Out of seemingly nowhere, Dubai has created a powerful role for itself in the global diamond industry in just one decade. Stressing its position between African diamond producing states and Asian manufacturing countries, Dubai believes it is making Antwerp increasingly irrelevant. A strong financial backup, strategic geographical location and fast-evolving infrastructure are just some of the reasons behind Dubai’s lead. With the plans to leave behind Botswana and Belgium, the Dubai Diamond Exchange and Dubai’s Multi Commodities Centre have laid out the blueprint for Dubai’s transformation into world’s most important diamond trading hub. To shun its adverse image as smuggle easy country, UAE has already launched a Kimberley Process Certification Scheme (KPCS) in 2003. Diamond World brings you the inside story of Dubai’s speedy ascend as the New Silk Route.

If a new diamond centre were to emerge, it would be reasonable to assume that it would be established in a country with a strong connection to the diamond industry – such as Botswana currently due to it being the largest diamond-producing state by value in the world. Belgium has a more than 500-year history as a diamond trading and manufacturing hub, while New York is the largest gateway to the world’s largest diamond jewellery-consuming state. Meanwhile, Israel is one of the largest trading centers due to its Jewish connections, India is the world’s largest manufacturer due to low labour costs, and China has swiftly become the world’s second-largest diamond consumer as well as an important polishing base. All of these connections to the diamond industry are logical.

How then has Dubai emerged from nowhere to become a significant diamond- trading hub? Its aim has largely been to become an Antwerp in the Persian Gulf, and that has rattled the forces that are in the Belgian diamond centre. How has it gone about that? Largely through the use of financial advantages that are not available to other countries, and particularly not to cash-strapped Antwerp since the global financial crash of 2008 and the global slowdown that followed.

And the results are all too clear: $39 billion of diamonds were traded through Dubai in 2011 compared with $35 billion in 2010. That compares with around $3 billion just 10 years ago. That is still far from Antwerp's $56.5 billion diamond trading turnover in 2011 and even the $52 billion figure for 2012; the figures are nonetheless impressive given the fact that Dubai only started out as a diamond centre a decade ago. In its undeclared battle with Antwerp as the somewhat poor management and mood in the Belgian diamond centre have aided Dubai.

“Frankly, in Antwerp they tend to shoot themselves in the foot a bit," said an Indian diamantaire. "There are so many regulations, and the tax authorities are incredibly strict and insensitive. It's still the leading diamond trading centre because you get goods from all over the world here, but I wouldn't want to gamble that it will always stay like that.”

However, it is not just in diamonds that the DMCC has taken the lead in the jewellery business. Around $70 billion worth of gold was traded through Dubai last year, according to DMCC executive chairman Ahmed Bin Sulayem. He also said that more than 20 per cent of the world’s physical gold was imported and exported through the Emirate. “By building financial and physical infrastructure and developing the right regulation in line with international standards, DMCC has established Dubai as a major bullion centre and a global gateway for commodities trade,” he added.

Benefits of Doing Business in Dubai
Diamond firms enjoy many benefits in Dubai. These include a 50-year tax amnesty with a zero personal and corporate tax rate, to persuade firms to set-up business. And Dubai plays heavily on its geographical location, constantly pointing out that since most of the world’s rough goods come from Africa, and most of those diamonds are polished in India, Dubai's location between the two regions makes it an obvious alternative to further away Antwerp. Although Belgium could not hope to match Dubai’s financial incentives, the tax authorities are seen as being too heavy-handed in raising diamond firms and leaving behind an extremely bitter after-taste. In addition, Belgium’s high tax rates and hostile media coverage are also seen as adding to the poor mood in the city.

Antwerp has also been hit by the decision of the Diamond Trading Company to move its operations to Botswana since the transfer further emphasizes the declining importance of Europe as a whole, and underlines the growing role of Africa in the global industry. “I must say there is a feeling that this is the start of the end of Belgian and European influence,” said a senior manager of a large Belgian company. “I have been involved in the diamond business for just over 30 years and I have never experienced the feeling that we have an Antwerp now. Somehow we gave away our place. We have many advantages here but that is just not what people feel. There is a sort of feeling of decline in the air,” he added.

The Antwerp World Diamond Council last year announced the strategic master plan 2020 aimed at extending Antwerp's role in the global diamond sector. AWDC, which represents some 1,850 trading companies based in the north Belgium port city, said it aimed to create new 4,000 jobs in the sector in Antwerp by 2020. “The position of Antwerp as the world's largest diamond trading centre is going to remain strong for years to come. I do not want to comment on the number of companies that shifted from Antwerp to Dubai, but it is difficult for traders to shift overnight as they have their social and family set up there,” said Meeus, who is also implementing a master plan for Dubai's diamond sector. “Dubai has become the destination of choice for diamond traders in India and Belgium due to its strategic location and tax-free business regime.”

Rohit Mehta, president of Southern Gujarat Chamber of Commerce and Industry, said, “Dubai is a promising destination for diamond trading companies as it offers tax-free environment and is strategically located. It is a gateway to African countries including Botswana and thus many Indian companies are vying for space in Dubai.” And Gipesh Babavia of Super Jewels in Dubai said that doing business in the emirate was safe and secure. “It's a good place for business to be located.”

First Dubai Diamond Conference Stresses Silk Route History
The Dubai Diamond Conference 2013 in March further underlined the changing environment of the world’s diamond industry. It also played on the idea of Dubai as the new Silk Route, the legendary path travelled by traders from China to Europe centuries ago.

The opening speeches at the conference showed that that Dubai's aim is to replace Antwerp as the leading rough diamond center. As DMCC Executive Chairman Ahmed Bin Sulayem said, “The global diamond industry is no longer dominated by Western countries.” Dubai Diamond Exchange Chairman Peter Meeus rubbed that in in a review of Dubai's growth over the past few years, by showing the audience an article from a leading Belgian newspaper that described the decline of Antwerp as a trading center. “Dubai is ideally positioned, geographically and operationally to serve a pivotal role in this ever-changing landscape. We are truly at the centre of the 'New Silk Road' and will bring it to its full potential,” said Meeus.

The DTC's transfer to Botswana and Africa being the main source of rough diamonds, along with India and China polishing most of the world's rough diamonds, makes Dubai ideal for producers and manufacturers. And if that is the case, then what role does Antwerp play was the question that was left hanging in the air. “With Southern Africa becoming a global rough diamond trading hub, there will be tremendous opportunities for players in the diamond supply pipeline. As such, the development of new trade routes is likely to continue, as increased demand from Asian markets is expected,” said DTC CEO Varda Shine. "Dubai has shown remarkable resilience in grasping these opportunities."

Smuggling is Tarnishing Dubai's Image
In a smart move, one of the first steps the DMCC took was to apply for membership of the Kimberley Process Certification Scheme (KPCS) in a step aimed at illustrating the emirate’s commitment to ethical and transparent trading. The KPCS was launched in the UAE in 2003, and the DMCC is the only legal entry and exit point for rough diamonds in the UAE. Growth in the number of Kimberley Process (KP) certificates is expected to increase by 33 per cent this year alone.

However, Dubai has been somewhat battered by the continuous flow of news articles reporting attempts to smuggle diamonds in and out of the country. Among these incidents was that of a man traveling to Moscow from Dubai who was stopped at Sheremetyevo airport after failing to declare some 26,000 diamonds, worth at least $162,000, that he was carrying in transparent plastic bags in his hand luggage.

As a result, security is to be strengthened at Dubai International Airport in a bid to curb the activity of smugglers. Dubai Airport handled record 51 million passengers last year, but expansion plans are likely to increase its capacity to 90 million by 2018. "We are constantly reviewing our security measures in accordance with international best practice," said Maryam Al Hashemi, the director of UAE's Kimberley Process.

“With this growth in mind, we held a working group including Dubai police and Dubai Customs to discuss various initiatives to boost security by checking and apprehending passengers, prior to boarding, on suspicion of carrying non-KP approved rough diamonds,” she said. Meanwhile, Ahmad bin Thani, the director general of the Department of Airport Security in the Dubai police, said, “We are considering various options and have also put into practice several initiatives to meet attempted smuggling.”

Diamond Tenders Attracting Buyers to Dubai
The Dubai Diamond Exchange (DDE) is not standing still, reporting earlier this year soaring activity. “Dubai’s location at the center of the ‘New Silk Route,’ between producing and consuming countries, has made it an appealing choice for traders,” said Franco Bosoni, the director of the DMCC’s Commodity Services. He said the rise in activity is a result of the increasing competitiveness of Dubai and the growing strength of the market. “It allows traders to save time and money which they can use to view and buy diamonds locally.”

The DDE has held 10 diamond auctions this year, after starting rough diamond tenders last year. Consequently, they have expanded to a full calendar of tenders this year, with rough diamonds from West Africa, Tanzania, Congo, Zimbabwe and Russia.

Furthermore, Fusion Alternatives together with I. Hennig & Co. has widened its international diamond tender business with the launch of operations in Dubai. The company’s initial diamond tender took place May 5th to May 8th and featured a selection of polished – from melee to large stones.

In the first half of 2013, 32.4 million carats of rough stones were imported to Dubai with an average price per carat of $77.16, a seven per cent increase on the year, and 34 million carats of rough stones were exported from Dubai, a 12 per cent increase, with a value of $3.7 billion, a three per cent increase. The average price per carat of rough diamonds exported from Dubai during the first half of 2013 was $108.82, a decrease of eight per cent on the year. Taking imports and exports together, the volume of Dubai's rough diamond trade in the first half of this year surged 11 per cent to 66.4 million carats and was worth $6.2 billion, five per cent more than the year-earlier period.

DDE Opens Diamond Office
Dubai announced in July that is to open a diamond office to provide a way of accurately monitoring the value of its trade in polished stones. The Diamond Control Office will be opened under the aegis of the Dubai Multi Commodities Centre (DMCC) by the end of 2013. The decision to open the office is seen as a means of aiding the emirate in attracting further financing for its diamond industry.

The office at the DMCC’s Dubai Diamond Exchange will enable a more comprehensive valuation of the precious stones moving through, and win the confidence of major financial institutions as Dubai aims for a larger portion of the global diamond trade as it moves east.

“We are basically going to establish a special diamond control office for polished diamonds - which will mean that in the future that all polished diamonds will have one point of entry,” said Dubai Diamond Exchange Chairman Peter Meeus. A similar system already exists to monitor the trade in rough diamonds through the UAE via its Kimberley Process office. The addition of a new office to certify the trade in polished stones promises to insert Dubai into global diamond trade twice, channeling rough diamonds for cutting and polishing in China and India and then serving as a base for moving the polished gems to markets around the world.

“We are basically going to the next stage in Dubai with regards to the development of our diamond business,” Meeus explained. “Because if millions of diamonds, big and small, are coming in you need a dedicated office that can value them properly. And on the basis of that valuation, banks actually extend credit.”

He said the opening of the new office before the end of the year will mean the “proper valuation of what comes in and what goes out”. The emirate’s expanding capabilities come at a time of a “huge shift” in the global diamond trade, he commented. The Diamond Trading Company is transferring its operations to Botswana from London in a move that is likely to have “huge" consequences for Dubai, Meeus said.

Dubai Expansion Continues Apace
In line with its robust and dynamic character, Dubai is not standing still. Although the Almas (Diamond) Tower in Dubai is the tallest commercial tower in the Middle East, in the coming years it will be dwarfed due to plans to construct the world’s tallest commercial tower as part of the Dubai Multi Commodities Centre’s (DMCC) 107,000 square meter business park expansion plan.

"When we announced the plans to build Almas Tower in 2002, the Middle East's tallest commercial tower and DMCC's headquarters, the entire office space across 63 floors sold out to DMCC end users, mostly in the diamond business, in just a few hours,” said Ahmed Bin Sulayem, executive chairman of DMCC.

“The world's tallest commercial tower and the DMCC Business Park are the next natural steps to ensure we continue to welcome companies to the free zone as demand grows. The initiative is designed to further strengthen Dubai's position as the global hub for commodities trade and enterprise,” he added.

The business park and tower, now in the concept stage, will provide space for large corporations and multi-nationals that require significant floor space to buy or rent. Bin Sulayem said that since 2009 DMCC has attracted more than 4,000 new companies to the Free Zone – 90 percent of which are new to Dubai. “In 2013 we accelerated this growth, with an average of 200 new companies joining DMCC every single month. This increased demand further demonstrates not only the confidence in DMCC and Dubai, but also underlines the need for new commercial space."