The End of 350 Years of London’s Distribution Hegemony
May 03, 07In the history of any industry, there are those rare defining moments, - events so significant that one can only fully comprehend their importance many years after they occur. One rarely gets a sense of being part of history in the making. We have written already in this column that we expect that after 2008/09 there will no longer be any Diamond Trading Company rough sales or sorting activity in London. Most of the remaining DTC staff will be marketing people, reporting (most likely) to Steve Lussier of the De Beers’ marketing department.
It is worthwhile to reflect on the current developments from a historical perspective. Though the ancient diamond trade from India to Europe and the Middle East has, at various times, followed different routes involving Portugal, Antwerp, and other cities, since about 1655, the world’s center of rough diamond distribution has been London.
Resolutions dated 1684, from the archives of the Court of Directors of the East India Companies, note that the centralization of the diamond trade in the hands of English merchants had, by that time, become a fait accompli. Around 1655, the private diamond trade in England had become legalized, and I would arbitrarily select this period as the beginning of London’s uninterrupted reign of dominance in the worldwide distribution of rough diamonds.
Indeed, the Act of Parliament of 1732 which abolished customs duties on diamonds and other precious stones, opened with a description of England’s paramount position in the trade: “Whereas this Kingdom is now become the great mart for diamonds and other precious stones and jewels, from whence most foreign countries are supplied.”
Now, after having served over 350 years as the distribution center for rough diamonds, a few visionary diamond industry and government leaders have set in motion a process – or were caught in a process - which moves the distribution of rough diamonds back to producer countries. Historically, the European cutting centers received rough produced in India, Brazil, or Africa, either solely or mostly via London. During World War II, the Belgian government-in-exile made a deal with De Beers promising it that, after the war, Congo production would continue to come to London, against a De Beers promise of rebuilding the post-war Antwerp trade and industry.
Historically, De Beers marketed most of its output (more than 40 percent for as long as I can remember) through Belgium – irrespective of the state of the domestic manufacturing industry. All of this will change now.
At last week’s Mine to Market conference in Mumbai, I graphically illustrated this revolution through three pictures. The first shows the construction of the DTC Botswana building near Gaborone airport, which will become operational at the end of this year. It stands adjacent to the new building of Debswana - by value the largest diamond mining company in the world.
But, maybe, a far more dramatic picture is the De Beers “big hole”. No, with “big hole” I wasn’t referring to the Kimberley Mine, but rather Charterhouse Street in London, where, until recently, the sorting of the world’s diamond production and Sight aggregation took place. The building has been torn down. Some of us have already forgotten about the connecting bridge over the road.
London is voluntarily relinquishing its historical role, moving away from a centralized supply-controlled distribution and toward a more competitive demand-driven diamond market. It is part of a transformation that gives the industry everything it wants and, regrettably, also what it doesn’t. It represents a mixture of hope, promise, and opportunities – alongside considerable pain, redundancies, and bankruptcies, which are passing through uncharted territory with unproven strategies. The transformation of an entire industry within a very short time is an enormous challenge that needs the input – and the benefit of the collective thinking and vision of all stakeholders.
London’s voluntary relinquishment of its distribution role represents more than a market strategy. It also heralds the end of the colonial policies which view producer countries merely as exporters of their valuable commodities – denying them the right to self-determination in terms of the uses of their nations’ mineral wealth.
The main African producers and, I should add, Russia, must make choices and define their own national, economic, and social interests. There is no other mineral or precious metal commodity in the world where those who hold the economic controls over production have made such a massive commitment to beneficiation in the producer countries.
The historical polices of the diamond distributors have consistently resisted beneficiation in Africa on mostly economic grounds. When pressured, they supported token operations – which were not often very successful. I hope that I speak on behalf of all of us when I say that African governments must be wholeheartedly supported in fulfilling their beneficiation aspirations. It is not a zero-sum game. Nobody will benefit from their failure. We must all help them succeed.
In an industry marked by geographic shifts and changes, there is really only one country that seems immune to all of this - India. It is India where diamond production and trade began. Surat was already a trading center in the 16th century, well before diamonds had reached London. India is probably also the only diamond manufacturing center which will not be impacted by beneficiation in Africa. To the contrary, India and African manufacturing centers will become complementary – they will work together and prove once more that one and one can make more than two.
India was in diamonds hundreds of years before a single diamond was discovered in Africa. Today, De Beers and other producers are once again exploring for diamonds in India. Of the global DTC trade, some 33 percent of sales are made directly to India. Of the 97 global DTC Sightholders, 37 are based in India. While Diamdels in other trading countries will decline to merely symbolic presences, if anything at all, the Indian equivalent (the 50:50 joint venture with the government called the Hindustan Diamond Company), which currently serves 238 small and medium size non-sightholder manufacturing companies, is set to expand. Africa will supply India and the other cutting centers of what is left – of what is not for local consumption.
London, as the home of the historical rough diamond syndicates, will shortly become history. After 350 years – it will shortly be over.
Have a nice weekend.