of upgrading. For example, a Gilat Communications executive is flying in our airplane, to work on a project for computerization of the Moscow stock exchange.
However, those in favor of trade with Russia have not only to sell possibilities, they have to sell the idea as well, as a safe place to do business, despite, for example, the comment by IFTRIC (Israel Foreign Trade Risk Insurance Company) director Doron Klausner regarding cases in which “foreign companies invested and encountered difficulties exercising their rights”.
On one hand, the long shadow of the 1998 devaluation still looms overhead. On the other, Rusia is showing an encouraging balance of payments, particularly since it is a very large exporter of oil and gas, the prices of which have soared. According to Central Bureau of Statistics data, from July 2000, Russia managed to reschedule $32 billion of its debt payments to private creditors from the Soviet period. Its economic activity has continued, a 5% growth rate is expected in 2000 and inflation is starting to show signs of abating.
The hopes surrounding the reforms planned by Putin have had an effect. His seemingly slim shoulders bear the weight of a considerable number of investors’ hopes.
Since the 1998 economic crisis, most risk insurance companies around the world “insure deals in Russia on a very selective basis or not at all”, as Klausner says. A slight change is taking place this year, with Russia’s economic recovery and international rating companies are starting to reconsider Russia’s rating. ”There are excellent opportunities here,” Leviev says.
You yourself lost a great deal of money two years ago in the devaluation. What would you recommend to Israeli businessmen entering Russia?
”Every business worldwide has ups and downs. It’s true that it was a harsh blow when Russia announced the devaluation and many people lost a great deal of money. However, those who invested directly in plants, industry or income-producing assets, did not lose. Everything reverted to normal. Today, Russia has a surplus, particularly with the recent surge in oil prices. Business is therefore quite good. Regarding losses, whoever looks for large profits has to be prepared for large losses too.”
Africa-Israel CEO Pinchas (Pini) Cohen volunteers to explain the write-down of investments in Center Invest, which at the time, caused quite a stir. “The company had excellent results until the end of 1997, and we bought 20% in May 1998. In August-September 1998, the Russian stock exchange was slashed and only three to four out of scores of concerns survived, among them Center Invest.
”We wrote down all of the $10 million investment because of the uncertainty, but we did not cut off ties with the company. In 1999, the company had a nice profit. We now have 32%, after increasing our stake without compensation. The existing Russian shareholders very much appreciated the fact that Leviev and ourselves did not withdraw and continued to listen and offer assistance, not necessarily financial, but through sound advice.”
What about Chechnian rebel activity?
”I think we have much more in Israel than in Moscow. Russian journalists always ask me how I can stay in Israel with some bomb going off somewhere every day.”
What about Mafia activity?
”I don’t take any of the talk about the Mafia seriously. It’s inflated beyond all proportion. We have never been approached by any protectionist body.
”I think it was more a question of problems between rival businesses. A war for control took place, resulting in shooting, which spawned stories about the mafia. I don’t think the stories about the Mafia are serious.”
What about the arrest of a businessman like Vladimir Gussinsky?
”I haven’t studied the Gussinsky case so I don’t know,” Leviev says, but adds, “Once you start mixing in politics, you can get into trouble in any country, including Russia. Once you start taking too many things, it’s possible that someone won’t like it.
”The Russians, however, claimed they had financial demands against Gussinsky. This is something that be verified. Don’t forget that he’s no child. He’s very well known internationally and has a great deal of money. He knows how to look after himself, so, as a businessman, I’m not worried for him.”
Are you able to move freely without bodyguards?
”Millions move here without guards.”
What about you personally?
“I have bodyguards.”
Africa-Israel building site September 18, afternoon
On the balcony of his huge duplex in the wealthiest quarter of Moscow, Leviev quite proudly says, “I acquired an Israeli symbol when I purchased Africa-Israel.”
You reportedly have an inexplicable gap in your biography, jumping to great riches
”An interesting point. I’ve worked in the diamond industry since I was 16. In 1985, I was named top diamond exporter and in 1986 I became a syndicate member, receiving deliveries directly from DeBeers. It means that I was an international diamond merchant by the age of 29. Everybody knew me.
”I’ve become well known again because I acquired Africa-Israel. If I had not acquired it, I would not be so well-known.”
Another acquisition, revealed after some aura of mystery was a 15% stake in Africa-Israel by businessman Arkady Gaydamek.
Who is your new partner?
”He’s an Israeli-French businessman residing in France. He immigrated to Israel in 1971, lived in the country for less than twelve months and returned to France. His main area of activity is in energy. ”
Did he invest in Africa-Israel due to your current call for investments in energy as well?
”I don’t think this applies to Gaydamek. He has no voting rights or any other preference rights. I think he invested in Africa-Israel primarily because he believes in the partner. This is what he told me.”
Does he have a director?
”He’s got one director, at my suggestion, so that he would feel good about being represented. However, we have no obligation towards him; he has no rights and he’s just like other investors. You can also be our partner.”
Do you have a personal relationship with him?
”We’re good friends.”
Angola “clean” and “dirty” diamonds
Leviev has a joint venture with the Angolan government, providing exclusive diamond mining and supplies. Angola is a loaded name, since on one hand diamonds serve the harsh regime, and on the other, rebel organizations finance their weapons purchases with diamonds. This gave rise to the phrases “blood diamonds” and “conflict diamonds”.
How can you be certain the diamonds are not “blood” ? Where do you obtain them?
”Until now, there were six to seven licensed operators who could buy diamonds. Each of them had a joint venture with the government. They would buy and sell and were obliged to share profits, which were very slim, quite negligible. Moreover, there was a problem with the rebels’ diamonds, which were put on the market and sold as regular diamonds.
“I was asked to draw up a plan to protect the country and prevent its enemies from becoming stronger. I drew up a plan, it was accepted and now only the government has the right to mine and there’s only one license. The government set up a joint venture with me in which it holds most of the shares.
”I set up 32 offices, in all the mining areas. There’s a special force in charge of the diamond sector. There are special permits issued to anyone operating in the diamond sector, which are numbered and marked according to regions. This means that if the police stops someone and finds diamonds on him, without a work permit from our company, he is immediately taken in for questioning. If someone sells diamonds other than in the district he should be selling, he’s immediately a key suspect.
“How do we know our plan has succeeded? Angola used to export an annual $500-550 million. This year, on the introduction of our plan, it is about to export $900 million. Why? Because the black market and the smuggling has ceased.”
”I really ought to visit Deri”
”I did not buy a construction firm,” Leviev says, “I bought a company with many years’ experience. My aim was to have everything under one roof, instead of buying a small company here and there, and burst through in directions with potentially good results in the future. This is why we’re very active in energy and industry, such as Packer Steel, which everyone thought was a real loser and should be sold yet you can now see its profitability.”
Are you ultimately pleased with your investment in Gottex?
”Certainly.”
What made you suddenly invest in this business?
”I don’t personally listen to proposals. Many people approach me and I direct each of them to the appropriate person in the company. In Gottex’s case, I was approached by the banks, which believed the company had encountered difficulties due to management.
”I was interested in Gottex for one simple reason: it’s a company in which $80 million was invested in advertising for decades and it’s a very well-known Israeli brand name almost everywhere. Every woman has heard of Gottex. I saw that its huge potential regarding the brand name was not being exploited and I took it into account when considering buying it and making it succeed. From a $17 million loss, we moved to $12 million profit. In effect, we doubled our investment.”
In a later conversation, Pini Cohen hinted that Gottex was not Africa-Israel’s core business at the moment. The stir the acquisition of Gottex caused was not necessarily economic it also related to the fact that such a religious man as Leviev should acquire a swimwear company.
Surely business is business?
”There’s no prohibition. It’s not written anywhere that a woman cannot go to the beach,” Leviev says. “Perhaps it’s written that she should not mix with men, but she can swim in all sorts of swimwear. On the contrary, I think the Torah states a woman should look nice, so that her husband won’t want to look others. Part of the idea is that her husband will find her attractive.”
What happens when business clashes with religion?
”From my viewpoint, I won’t but Arkia or IsraAir, for example, because they fly on Saturdays.”
With whom do you identify, from the religious viewpoint?
”Some people claim I’m identified with Chabad, others with the National Religious Party (NRP), and other still with Shas (ultra-orthodox party). I’m everyone’s Hassid. I’m a Jew who tries to keep the commandments.”
Do you have a personal relationship with Aryeh Deri?
”We’re acquainted. I really ought to ask to visit him. I don’t know what the procedure is. Do you have to register?”
Published by Israel's Business Arena on 11 October, 2000