The strongest message to come out of the Mines to Market Conference 2010, which concluded with great success on October 13thwas -- India has arrived. Presentations of speakers from outside the country as well as from those within, starting with Keynote Speaker Gareth Penny, to the end, all strongly brought out India’s leadership position in the diamond industry.
The participation of senior representatives of many of the important mining companies and countries, diamond manufacturers and retailers, banks and laboratories in the two day conference also underscored the importance of the India centre on the global stage.
On the other hand, the conference also proved once again to be a platform for open discussion where real issues were aired and discussed candidly, whether it was the question of Zimbabwe’s Marange diamonds, round tripping by a few players in the Indian industry, or a transparent and credible system for availing bank finance among others. Some of these are issues that have long been discussed behind closed doors and in hushed tones, and perhaps for the first time were frankly addressed from the stage of a public conference.
The Conference also generated some positive actions with the Zimbabwe delegation visiting Surat to finalise the outlines of a Memorandum of Understanding with the newly formed SRDSIL that was subsequently formalised in Harare, and some of the leading stakeholders of the industry sending a clear message that they were keen to take ahead suggestions regarding the joint marketing and promotions of the category of diamond jewellery.
Inauguration: Defining the Context
The Inaugural Session set the tone for much of the discussion over the next two days, as it touched both upon the crisis as well as the way forward from there and some of the new alignments that would perhaps shape the industry in the years ahead.
Following the traditional lighting of the lamp, Chief Guest Hon’ble Jyotiraditya Scindia, Minister of State, Commerce & Industry, Government of India, declared the proceedings open in the presence of Hon’ble Obert Mpofu, Minister of Mines, Zimbabwe, Rajiv Jain, Chairman, Sanjay Kothari, Vice Chairman, Vasant Mehta, former Chairman and Sabyasachi Ray, Executive Director, GJEPC.
The Minister welcomed the overseas delegations and expressed the hope that the Conference would further cement ties between the Indian industry and the participating companies and countries. “The Indian diamond industry seeks to actively strengthen its ties with all rough producing countries and companies involved in mining rough diamonds, on the basis of mutual respect and mutual benefit. The Government of India and the Indian diamond industry is committed to beneficiation in African countries and extends all co-operation to help those countries to foster its skill base through training. This is it committed to doing strictly under KPCS compliance.”
Outlining India’s leading position in the diamond sector, he said that the government had taken a number of steps to create an enabling environment, and hoped that it would lead to India becoming “a global diamond trading hub..... in as short a time as possible."
Prior to that, GJEPC Chairman Rajiv Jain spoke about the part played by the Indian industry’s role in helping the diamond industry pull through the financial crisis. He projected a more pro-active role for the country as its aims to become the worldwide leader of the diamond industry, and concluded his Welcome Address by saying, “If the Mines to Market conference provides a successful and fruitful dialogue among all stakeholders and contributes to raising their levels of shared responsibility, of shared values and commitments, then the GJEPC believes this meeting has achieved its aims.”
Conference moderator Chaim Even Zohar’s opening remarks, presented in tandem with Pranay Narvekar, Strategy Consultant, Rosy Blue, traced the ups and downs of the diamond industry on both the supply and demand side over the last few years. In a detailed presentation based on a statistical analysis of market data and consequent projections for the short term future, they noted that the industry was recovering from the crisis of the last two years and there would be marginal positive growth of 0.4% this year. However, because of the ‘ripple effect’ (where a fall in retail demand translates into a significantly larger drop in polished demand), they projected that the industry would still be way below the pre-crisis levels -- about 9% below 2008 and a massive 17% below 2007.
In the context of the ongoing debate on the export of diamonds from Zimbabwe’s Marange fields, Even Zohar warned against attempts at ‘politicisation’ of the diamond industry and the Kimberley Process saying that this could have a harmful effect on rough supply. He also criticised some of the stories being circulated in the international media about the ground situation in Zimbabwe (specifically presenting photographs to contradict a recent story about rough being flown illegally to China by military planes from a secret airfield) and warned the gathering about the possible negative fallout of the proposed US move to create a KP Plus group within the larger audit system set up by member countries to guard against the threat of conflict diamonds. He felt that once the Marange production is officially allowed to enter the mainstream, the shortage of rough that has earlier been perceived as a potential threat would recede.
The Keynote Address by former CEO De Beers Group Gareth Penny, which he himself described as a valedictory, looked at “Where we were”, “Where we are”, and “What does the future hold?’. Hailing the transformation of the Indian industry over the last few decades, Penny referred to current challenges -- stagnant or declining supplies, shifts in consumer preferences and the need for greater investment in marketing to promote the romance of the diamond and enhance the consumer’s retail experience. But he also noted “Manufacturers need not spend millions of dollars on advertising, but must build partnerships with those who do.” Penny traced the dramatic rise of the diamond markets in India and China and pointed to De Beers’ projections that they will jointly almost equal the US market by 2016.
Following this Varda Shine, MD, DTC traced the marketing strategy that had been followed since the implementation of SoC, and elaborated on some of the proposed changes in the new contracts and the distribution system for rough that are being tried out as a pilot project currently. She said that the aim was to bring added dynamism to the current mechanism. Shine also focused on the opportunity being provided by the Chinese and Indian markets, and concluded her presentation by taking about the Forevermark activity in China and its proposed launch in India by December.
In a brief Q & A that followed, Shine reassured the delegates that the auction sales would only be a small part of the overall DTC sales, and that the experience would be reviewed after the first few months. Responding to another question, Penny said that though De Beers had held mining concessions in Zimbabwe for over 15 years, they had failed to spot the potential of the area as their geologists were ‘prospecting for kimberlites’ and so missed the alluvial supply, a reasoning that did not find many takers among the audience. In fact it prompted a later comment from the Zimbabwe delegates that supply was so abundant in Marange that one could not fail to spot the diamonds that were everywhere if one just walked through the area!
The India Story
The Conference reconvened for the afternoon session which started with Rajiv Mehta of Dimexon speaking on “Taking India to the World”. He looked at the larger changes taking place in the country and the resultant opening up of the market which now presents an excellent opportunity for growth. “In overall terms, India is well placed,” he noted, drawing the conclusion, “In order to succeed in the global economy, association with India is key!”
Turning to the development of India’s diamond industry, he traced the advancement from the Foundation Era of the 1970s and 1980s to the Transformation Era from the 90s till now when India emerged as a world leader. During this period, India has moved from being “small time traders to the largest consumers of rough diamonds…. (and) from family oriented business to professionally run large organizations.”
Mehta concluded that the industry could now advance further only by focusing on value creation, a process that had already commenced. Some of the plus points that worked to India’s advantage were a growing domestic market; a strong banking sector; the talented workforce; an improving infrastructure; and the rise of ‘global’ diamond companies led by teams with “passion and entrepreneurial drive”.
Mining Matters
The last session of the day saw presentations by the Rough producers -- Hon’ble Obert Mpofu of Zimbabwe; Jacob Thamage, on behalf of Botswana; Jean Marc Lieberherr of Rio Tinto and Leonid Tolpezhnikov from Alrosa.
Each speaker presented the present status of their rough production and the projections for the future, and expressed the hope that they would forge stronger ties with the India centre.
On what is probably his first visit on such a platform, Zimbabwe’s Minister of Mines Obert Mpofu forcefully made the case for his country. He strongly refuted the allegations about Human Rights abuses in his country, saying, “If ever there was anything wrong that we committed, it is the restoration of order in Marange after illegal diamond mining had happened without the full knowledge of Government.
He also pointed out that Zimbabwe could have sold its production but had showed restraint and chosen not to sell outside the Kimberley Process. “Certainly, if Zimbabwe was unethical in its diamond production, as some quarters purport, by now the country could have unilaterally and selfishly sold its diamonds through alternative channels available. “We have said no to that kind of behaviour and sought to cooperate with international diamond players through the Kimberly Process which in our view remains the most honourable thing to do notwithstanding its apparent shortcomings in the decision making process where the minority rules the roost.
He stressed that they looked for a resolution to the impasse within KP soon. The sale of diamonds was necessary for the economy of Zimbabwe, he said, as well as would lead to an improvement of the conditions of its people. “....diamond mining in Zimbabwe is anticipated to be the major driver for economic recovery and growth both in Zimbabwe and globally. .... the international diamond community should find it in their heart to cooperate with the Zimbabwean Government in its effort to develop the diamond industry for the benefit of all stakeholders.”
Thamage outlined Botswana’s strategy and plans saying that the country aimed to “support value creation at different stages of the pipeline and grow Botswana’s diamond downstream industry”. For this he said, the government was committed to “continue building and nurturing partnerships to boost rough supply and develop the local cutting and polishing industry”.
Lieberherr of RTD spoke about the company’s attempts to develop programmes with retailers in the Chinese and Indian markets which he described as “drivers of diamond jewellery growth in the next decade” and then briefed the audience on the plans for taking the Argyle mine underground and the status of the Bunder mining project in MP, India.
Tolpezhnikov said that policies of the miners including Alrosa had ensured that diamond prices did not dip as sharply as other commodities during the crisis. He said that as the turnaround continues, though there was a possible shortage of rough looming ahead due to depletion of existing resources and absence of new discoveries, responsible strategies by all the stakeholders could ensure continued and sustained growth.
Legal Compliance
The day ended with a presentation by Cecilia Gardner of the Jewelers Vigilance Committee, USA. She discussed the suggestions to broaden the mandate of KP, suggesting that the organisation may not be equipped to become a ‘human rights’ commission, and then turned her attention to the legal implications of many US Government legislations, emphasising that it was crucial for the industry to implement these strictly if they are doing business in US or in US currency. Finally, she added that Corporate Social Responsibility (CSR) measures are essential as the consumers were increasingly demanding ethical products and business practices.
After the Crisis -- Next Step
The morning of Day Two was focused on the post crisis situation and the steps that the industry needs to take.
The first session began with a presentation by Russell Mehta, COO, Rosy Blue (India), who spoke on "Assessing the Present – Moving to the Future". Mehta opined that the emerging markets like India, China, Brazil, Middle East, South East Asia and Russia were crucial to future growth, which he expected to be steady. He expressed the view that rough supplies would be somewhat stable over the next five years with marginal declines subsequently, and then come to a gradual end as mines exhaust their potential. Polished prices too would rise gradually in this period. Predicting that India would continue to be the largest manufacturing centre, Mehta concluded that the industry needs to be more transparent and socially responsible, and work towards creating an emotional hook in the minds of consumers by promoting diamonds as a category.
The panel discussion on "Crucial Challenges to Moving Ahead" saw some frank opinions being expressed about the country’s achievements and some of the areas of concern. The panellists included Ashish Mehta, partner, Kantilal Chhotalal; Vishal Mehta, director, Rosy Blue, South Africa; Rajiv Mehta, director, Dimexon; Rohan Shah, managing partner, Economic Law Practice; and Biju Patnaik, regional manager, Asia, International Diamond & Jewellery Group, The Royal Bank of Scotland.
The participants all agreed that India had emerged stronger out of the recent economic crisis, registering a significant rise in its share by value of the world polished diamond market as a result of taking over a portion of the business in larger sizes. The panellists also felt that synthetic diamonds are no longer perceived as a threat in the way they were some years ago, and that there was space for them to be marketed as a distinct category. The importance of marketing and sending out the correct message to the consumers was stressed as the key to maintain profitability. However questions related to the difference between gross and net polished exports evoked some discussion. A few panellists expressed the view that the figures might not represent real demand, and could be high for a variety of reasons, while others argued that when the government lifted the duties on polished imports, the failure to introduce a presumptive taxation system, as had been requested by the industry, left some loopholes that may be exploited by a few. However it was clear that the industry as a whole was committed to working within the norms.
Rising to the Challenge: Manufacturers’ Speak
The manufacturers’ perspective was presented by Jacky Tache, partner, Tache Diamonds, Antwerp; Elliot Tannenbaum, senior principal, Leo Schachter Diamond Group, Israel; and Anil Shah, partner, Venus Jewel, India. Tache stressed the need for a developing a business model and strategy that allowed for maximum flexibility and quick adaptation to new situations. He felt that a ‘global approach’ to both production and marketing was important, with companies needing to set up factories manufacturing a range of goods in producing countries and lower cost manufacturing centres, and developing a strong polished distribution system that balanced between the established markets and the emerging ones. Elliott Tannenbaum complimented Indian manufacturers for the way they had adjusted to the crisis. He said that they had emerged stronger by investing heavily in technology. The large scale of individual businesses and the concentration of manufacturing facilities in a geographical area were two critical factors that had facilitated this development. He drew parallels with the way Japanese automobile manufacturers had utilised the opportunity presented by the oil crisis of the last decade to develop new hi-tech cars that eventually totally took over the global automobile market.
Anil Shah presented an overview of how the Indian industry had evolved over the last decades, and made a strong plea to manufacturers to start thinking about the methods by which they could add value to the product. Paying attention to technology, especially IT, upgrading cutting skills and attracting new talent to the industry were three of the most important factors he felt. Shah also made a plea for the Indian manufacturers to invest in education – that is the only way we can attract the best brains, and develop a highly skilled workforce that could help the industry strengthen itself in the next phase of growth.
Finance: Transparency and Tightening Up
Participating in the session on Banking were Victor Van Der Kwast, CEO, International Diamond and Jewelry Group (ID&JG), ABN AMRO Bank NV; Pierre De Bosscher, chairman of the Executive Committee Antwerp Diamond Band and A P Verma, deputy managing director, State Bank of India. The bankers stressed transparency and working along prudent lines.
The international representatives, Van der Kwast and De Bosscher spoke about the opportunities that existed in the sector and said that banks were willing to keep supporting the industry and also look at entering new geographical areas, though they expressed inability to finance trade in Zimbabwe diamonds due to current legal restrictions imposed by US legislation. They also made a plea for support from the industry – stronger collateral security, systematic repayments and other safeguards.
Verma however raised questions about some of the practices adopted by sections of the Indian industry and called on the diamantaires to be more transparent and open in their transactions with the banks. He offered support to the industry but called for reciprocal action from the other side as well. In the ensuing discussion, trade bodies like the GJEPC and DIL pledged their assistance to the banks in dealing with anyone who was misusing the trust and confidence, but also pointed out that there had been minimal NPAs in the sector. A suggestion was also made that to the SBI to consider establishing a dedicated division that dealt with the industry (as other international banks have done) so that the bankers associated with the business could understand the specific nature of the intricacies involved in the diamond trade.
Procuring Rough: Towards Smooth Flows
One of the important focus areas of the Indian industry is to reduce the dependence of many medium and small players on the open market supplies. This was the theme of a special session that featured two Indian companies, both working towards this aim.
The session saw presentations from Asit Mehta of Surat Rough Diamond Sourcing India Limited (SRDSIL) and Praveen Shankar Pandya of Diamond India Limited outlined the attempts of the Indian industry to get direct access to additional sources of rough. Pandya noted that DIL, whose formation was announced at the preceding diamond conference in 2007 had struck successful deals with miners and the rough it had brought to India was easily sold by them. Mehta focused on the importance of Surat as the manufacturing capital of the industry and said that the newly formed body could help establish direct ties between the manufacturers and the miners in a totally transparent and efficient manner.
The role of Labs
A session on laboratories was addressed by Tom Moses, senior vice president, Gemological Institute of America and Marc Brauner, Co-CEO, IGI Worldwide. Moses said that the GIA was at the cutting edge of research into identification of synthetics and was fully committed to helping the industry detect any cases of non-disclosure that could have a negative impact on consumer confidence. Brauner pointed out that across markets new young consumers are using the Internet as a research tool prior to making purchases. He said that certification could help jewellers instil confidence about pricing and aid the consumer in purchase decisions.
Retail: Great Potential to Grow
The final session turned the focus on to retail and the Indian retail market in particular. It was addressed by Mehul Choksi, chairman and managing director, Gitanjali Group and Neelesh Hundekari, principal, AT Kearney. Choksi cited the examples of the successful consumer connect being made by global brands like Tiffany and Cartier and made a plea for more aggressive branding and marketing in the Indian context. In his view building such iconic brands with an emotional appeal would help to promote diamond jewellery sales in the country. Gitanjali had Bollywood stars and cricketing legends in its brand promotions with this in mind, and said that the group had developed multiple brands to reach out to different consumer segments and develop a unique model for the widest possible distribution of diamond jewellery.
Hundekari compared the luxury and jewellery market in India, and said that both segments thought that the “grass appeared greener on the other side.” He stressed that organised retail and branding are boosting the growth of the luxury market, and slowly attracting new consumers. But, he added, the potential is great and has not been fully exploited. If the industry can get it right, then huge growth is possible.
Conclusion
The conference spanned two long days with hectic sessions that continued from morning to evening with just a short break for lunch, yet the delegates sat through all the discussions, raising pertinent queries at the end of each session.
The two days of serious deliberations were made easier to digest by Conference Moderator Chaim Even Zohar’s probing questions and incisive comments put forward in his inimitable style.
The Conference concluded with a brief summary and a Vote of Thanks by GJEPC Vice Chairman Sanjay Kothari, who said that one of the key messages of the conference was the importance of aggressive generic promotions. He made a plea for all interested stake holders to come together for joint generic promotions in key markets, even if the attempt to form a single body at a global level for such a purpose had not taken off.
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