Международный журнал 'Алмазы и Золото'

By Tatyana Pototskaya, expert market analyst

The Middle Eastern regional consumer diamond jewelry market has been carefully studied by analysts such as Chaim Even-Zohar, who have compiled regional statistics on the “diamond pipeline.” The first task is to define the market geographically. Traditionally, the Middle East is considered to consist of 14 countries in Southwest Asia. These are listed in Table 1, with the exception of Israel, which will not be analyzed in this article for two reasons: First, Israel’s diamond industry is a separate segment unto itself and is not comparable in size or structure to the retail diamond trade of the other countries in the region, and second, the political problems arising from the Arab-Israeli conflict make it impossible to regard Israel’s domestic consumer market as part of an integrated regional market.

Most often, analysts of the Middle Eastern diamond market are really talking about an even smaller group of “Gulf” countries, which excludes such large countries as Iran and Iraq, even though they do have a Persian Gulf coastline.

In this article, we have divided the Middle Eastern countries into two groups: Gulf countries (which are boldfaced and in the upper rows of the table) and all the rest. This division makes sense, because the Gulf countries are similar in their socioeconomic characteristics. Researchers call this type of country “pseudo-developed.” This drastically narrowed definition of the Middle East narrows the size of the regional market to the point that it is most comparable to a single national market, for example that of Spain. In some respects, this is an unattractive commodity market, despite the relatively high purchasing capacity of the population (average per capita GDP: .000). Looking at the broader Middle East, the population totals 250 million but the per capita GDP is much lower, at ,000.

Table 1

Basic indicators of the Middle Eastern markets, 2005*

Countries	Population	Per capita GDP (U.S. $)
Gulf countries
Qatar	651,000	,500
United Arab Emirates	3,181,000	,000
Kuwait	2,495,000	,500
Bahrain	739,000	,000
Saudi Arabia	24,000,000	,000
Oman	2,700,000	,200
Total	33,766,000	,867
Other Middle Eastern countries
Turkey	72,636,000	,600
Iran	67,468,000	,500
Lebanon	4,610,000	,300
Jordan	5,567,000	,600
Syria	18,881,000	,500
Yemen	20,370,000	0
Iraq	25,861,000	No data
Total region	249,159,000	,877

* Source: World Bank World Development Indicators Database, July 15, 2005.

The Gulf countries are developing countries that support a high standard of living for their citizens due to the profits of oil exports; however, these countries do not have well-developed, diversified economies.

In order to define the place occupied by the Middle East in the world diamond market, it is necessary to specify the region’s unique characteristics, which make it a unique diamond market. In our opinion, the first thing to consider is the great consumer potential of this market based on its significant capacity and constant growth, as well as the existence of a highly developed culture of jewelry manufacturing and consumption in the region. The Middle East’s rapidly developing domestic jewelry industry consumes loose polished diamonds worth about billion annually, a figure comparable to Japan. In 2005, the Middle East consumed .91 billion of polished diamonds, 11 percent of world diamond sales, which put the region in third place after the United States and the Asia-Pacific region. The Middle Eastern diamond market’s 10 percent growth rate was the second highest in the world in 2005; only the Asia-Pacific consumer diamond market is growing faster, and the United States and Europe have definitely fallen behind. The Gulf countries buy fully half of the diamonds consumed in the Middle East (i.e. about billion worth a year). It should be noted that the different countries in the region have varying demands for different types of diamonds. In the Gulf countries, high-quality diamonds in all weight categories are in demand, with a slight preference for stones weighing less than 0.07 carats. In other Middle Eastern countries (primarily those with significant jewelry industries, meaning Turkey and Iran), small diamonds of less than 0.07 carats are in the greatest demand, and there is less demand for caraters. This difference is explained by the different purchasing abilities of the populations in these countries.

In the modern global market for diamond jewelry, the Middle East as a whole is not only one of the main jewelry manufacturers; it is also a significant consumer market, alongside the traditional market leaders of the United States, Japan and the Asia-Pacific region. The Middle East annually consumes .15 billion worth of diamond jewelry, 7 percent of the world total. Moreover, the Middle Eastern jewelry market leads the world in its rate of growth (12 percent in 2005), significantly outpacing both the United States and the Asia-Pacific region. Here too, the Gulf countries make up half of the Middle Eastern diamond jewelry market. Due to favorable trade legislation, the Gulf jewelry market has an even higher rate of growth than that of other Middle Eastern countries. Another stimulant to this exuberantly growing market is the many international trade events held in the region. Six of the nine international jewelry exhibitions and trade shows held in the Middle East exhibitions take place in the Gulf countries—five in the United Arab Emirates (UAE) and one in Bahrain. Thus, the diamond market of the Persian gulf countries serves as an intermediary for the rest of the Middle East, due to its favorable tax rates and legislation, which makes this region attractive to foreign diamond dealers.

Since the Persian Gulf countries are both important consumer markets and major trading centers for the rest of the region, companies seeking to penetrate these markets need different marketing strategies. The characteristics of domestic consumers in these markets require special attention from the jewelry industry. It is obvious that the Persian Gulf countries are very different from the rest of the Middle East, notwithstanding the fact that each sub-region consumes roughly the same quantity of diamond jewelry a year (about billion each). The two sub-regions are on different levels of socioeconomic development and thus are different in their demand for these goods. The Gulf countries, according to De Beers, are characterized by their consumption of high-end diamond jewelry, with the average cost of a single piece sold in the area running at about ,500. Saudi Arabia has the biggest and fastest-growing market in the region. This country alone is responsible for 4 percent of world consumption of diamonds, some 7 million annually, and 2.2 percent of world consumption of diamond jewelry, .374 billion annually. However, it should be noted that more than 52 percent of the diamond jewelry sold in Saudi Arabia is bought by foreign citizens, according to AC Nielsen. Saudi Arabia has seen a sharp increase of 5 to 10 percent a year in sales of diamond jewelry over the last five years, alongside a sharp decrease in sales of the gold jewelry that was traditionally popular in the area. In 2000, sales of gold jewelry in Saudi Arabia inched up 1 percent, but in 2002 sales declined 15 percent.

Turkey, which is representative of the non-Gulf Middle Eastern countries, consumes 2 percent of the polished diamonds available on the world market each year—0 million worth—and is responsible for 1 percent of the world market in diamond jewelry—0 million annually. Inexpensive goods are in the highest demand there—the average price of a piece of jewelry is just 0.

In sum, we can say that the intermediary trading characteristics of the Gulf countries are the most attractive for diamond dealers in the Middle East. To prosper there, however, it is necessary for firms new to the region to have a direct line to manufacturers of rough and polished diamonds, as in such well-known diamond trading centers as London or Antwerp. But this seems to be a problem for diamond dealers in the Gulf countries. Thirty-seven percent of the diamond supply in the region in value terms comes directly from the producing countries, and 49 percent from the world diamond trading centers in Antwerp and elsewhere. Thus, the intermediary trading characteristics of the region are critical to the evolution of the Middle Eastern diamond market, and are worth examining in detail.

Most foreign trade in the UAE is carried on in specially created free trade zones. There are 15 of them in the country, the most important of which is at Jebel Ali, Dubai. This locale plays the role of a gateway to the Arabian peninsula, serving as headquarters for 5,000 companies, 2,300 of them foreign. Jebel Ali receives billion in foreign investment and does billion of export business annually. UAE law allows 100 percent foreign-owned companies to exist in the free trade zones. There, such firms are exempt from all import duties and corporate taxes for 50 years. In these zones, there are no restrictions on migration of capital and profits, management provides high-level administrative support and licensing requirements are minimal. Owners of foreign companies and their employees can easily obtain employment and residency visas. These attractive features have stimulated the trade in precious metals and precious stones in the free trade zones. At Jebel Ali, a specialized industrial park called the “Park of Gold and Diamonds” was established in 2001.

It should be noted, however, that gold jewelry enjoys a special status throughout the UAE, and not just in the free trade zones. No import duties or VAT are imposed on gold jewelry in the UAE, so very large volumes of gold jewelry can be sold at reasonable prices. The international trade in gold, diamonds, precious stones and jewelry in Dubai is organized through the Dubai Multi Commodities Centre (DMCC), the parent company of the Dubai Diamond Exchange, which became a member of the World Federation of Diamond Bourses (WFDB) in 2004. The DMCC counts as members 800 local and international companies in various sectors. The Dubai Diamond Exchange serves a center for the international trade in both rough and polished diamonds in Dubai, which makes the UAE a significant player in the world diamond market. The statistics are impressive:

The UAE holds fifth place in the world as a direct importer of rough diamonds, following India, Belgium, the United Kingdom and Israel. The UAE’s proportion of this segment of the diamond market is rapidly rising, from 2 percent in 2003 to 5 percent in 2005;
The UAE is the fourth largest secondary exporter of rough diamonds, behind Belgium, the United Kingdom and Israel. The UAE’s proportion of this segment of the diamond market is rapidly rising as well, from 7 percent in 2003 to 11 percent in 2005;
The UAE’s position in the polished diamond market is even more significant. In 2005, the country held third place as an importer of polished diamonds, having caught up with Israel, India and Hong Kong and overtaking Japan, one of the universally recognized leaders in consumption of polished stones. The UAE’s proportion of this segment of the diamond market was 10 percent in 2005, compared to 2 percent in 2003;
The most important changes have occurred in the position of the UAE as an exporter of polished diamonds. In 2003, the UAE controlled only 1 percent of the world market, but by 2005 it was responsible for 8 percent;
Since there is no diamond polishing industry in the UAE, the quality of the rough diamonds it imports is not crucial. The average value of imported rough diamonds compared to those exported from the country is per carat and per carat, respectively;
Unlike rough diamonds, polished diamonds are crucial to the UAE’s domestic diamond jewelry market. Thus, a significant proportion of the polished diamonds imported into Dubai remains in the country: 5 million, about 16 percent. However, in spite of the high average price of diamond jewelry sold in the UAE—,530 per carat (in which the UAE is surpassed only by Thailand and Taiwan) and the high average diamond content (50 percent), the average value of the polished diamonds the UAE imports is not very high—0 per carat. Either the statistics are wrong, which would not be surprising in a developing market, or there is a considerable gray market for polished diamonds, a point on which Belgium’s Diamond High Council (HRD) recently criticized the UAE. The average price of the polished stones the country exports is also relatively low—2 per carat, the lowest among all major exporters of polished diamonds. Even India has a higher average value in polished exports, at 0 per carat. Still, this is natural for a country that does not have a diamond polishing industry.

Thus, it is possible to conclude that the UAE, unlike the traditional leaders of the world diamond trade (Belgium, India, Israel, the United States and Japan) is a relatively new player on the market. Official recordkeeping began only in 2003. Also, the UAE’s diamond trade has a high rate of growth, which one can safely assume will lead to further strengthening of the country’s position in the world diamond market. Second, although the UAE’s government has fostered the diamond trade with the stated purpose of creating new industry, specifically a diamond polishing sector, the country is still playing an intermediary role in the rough and polished diamond trade (more so in the polished diamond sector than in the rough diamond sector).

It is worth doing a detailed analysis of the UAE’s external trade in rough and polished stones. The statistics make it possible to draw the following conclusions. First, the UAE exports almost twice as many rough diamonds as it imports (.2 billion versus .4 billion in 2005), which, since the country has no diamond mines of its own, is curious to say the least. This may mean the UAE is a major center for speculators in polished goods, which seems to be confirmed by the gap between the average value of imported and exported rough diamonds— per carat and per carat, respectively. Alternatively, the official information on the rough diamond trade may be deficient, as many foreign analysts have remarked.

Место ОАЭ в международной торговле алмазами - 2005г.

The volume of the UAE’s international trade in diamonds has been growing at a rapid clip, with imports slightly outpacing exports. In 2005, diamond imports grew 68 percent in value terms and 30 percent in weight terms, while diamond exports increased 35 percent in value terms and 19 percent in weight terms. The average cost of diamonds has also been rising. In 2005, prices of imported stones rose 29 percent, while prices of stones exported from the UAE rose 13 percent.

Second, this rapidly growing national diamond market requires the services of gemologists. Several leading international gem labs are trying to fill this need by running training courses in the UAE. HRD and the International Gemological Institute (IGI) have been working in the country since 2003. In 2007, the Gemological Institute of America (GIA) will join them.

Third, the main sources of diamonds for the UAE are the traditional trading centers, which supply 49 percent of the country’s imports in value terms: the European Community, mostly Belgium (28 percent), as well as Switzerland (19 percent) and the United States (3 percent). Another major source of diamonds for the UAE is the diamond mining countries, which supply 37 percent of total imports. The two largest suppliers are Angola (20 percent) and the Democratic Republic of Congo (9 percent). Other sources are countries that specialize in polished diamonds (14 percent of imports): India, Russia and South Africa are the leading players here. It is no wonder that the DTC has opened an office in Dubai.

Fourth, the most expensive diamonds in the UAE are imported from South Africa (3 per carat), Angola (7 per carat), Sierra Leone (4 per carat), Guyana (5 per carat) and Namibia (2 per carat), while the cheapest come from India ( per carat) and Brazil ( per carat). The average cost of diamonds imported from Russia is not much higher: per carat.

Fifth, the main recipients of diamonds exported from the UAE are the traditional diamond dealing centers. They take up 71 percent of diamond exports in value terms: the European Union (53 percent), Switzerland (18 percent) and the United States (1 percent). Countries that are major centers of diamond polishing take up the remaining 28 percent of the UAE’s diamond exports: India (19 percent), China (8 percent), South Africa, Thailand, Armenia and Belarus.

Sixthly, the most expensive diamonds from the UAE go to the United States (6 per carat), Armenia (4 per carat), Tanzania (4 per carat), South Africa (6 per carat) and Sierra Leone (4 per carat). The cheapest diamonds go to the Democratic Republic of Congo ( per carat) and India ( per carat).

Table 2

UAE foreign trade in rough and polished diamonds*

	Indicators	Units of measure	2003	2004	% change	2005	% change
Rough diamond import	weight	millions of carats	31.3	28.2	-10%	36.9	+31%
	cost	$ million	582.6	883.9	+51%	1,484.7	+68%
	average cost	$/carat	18.6	31.3	+68%	40.1	+29%
Rough diamond export	weight	millions of carats	30.1	28.6	-5%	34.2	+19%
	cost	$ million	1,132.6	1,668.9	+47%	2,248.9	+35%
	average cost	$/carat	37.5	58.2	+55%	65.6	+13%
Polished diamond import	weight	millions of carats	5.8	4.7	-19%	29.1	+519%
	cost	$ million	596.2	858.1	+44%	3,743.2	+336%
	average cost	$/carat	101.1	179.8	+77%	129.0	-29%
Polished diamond export	weight	millions of carats	2.3	2.3	0%	27.8	+1,108%
	cost	$ million	350.6	391.6	+12%	3,118.4	+669%
	average cost	$/carat	146.6	169.9	+16%	112.1	-44%

* Sources: Dubai 2004 Rough export/import, from Diamond Intelligence Briefs 2005, No. 435; Chaim Even-Zohar. Dubai: World Premier Diamond // Diamond Intelligence Briefs 2006, No. 460.

It should be noted that in contrast to diamond imports, which are stable and have hardly changed in recent years, the UAE’s diamond exports constantly change. Countries that used to be the leading diamond trading partners of the UAE have fallen behind, while some that used to be lower on the list have risen to the top. This kind of change is usually characteristic of new kinds of business activity in a country and testifies to the lack of saturation of the commodity in question.

While the UAE has collected and published export/import information about rough diamonds for several years, it began to provide data on polished diamonds only in 2005. These new figures show that the country initially was mainly concerned with the rough diamond trade (table 2). But subsequently, the polished trade took center stage. In 2005, the total volume of the UAE’s foreign trade in polished diamonds was .8 billion, compared to .7 billion for rough diamonds. The disparate growth rates in the UAE’s rough and polished diamond trade further underscore the point. In 2005, the volume of polished diamond imports grew fourfold in value terms over 2004, while in weight terms the growth was greater than fivefold. However, the average cost of polished diamonds imported into the UAE dropped 29 percent to 0 per carat. The volume of polished diamond exports grew more than sevenfold in value terms and more than twelvefold in weight terms, though this was also accompanied by a decrease in average price—a drop of 44 percent, to 2 per carat. Of course, such rapid growth cannot be sustained for very long, and these astonishing figures do not prove that the market has a very large capacity, but merely that it is in its initial stages of development. It is no wonder that 35 De Beers sightholders started activities in Dubai in this period, and by 2006, seven of them were already members of the DMCC: AMC (Belgium), Rosy Blue (India, Belgium), Leo Schachter Diamonds (Israel, United States), Suresh Company (India), K. Girdharlal (India), S. Vinodhkumar (India) and Suresh Brothers (India). Many of these companies are not just dealerships; they are trying to create an industrial base of diamond polishing and jewelry manufacturing plants, and then a retail trading network (as, for example, Rosy Blue has done).

In contrast to the situation with the rough trade, the UAE’s polished diamond trade is characterized by the prevalence of imports over exports (.7 billion versus .1 billion, respectively). This polished diamond trade deficit reveals the amount of domestic consumption of polished diamonds—5 million, comparable to Italy, India and Hong Kong. The rest of the polished diamonds in the UAE are largely exported to neighboring countries, chiefly Saudi Arabia. In the UAE there are 40 large and 200 small jewelry plants and 6,000 licensed jewelry shops. The UAE’s second biggest export market for polished is neighboring Qatar, followed by Iran, Pakistan and India. At the same time, India, which has the world’s largest diamond polishing industry, and Belgium, the center of the world diamond trade, are the basic suppliers of polished to the UAE, as well as the country’s leading trading partners for rough diamonds.

The UAE and the United States are also active partners in the diamond trade. In 2003, about 1 percent of U.S. rough diamond exports and 2 percent of its polished diamond exports went to the UAE, while 1 percent of its polished diamond imports came from the UAE. In the case of Belgium, 3 percent of both its rough and its polished diamond exports went to the UAE. India imported 5 percent of its rough diamonds from the UAE in 2003, while 9 percent of its polished diamond exports and 8 percent of its diamond jewelry exports went to the UAE.

Thus, it is possible to say that leaders of the world diamond trade are actively supporting the transformation of the UAE into a significant center of the diamond trade. In all probability, they have two reasons for doing this: on the one hand, they receive direct access to cooperation agreements with diamond mining and polishing countries, and on the other hand, they receive direct access to the consumer markets of the whole Middle Eastern region.