British Government Loan Guarantees to Assist Diamond Sector in Crisis
July 23, 09During crisis periods, governments in diamond cutting centers, (including in the so-called “beneficiation” countries,) contemplate their options when assisting manufacturers on the micro/macro levels. Presently, government loan guarantees are being considered by a number of centers. Now question rises, how does one structure a loan program and how do governments minimize the risks should they actually have to cover payment for their guarantees. Of course all this depends if successful diamond plants can be established using guaranteed government loans as part of the beneficiation efforts.
Sometimes the best answers can be found using precedent. One of the more intriguing diamond industry loan guarantee programs has been extensively debated in the British government. The C
On July 20, the Minister of Labor, referring to a specific diamond factory needing a bailout, advised the C
And on July 23, the British Parliament was presented with a draft National Diamond Factory (Guarantee Agreement) Act, 1923. That was today, exactly 76 years ago! How little have things changed (£150,000 in 1923 terms has an equivalent purchasing power equal to £1.89 million today).
The proposed Act of Parliament was aimed at rescuing the National Diamond Factory (Bernard Oppenheimer) Ltd., a large diamond plant located on Lewis and Coombe roads, Brighton, , not far from London. Sir Bernard Oppenheimer, of course was a brother of Ernest Oppenheimer, the grandfather of present De Beers Chairman Nicky Oppenheimer.
Sir Bernard Oppenheimer established the factory in 1918, paid for by Oppenheimer himself and by the diamond brokerage Lewis & Marks, where he was the managing director. In 1920, the National Diamond Factory opened branches in
The diamond factory struggled and never earned a single penny. In 1921 Oppenheimer passed away, and soon after the company was placed into liquidation. At the very last moment several Dutch buyers were found – who promised to purchase and operate the factory based on assurances of massive British government assistance. In 1922-1924,
Labor Minister, Sir Anderson Montague-Barlow told his fellow parliamentarians, as a background, that “Sir Bernard Oppenheimer and his partners, Lewis and Marks, during the War [World War I] started this factory. They founded the factory for two purposes. First of all, that it might be of assistance to the dis
“Buildings were constructed and are very elaborate,” continued the minister. “They are fitted with the most modern appliances for the purpose of carrying on this work of diamond cutting. Not only that, they have convenience and opportunities for dealing with the dis
“The dis
“Managers and instructors were obtained from
"Diamond Manufacturing in
As in any beneficiation country, British parliamentarians were skeptical and wondered whether the newly trained workers would able to produce efficiently on an internationally competitive basis. In 1923,
“You have some 250 ex-service men who have been trained in a lucrative employment and who are now thrown out of work,” the minister went on.
Then Sir Anderson Montague-Barlow gave the reasons leading to the government decision: (1) if the factory were to be closed down the training of 250 men already taught would be lost; (2) the men would need to be trained for a different occupation, costing around £40,000, and even when the men were trained there would then be no guarantee of employment; and (3) there was the point of securing the men with employment and at the same time est
A member of the Labor opposition, Mr. Lyle-Samuel, took strong issue with Minister Barlow, accusing him of using the employment of dis
Another Member of Parliament, Mr. A. Hopkinson, argued “the real question was, whether the slump in the diamond market was temporary or likely to be permanent.” Lyle-Samuel replied “I really do not think that is the question at all. If the diamond market should recover, it is still true that the records of the company owning the factory at
Lyle-Samuel went on, “We would then have the government free from this interference with trade, trade which is not on a commercial basis, trade which they have no Ministers or officials to conduct, trade which they can give us no evidence will be a success. This large sum of money is the last —perhaps it would be too optimistic to say the last — the latest instance of a contribution from our national resources to the many millions spent similarly, the record of which in our history is deplorable.”
Will the Industry Recover From the Crisis?
Once again, the point was raised about the expected crisis length in the diamond industry. One British parliamentarian asserted, “Everything in this case depends on one thing, whether this diamond trade is undergoing a temporary slump or whether the slump will continue, as it prob
He continued, “As many Honor
Montague Barlow went on to explain the deal; “Messrs. Lewis and Marks are to provide the premises, plant, etc., free of all encumbrances, and a sum of £100,000 — £50,000 in cash forthwith and £50,000 when called upon, and guaranteed meanwhile by a bank accept
A Member of Parliament then asked about the securities for the government guarantee.
“There is the first charge on the building. It is provided that the whole of the £100,000 is working capital and none of it is avail
Then one parliamentarian asked, “Is there any reason to suppose that any profit of any sort will be made on the present transaction? Who are the gentlemen who are to have this large sum of money? We know Sir Bernard Oppenheimer was a gentleman of strong philanthropic energy, and he tried to make a success of it. It was very largely the failure of this great scheme of his that actually accelerated his death. But who are Messrs. Lewis and Marks? Is their record the same as that of Sir Bernard Oppenheimer? Have they shown throughout their lives the high degree of public spirit and desire to benefit their fellow men? I think these things might very well be inquired into and that opinion might be got, not only from the Trade Facilities Committee, but from the city and elsewhere. I hope the taxpayers' money will be protected from wild-cat schemes developed by semi-Socialistic Ministers in this House.”
Assisting Diamantaires: Not a Popular Cause
“Of all the fantastic schemes produced from the Treasury Bench this is really the reduction ad
When governments contemplate assisting value-creating manufacturing sectors, it shouldn’t make much difference whether it involves automobiles, shoes, air-conditioners or diamonds. But, because of the nature of the product, it apparently does make a difference. British parliamentarians failed to understand why the private sector could not find the solutions – if, indeed, the business was good.
Said one parliamentarian, “Lewis and Marks are one of the leading firms in the world. Does anyone suggest that they are in such indigent circumstances, or so baffled and harassed by their bankers, that they could not raise any resources necessary for this purpose? If this were a business and a business proposition the proposal would have come from Messrs. Lewis and Marks on their own to purchase the factory and run a profit
Guarantees: A Story without a Happy End
In our research at the British National Archives in Kent we found a another protocol of a British c
The Cabinet had to decide would they would proceed and push the bill or not. A decision was of some urgency, as Messrs Lewis & Marks were employing ex-servicemen in the b
The only other relevant document are the minutes of a British cabinet session where the ministers wonder if the government gave a loan guarantee to a factory, with what certainty could the government ascertain that the factory would indeed have access to rough supplies.
Thus His Majesty’s government instructed the minister of labor to obtain “further information on whether it could be possible to arrange with the Rough Diamond Syndicate for a regular supply of rough diamonds; or that a certain number of orders for the cutting of diamonds should in future be guaranteed to the factory.” Indeed, assurances for rough supplies were provided.
Regardless, in 1924 the National Diamond Factory closed down. Apparently, during World War II, when many Dutch and Belgian diamantaires fled to
The lower part of
Quite a story to chew on over the weekend.