Through high quality and high-tech, Israel is struggling to keep its edge in the diamond trade in an increasingly competitive market
By ZIV HELLMAN24diamond(photo credit: )Extract of article in Issue 24, March 18, 2008 of The Jerusalem Report. To subscribe to The Jerusalem Reportclick here.
To the untrained eye, they look like squiggles on a computer monitor. The shape of the wavy lines, determined by a diffraction laser probe, reveals the crystallographic lattice structure. But this is no experimental physics lab and the object under study is not an exotic molecule. Rather, it's a diamond. "The diamond industry in Israel has gone nuclear," declares Guy Benhamou, CEO of E.G.L. Ltd., one of Israel's leading gemological labs.
Diamonds may bring to mind glitter, fabulous wealth, or romance, but the process of turning a rough mined stone into that sparkling gem in the shop window requires a tremendous amount of work - and increasingly, a lot of technology. Given Israel's central position in the global diamond trade, the diamond industry has an especially important place in Israel's economy. High-tech industry may garner more headlines in the media, but polished diamonds are still Israel's leading export item, accounting for more than 20 percent of total exports - although this figure can be misleading, because it does not take into account the amount of rough diamonds imported in order to make those polished stones.
In dollar terms, an estimated one-half of the world's gem-quality diamonds are processed in Israel. Despite keen worldwide competition, net polished diamond exports from Israel in 2007 registered $7.075 billion, a 7 percent rise over 2006, with $3.7 billion in export sales to the United States alone. Together with rough diamonds, the total net export of diamonds was $10.38 billion, with imports of rough and polished diamonds amounting to $9.6 billion, for a net added value of $780 million. The diamond industry expects more growth in 2008, buoyed by a recent Knesset decision to reduce taxes on diamond imports.
Israel has no diamond mines of its own - the local industry relies on regular supplies of rough diamonds imported for processing. But with prices of imported raw materials on the rise, local firms are scrambling to diversify sources of rough diamonds, while simultaneously raising Israel's profile as a center of the rough diamond trade. And this was the motivation behind the international conference on rough diamonds that brought over 400 participants, among them government ministers, from more than 20 countries, including Russia, Canada, South Africa, Namibia, and Sierra Leone, to Tel Aviv last month.
International competition has presented Israel's diamond industry with both opportunity and challenge. The opening of potentially large new markets in the Far East, in the wake of the rapid industrialization of India and China, which now enables more and more people in those countries to afford expensive jewellery, may boost exports. Last year, Hong Kong was the second largest export destination for Israeli polished diamonds, after the United States, prompting the Israel diamond industry to create a Chinese-language web presence. At the same time, skilled diamond cutters and polishers in India and China, who receive significantly lower salaries than their Israeli counterparts, have emerged as competitors. India now boasts that it is the world's leading processor of small diamonds, following several years of an annual industry growth of nearly 30 percent. The Israel diamond industry has responded to this new challenge by stressing its high-quality products and using high-tech methods.
The diamond industry has come a long way since the first home diamond finishing businesses were established in the small town of Petah Tikva 70 years ago, where unskilled and semi-skilled workers would polish half-finished diamonds sent by parcel from Antwerp. These small plants gradually evolved into prosperous factories.
The epicenter of the industry is now located in the Israel Diamond Exchange, a sprawling complex of four high-rise buildings connected by bridges in Ramat Gan, a city bordering Tel Aviv. The Exchange, which has 2,600 members, houses the largest diamond trading floor in the world. Some 15,000 people enter the 100,000 square meter complex daily - and demand for new space has been growing so strongly that a fifth tower is being planned.
Part of the overwhelming success of the Israeli diamond industry can be attributed to the international connections that Jewish diamond-trading families established with relatives and acquaintances over the course of centuries. This is a significant factor in a business that to this day relies to a great extent on trust. "You still see IOUs representing millions of dollars written on scraps of paper in this business," says Benhamou of E.G.L., "and you can be sure they are worth exactly what is written on them."
Traditional connections may still have their place, but traditional ways in diamond finishing factories have given way to ever-advancing technologies. "In order to compete we need to leverage what we produce through automation and using our brains," Benhamou tells The Report. His laboratory, located inside the Diamond Exchange complex, is brimming with white-coated lab employees using state-of-the-art tools to determine the molecular structure, weight, volume, carat, color, and three-dimensional shape of individual diamonds. "These high-tech tools are made in Israel," notes Benhamou, adding that Israel also makes "the incredible automated tools that have been developed for the processing of diamonds, from rough to show-room-ready polished."
"More and more elements in the diamond industry in Israel are being automated, making use of the technological talent in this country," he continues. "This requires combining the skills and experience of decades in what works in cutting and polishing with computers and mathematical models. Mistakes can be very costly when you are working with diamonds: If you cut or polish one the wrong way, cracks can develop in the gem, ruining it completely and representing a great loss of money.
"We now have machines that enable experts to view a diamond in three-dimensions on a computer screen, plan the best possible cut and have it done by robotics. We are especially strong in Israel in treating the larger diamonds, of five carats, ten carats and more. Our technology and expertise keep us competitive."
The increasing sophistication of synthetic diamonds has also emerged as a challenge in the diamond industry. The first artificial diamonds were created over 50 years ago for industrial uses, and were clearly inferior to natural diamonds in display quality. But today they can be extremely difficult to distinguish from top-quality mined diamonds.
"Put one of today's synthetic diamonds in front of a diamantaire with 50 years' experience, give him a microscope to work with, and he still won't be able to distinguish it from a natural diamond," says Benhamou. "To achieve that, you need extremely sophisticated - and expensive - technology. Traders are very concerned about being sold a synthetic under the guise that it is natural - because the value of the synthetics is much lower. And there is now the added aspect of 'laboratory enhanced' diamonds - natural diamonds that might not be of the highest quality, and are placed under immense pressures in labs in order to do to them what millions of years in the earth did not manage to do. These, too, have lower value, but can be very difficult to spot."
Extract of article in Issue 24, March 18, 2008 of The Jerusalem Report. To subscribe to The Jerusalem Reportclick here.
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