The 115-year-old framework of the international diamond trade, which has been run almost unchanged since its conventions were first set by an 1886 meeting of influential merchants in a Belgian cafe, is set to be shaken up by an upstart from the Middle East.
Antwerp, where 85 per cent of the world's uncut diamonds are bought and sold, where some 5,000 businesses dealing in the precious gems cram into three city centre streets and where, every day, dealers spill on to their desks glittering piles of stones worth millions, is facing a serious challenge from Dubai.
The fledgling industry hub, which until a few years ago had no interest in the sector, has already tempted a number of companies to relocate and is mounting a concerted long-term challenge to make the United Arab Emirates the epicentre of the global diamond market.
"It is a very recent trend, but Dubai has been attracting a great deal of interest from trading companies in Europe, Asia and the United States," says Michael Scheiner, who left a career in New York's diamond wholesaling business to found
www.thediamond.com in 1998. "Their share of the market is pretty small beer for the moment, but there are a number of factors which suggest the city has the potential to become a major player in this industry."
Small beer is no exaggeration. Last year $60m worth of diamonds passed through Dubai's emerging trading centre, a tenth of that enjoyed by near neighbour Israel. In the same period Antwerp dealt in stones with a combined value of $20bn.
Since it was first formally incorporated as the Diamantclub van Antwerpen by a group of merchants and moved into its residence on Simonsstraat in 1892, the Belgian diamond exchange has reigned supreme over the international market. It co-ordinates the mining of rough gemstones across four continents, which are routed to London for sorting and then distributed to the Antwerp cutting centres that account for 85 per cent of the global trade.
From Antwerp, trade abroad is con- ducted via a network of bourses, or trading clubs, each of which operates its own infrastructure, constitution and membership policy. There are bourses across the globe, the most recent of which is in Moscow, but all remain closely tied to the Belgian mothership.
A number of recent changes in the market have begun to toss a few posers at Antwerp's once unquestioned dominance of the diamond trade, however. Last year, Belgium imposed a tighter system of corporate income tax on the industry, while new technology has not only improved production methods but also made the valuation of diamonds an exact science, greatly lessening the profits to be made from the cut and thrust of the bargaining process. Consequently, the margins are being squeezed and companies are looking to save money.
Dubai has taken advantage of this situation by establishing a series of "free zones" in which foreign companies can operate tax-free for the first 15 years of their tenure. The first companies to move in were from the diamond centre of Bombay, attracted by the fact that 80 per cent of Dubai's residents are from the Indian subcontinent and by the area's vastly superior infrastructure, but the Europeans followed shortly after. Leading financier ABN Amro has already opened an office there and the Antwerp Diamond Bank admits it is examining the region's potential.
The Middle East, which is the largest consumer of jewellery outside the US, has certain political attractions to bolster its pitch. Following recent controversy over the trade in stones from war-torn countries such as Angola and Sierra Leone, importing so-called "conflict diamonds" into Europe has become increasingly difficult. Not so in Dubai, where a more liberal stance to the issue has encouraged dealers to switch loyalties.
Reaction in Belgium to Dubai's bold challenge has been muted. The Antwerp Diamond Bank believes the country's grip on the wholesale end of the industry will limit the upstart to becoming a financial and administrative centre. And while many analysts believe the contender from the Emirates is not to be ignored, the very nature of the industry is likely to mean that any change will not be sudden.
"The diamond business is run along very traditional lines. Businesses are still handed from father to son and a lot of emphasis is placed on trust and reputation, so it would take many years for Dubai to effect significant change on that," says Scheiner. They have a lot to tempt even the most staid company however, and Antwerp must be at least a little nervous."
The diamond trade is not the only business into which ambitious little Dubai is making inroads, however. The liberal tax regime is open to all industries, and the existing four free zones have been so successful at attracting foreign business that there are plans afoot to expand the system. Projects such as the recently announced Westside Marina development of residential buildings, shopping centres, offices and hotels, meanwhile, is fast turning the region into a popular destination, with high-profile sporting events such as the Dubai Classic in golf and the horse racing World Cup proving a major attraction.
One industry already apparently wooed is the hi-tech sector, which is currently settling into new premises at Dubai Internet City. Dell, Hewlett-Packard and Sun Microsystems have all taken the city up on its offer and set up shop there, along with some 200 other US companies wooed by generous incentives, landscaped lakes and proximity to Europe.
"The oil's not going to last forever, and I suppose that's been a major motivating factor for them," says Silicon Valley entrepreneur Peter Needham, who chose to open a research and development unit in Dubai last October.
"But they really have bent over backwards to help us do business in this part of the world, and I'm sure mine won't be the last company to make a home here."
The Facts
n America is the world's largest consumer of diamonds, accounting for 50 per cent of the global trade
n De Beers has dominated the trade since the 1930s and is now estimated to account for some 80 per cent of world sales
n Industrial diamonds account for 60 per cent of global production, although 90 per cent of manufacturing applications now use synthetic stones
n 40 per cent of rough diamonds are mined in Africa
n London has been the centre for the distribution of rough diamonds for over 300 years. Manufacturers and dealers meet there once every five weeks to inspect their allocations
n 80 per cent of Dubai's GDP is now generated by non-oil companies
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