For two days an impressive array of speakers at the 2011 Antwerp Diamond Conference held at the Wagnaatie in the Port of Antwerp looked at various issues that could determine the shape that the diamond industry would take by 2020. Rough diamond supply, Finance and Credit, Marketing and Branding, New Technologies, these and many other related issues were discussed threadbare in front of an audience comprising about 400 members of the industry and media who had attended the conference entitled “Diamonds 2020: A Window to the Future”.
Change was a theme that dominated the discussions from the word go, beginning with AWDC CEO Ari Epstein’s welcome speech, where he said, “The winds of change are blowing strongly through the diamond industry, and the world that they leave behind them will be greatly different to the one that existed previously.
“U.S. President Dwight D. Eisenhower said that ‘neither a wise nor a brave man lies down on the tracks of history to wait for the train of the future to run over him’,” Epstein continued. “We need to understand, embrace and ultimately be empowered by the future. We will be looking closely at that oncoming train, so that we may jump safely aboard and ride it on its journey over the horizon.”
The winds of change are blowing strongly through the diamond industry, and the world that they leave behind them will be greatly different to the one that existed previously. – Ari Epstein
Specific focus was given to the impact of changes brought about by the recent global financial crisis, as many of the speakers focused on subsequent efforts by governments to exercise greater care in regulating banking. Particular attention was drawn to Basel III, which is the new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Supervision.
Whether it was the result of the disastrous fiscal crisis from which the world was recovering or not, the issue of diamond industry financing was given high priority, being the theme chosen for the first session. Specific focus was given to the impact of changes brought about by the recent global financial crisis, as many of the speakers focused on subsequent efforts by governments to exercise greater care in regulating banking. Particular attention was drawn to Basel III, which is the new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Supervision.
Pierre De Bosscher, CEO of Antwerp Diamond Bank, said in future he expected there would be adequate financing but at a higher cost. The capital adequacy standard which is presently 8 per cent will increase to 10.5 per cent and eventually to a maximum of 13 per cent under the proposed phased introduction. Basel III, he stated, was likely to lead to further corporatisation and sophistication in the diamond industry, with more transparency and higher capitalisation.
Has the diamond industry drawn the correct conclusions following the global financial crisis? Victor Van Der Kwast, CEO of the International Jewellery Group of ABN Amro Bank, examined this critical question.
In the current situation, there are higher capital requirements with increased government involvement and tighter controls, he said. But, he added, transparency still needs to be improved, scrutiny of company documentation was higher than before and banks are less flexible that they were previously. Commenting on the current situation, he raised the important query, “Can diamond end-consumers absorb higher prices?”
Christof Govaerts, head of the Investment Committee at the Crelan Econofuture Fund, discussed structured finance in the aftermath of the global financial crisis. He pointed out that following some abstract models that calculated the risk in particular structured finance instruments was risky, and that this was still a danger for the global economy. Among the additional pitfalls of such a financial system, Govaerts focused on the issue of off-balance sheet transactions, and demonstrated how, without the “key element of ‘trust’”, this was fraught with risk. He also stressed that leverage, which caused widespread damage following the financial crisis, had returned to the global financial arena.
Botswana’s projected diamond production from known reserves would continue to be at or above the highs of 2006-2007 until about 2025, and the subsequent decline in existing mine output, may be compensated by some potential new mines as well as ongoing exploration activities. – Dr. Ponatshego H.K.Kedikilwe.
Rough diamond supply will be flat at best over the course of the coming decade as mine production is reaching a plateau and there are no significant new mines on the horizon in the immediate future, barring Zimbabwe over which there is uncertainty – Des Kilalea
The Rough Edges
The next session was focused on rough diamond supply, beginning with an address by Botswana’s Minister of Minerals, Energy and Water Resources, Dr. Ponatshego H.K. Kedikilwe. He stated that Botswana’s projected diamond production from known reserves would continue to be at or above the highs of 2006-2007 until about 2025, and the subsequent decline in existing mine output, may be compensated by some potential new mines as well as ongoing exploration activities, where 434 out of the 1,369 licensees prospected for diamonds in 2010. He concluded by saying that the current guiding principle for his government was that it maximizes the economic benefits from its diamond resources through value adding activities, the creation of employment opportunities and the stimulation of private sector investment.
Presenting the Russian perspective, Leonid Tolpheznikov, director of the Analytical Centre at Alrosa, said that mining giant was in the process of being converted into an Open Joint Stock company, and that plans and perspectives till 2018 had been drawn up. The new format would ensure greater transparency and accountability for Alrosa shareholders. Alrosa’s executive board recently approved its work programme through to 2018, and he said that the company forecast sales of $31.7 billion between 2011 and 2018.
Jean-Marc Lieberherr, the general manager of Rio Tinto Diamonds stressed that the diamond industry continues to lag behind other industries in marketing, and there was an urgent need to establish some pan-industry body to drive longterm generic demand for diamond products. Mining companies would need to study the relationship between diamond supply and diamond demand, while drawing up plans for new investments in new mines.
Focusing on the distribution systems and bidding mechanism through which his company markets rough diamonds from the Ekati Mine in Canada, Martin Leake, general manager of Diamonds Marketing, at BHP Billiton Diamonds made a presentation entitled “Rough of Choice.” He said that the company aimed to secure the best market price of the day, along with transparency and to be competitive. BHP Billiton sells 90 per cent of its goods from the Ekati mine in Antwerp, with the other 10 percent supplied to cutters and polishers in Canada’s NorthWest Territories where the Ekati mine is located, he said.
Emphasizing that mine production is reaching a plateau and there are no significant new mines on the horizon in the immediate future, barring Zimbabwe over which there is uncertainty, Des Kilalea, an analyst at RBC Capital Markets, noted that rough diamond supply will be flat at best over the course of coming decade. As costs of exploration and investments were high, the picture is not expected to change much. However there was strong demand, especially from newer markets, and this was likely to affect the selling patterns within the industry. According to him, diamonds are one of the commodities for which consumption rises at a late stage in the development cycle, and he suggested that Chinese demand will rise strongly and India would continue to be a driver of sales.
He concluded that selling patterns are bound to change as a result of these factors, and sounded a cautionary note about the ‘myth of rising prices’.
The rough diamond session wrapped up with a panel discussion. Martin Leake said BHP Billiton’s aim was simply to enable its customers to make money by using their expert specialist knowledge. Meanwhile, Dabson said that De Beers was developing its online auction method which complemented its sightholder system. On the issue of tenders, Kilalea said that smaller mining firms were using the method because they found it simpler and received a good price for their diamonds. Jean-Marc Lieberherr, on a question of volatility, said that it made it difficult for customers to plan steady production.
On the evening of the first day, the organisers hosted a Gala Dinner where the audience was addressed by former American Secretary of State Colin Powell.
Changing Consumer Dynamics
The first session of Day Two turned the focus onto the shape of the diamond jewellery consumer markets towards 2020. Speakers commented on technological and social influences, as well as the shift in economic strength from West to East.
John Gerzema, a social theorist and writer about social trends, spoke about the impact of new technologies, particularly the Internet and social networks, the way in which business is done and consumers make purchasing decisions. Based on a study of 18 years of data from Brand Asset Valuator, the world’s largest database of brands, he said that there had been a significant change in the way people make purchase decisions. Between 2005 - 2010, there has been a serious ‘trust decline’ across industries, and people are searching for products and companies that mirror their values and choices.
While attributes that mattered in the past were ‘mysterious’, ‘confident’, ‘sensuous’, today, post the financial crisis, there has been a ‘spend-shift’ and people are looking for ‘kind’, ‘high quality’, ‘socially responsible’ and ‘friendly’ choices.
According to him, this had been the largest shift in buying patterns since 1993. “Marketing is now about actions, not words, and how you connect to consumers,” he commented.
“There are no longer consumers but customers,” Gerzema said. “There is a strategic move to what they want. Capitalism is now about better instead of more. There is a move away from mass-produced goods to products that people want.”
Yuval Atzmon, a Chinese market specialist at McKinsey & Company’s Shanghai office looked at the rapidly growing market for luxury products in China. “People have more disposable income, and a better knowledge of luxury brands,” he said.
There are no longer consumers but customers.There is a strategic move to what they want. Capitalism is now about better instead of more. There is a move away from massproduced goods to products that people want. – John Gerzema
Are young people a different type of human being? Will young people buy jewellery and stocks and the other things their parents buy? Will they believe in the same value system as their parents? These are important questions to ask. - Neil Jacobsohn
Think and when you act, do it faster. Moving faster is always better. We should have been more aggressive. Also, make sure you have the right people at every level. In addition, make sure your people are sharing information relating to your business and that people are not keeping information to themselves. – Varda Shine
Bijou Kurien, the president and chief executive at Lifestyle Reliance Retail, the fast expanding consumer retail division of one of India’s largest corporations, discussed the growing consumer strength of India’s middle class, and looked at the role that diamond jewellery will play in the product mix. “Women are now buying for themselves.,” Kurien explained.
“They are looking for adornment over investment in their jewellery purchases, and they are also more discerning, demanding and knowledgeable. They are looking at design over price and brands over simply products. They want assurance over trust, meaning certificates and national retail chains, since they have become more mobile.”
He noted that this was a big opportunity for the diamond industry. “Diamond jewellery can increase its market share,” but there was a need to increase store penetration especially in the 1 mn+ cities, and to provide the appropriate product mix with higher levels of fashion accessorisation and aspirational positioning, as well as quality assurance, transparency in pricing and customer-centric, design-driven product collections and branding.
During the panel discussion in the luxury goods section of the conference, Gerzema said that although people might see diamonds as nonessential, they were an emotional purchase and thus could easily fit in with spending plans. Meanwhile, Kurien warned that young women do not see jewellery purchases as being at the centre of luxury purchases in the way that their mothers’ generation had seen them. “For the younger generation, the latest cellphone or iPad2 might be more important.”
Taking Stock
The fourth and final session of the conference began with a short address delivered by Cathy Berx, Governor of the Province of Antwerp. “We cannot take it for granted that Antwerp will remain the world’s largest diamond centre despite its 550-year history,” she said.
The session concentrated on the process of managing change, and it began with a presentation by Neil Jacobsohn, a partner in FutureWorld International, a consultancy firm that works with players in both the business community and academia to prepare strategies for the future. “Are young people a different type of human being? Will young people buy jewellery and stocks and the other things their parents buy? Will they believe in the same value system as their parents? These are important questions to ask. We also ask businesses if they can bring about radical change. Business today will not be the same in the future. What is your personal appetite for change?”
Jacobsohn discussed various aspects that are influencing change as we move towards the future including technology (“75 per cent of people now use a mobile phone”), culture (“Your 2020 customers – the Net generation – have new values, new attitudes”), business (“New boundless opportunities as individuals and businesses are smarter and inter-connected”); before outlining “Ten Lessons from the Future”.
Varda Shine, CEO, DTC, joined conference moderator Anish Aggarwal for a one-on-one discussion to summarise issues raised during the conference. She said that she had identified four main themes from the many issues covered at the conference. These were transparency, responsibility, marketing/advertising, and opportunities. Looking to the future of the business, she asked: “How do we understand the consumers of tomorrow? We cannot continue to do what we have been doing for the past 50 years. What are the trends of the future? That is an important issue.”
Asked by Aggarwal what were the lessons that De Beers had learned in the past decade, she said it was important to think much more about the direction of one’s business. “Think and when you act, do it faster. Moving faster is always better. We should have been more aggressive. Also, make sure you have the right people at every level. In addition, make sure your people are sharing information relating to your business and that people are not keeping information to themselves,” she said.
In his final address to the event, AWDC CEO Ari Epstein referred to the limitation of forecasting future developments. “Many of the speakers who have addressed us over the past two days have reiterated that forecasting is an imprecise business, he stated. “And clearly, as the decade progresses there will almost certainly be forces and phenomena that we cannot predict. But on the other hand, there is general agreement about a number of elements that definitely should be considered carefully as we strategise for the future.”
The conference was closed by Ludo Van Campenhout, alderman for urban development, sports and diamond of the City of Antwerp. “The overriding theme of the conference is ‘change,’ and we are talking about change that is instigated by a variety of factors, some of which the industry is able to control, but many of which it cannot,” he stated, before concluding, “But whether you can control change or not is of secondary importance. What is most critical is that you able to adapt to that change.
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