Arabia’s Diamond Diva

In just a few years Dubai has become one of the hottest spots on the international diamond map. With its Western-style business culture and prime geographical location in the heart of the Gulf, it is attracting increasing numbers of international diamond and jewelry players. Is this though a trend that will stand the test of time? Why are diamond firms eyeing the region in such great numbers? And why are the authorities in the Emirate so focused on building up their diamond status? IDEX investigates:

If a real estate agent’s mantra of ‘location, location, location’ can be applied to a country, then Dubai can justifiably hike up the rent. This Emirate is strategically located on the crossroads between Europe and Asia, on the intersection of trade and industry. For the diamond and jewelry industry, this means a gateway crossing a smooth dual carriageway leading to the entire Gulf region and its burgeoning jewelry consumption market.

Industry analysts expect the country’s rough diamond exports for 2004 to top the $1.2 billion mark. In fact, the country exports nearly as many rough diamonds as producer countries such as Namibia, South Africa and Angola. But, despite all benefits the country has to offer, diamond mines isn’t one. So, what’s going on? Why has it become so quickly a major destination for rough diamond trading? Some will point, as they tend to, to De Beers and the Supplier of Choice program. Others, to increasing visits by tax officials to diamond offices in Belgium and elsewhere.

In a recent memo on IDEX Online, Chaim Even-Zohar noted “The transfer pricing mechanism in Dubai facilitates the creation of tax free equity in Dubai. Through the consolidation of balance sheets, diamantaires can show a formidable asset growth in their total worldwide business without subjecting themselves to painful tax payments at home.” He further calculates that the region enabled some $1 billion in ‘new capital’ - i.e. recorded assets in the industry. One reason, perhaps, why diamond companies are eyeing Dubai with such interest.

Dubai itself has, as we noted, no diamond mines. In fact, apart from oil, it has no natural resources. As for the oil, it’s running against the clock. Within a quarter of a century its expected oil reserves will run dry and so the authorities are wisely and determinedly, building Dubai as a principal trading and industrial hub for the region. And the diamond and jewelry industry is at the center of this hub.

It is impossible, though, to look at the future of this Arabian pleasure-ground without taking time out to glance at its history. For the trade, there’s no better place to start than the Gold Souk area in Deira, near the mouth of the Dubai creek. Without a doubt, this is the spiritual heart of the city’s jewelry market. Here, rows of small shops crowd the winding alleyways, a far cry from the skyscrapers and business blocks that rise high above in the distance. In this throwback to a Disney soundstage, arched windows are festooned with gold bangles and polished diamonds calling to the myriad of cultures that travel the cobbled streets. 

In the north of the souk area, next to the Deira fish market, the large Gold Land and Gold Center complexes house some 45 diamond companies, as well as a smattering of retailers located in the building. Hitesh Sanghvi, Managing Director of Intergems, is one diamond wholesaler who set up in the Gold Land Center in 2000. Thinking back to his expectations when he launched his business he recalls that he was soon surprised by the diversity of demand that he found among his regional clientele, which was not restricted to large carat and high clarity stones as he’d originally anticipated. “The challenge now is that the market has taken off and is tough to penetrate,” he says. “The competition is certainly intense.”

Elsewhere within Gold Land, Eric Charles opened an office for Antwerp-based Sightholder AMC in 2002. Like many of the larger dealers, he came to Dubai in direct response to demand from established AMC customers in the region, both wholesalers and manufacturers, who wanted to be able to inspect their supplier’s goods locally. “It is a competitive market,” he affirms. In this densely populated part of town, security is best described as traditional. Metal shutters protect premises out of hours, safes store the goods, and traders rely on the watchful eye of the Dubai police. However, 10 minutes away by car and a world away in terms of infrastructure, the Business Avenue is where most foreign diamond companies are heading. 

One might expect it to be a whole district, but the Business Avenue is actually a single gold-colored building on Port Saeed Road in Deira, near to the Dubai International Airport. Here, diamantaires will find the temporary home of the new Dubai Diamond Exchange (DDE), as well as 25 diamond companies that have let space from the DDE.

The reason the Business Avenue is only temporary is that the DMCC, under whose umbrella the DDE operates, is building a 300-hectare campus to house its licensees that is due for completion by late 2006. Once the campus is ready for occupation, all diamond companies will be expected to transfer their businesses into one of the purpose-built towers. Rising 65 storys above an island surrounded by water features, the spiral-design glass Almas Tower (almas meaning diamond in Arabic) is expected to become the new home for Dubai’s diamond trading community and the flagship building of the DMCC’s (Dubai Metals and Commodity Centre) campus. In addition, another construction development, the Jewellery and Gemplex complex is set to advance the growth of a diamond cutting and jewelry manufacturing center.

When the units in the Almas opened to the market in January 2005 in a staggered sales system, they sold out within days. This obviously wasn’t a surprise to the DMCC, which had already doubled the size of the core that it had originally planned for Almas Tower. 

“The idea is to help companies expand here, not necessarily relocate here, giving them a foothold in a market that is developing from basic jewelry to diamond jewelry,” explains Tawfique Abdullah, DMCC’s Vice Chairman and Executive Director. “Our goal is certainly to develop physical infrastructure, but more importantly to develop a market infra-structure that includes the DDE, Kimberley Process certification and further developing the wholesale trade, particularly for rough diamonds.” Though the market is still maturing, most of the private traders already operating in Dubai are bullish about the future. Igor Senchenko, managing director of the Dubai office of Russia’s Kristall Smolensk, points out: “With the access to major markets like Saudi Arabia that you get from here, I even believe it could become the second Antwerp of the future.”