Israel working to repolish dulled diamond industry

By Ari Rabinovitch and Tova Cohen  /  Reuters, RAMAT GAN, Israel

Sun, Jan 06, 2013 - Page 14

Diamond manufacturing is a dwindling trade in Israel. The country has one of the world’s hottest diamond exchanges, but polishers and cutters of the precious stones have been replaced by cheaper workers in newer hubs like India and China.

Israel wants to bring them back. To do so, it plans on recruiting a legion of Orthodox Jews who, because of their dedication to prayer and study, have been unable or unwilling to join the work force, putting a heavy weight on the economy.

However, the job of a diamond polisher is unique, said Bumi Traub, president of the Israel Diamond Manufacturers Association. It need not disrupt their pious lifestyle.

“The profession is fitting. You deal with the rock and if you need to go pray, no one will bother you,” he said.

The door to Traub’s office requires a fingerprint scan. Security is tight in the four-building exchange, where annual turnover of trade reaches US$25 billion.

About one-third of rough diamonds produced in the world each year pass through the Jewish state and diamonds account for more than one-fifth of the country’s industrial exports.

It was a natural sector to develop when Israel was founded 64 years ago, since the small stones have been choice merchandise for generations of Jews who had to quickly flee from riots and persecution.

The plan to revitalize manufacturing will cost millions of US dollars and the diamond sector is turning to the Israeli government for help — for the first time. The government, eager to get the ultra-Orthodox working, is on board.

The global financial crisis has taken a toll on the diamond trade, and Israel was not spared. Turnover was nearly halved in 2009, though it returned to pre-crisis levels in 2011. A smaller drop is expected again for last year.

The damage has been moderate compared with other hubs like India, Israel Diamond Exchange president Yair Sahar said.

“In other centers, the leverage was tremendous, as opposed to here, where we were much more conservative,” he said, referring to Israeli firms’ low levels of debt.

However, there have been other problems.

The price for raw materials has risen faster than that of the final product, eating away at profits. In addition, a money laundering and tax evasion scandal last year scared away some customers.

The diamond trading floor in Ramat Gan, a suburb of Tel Aviv, is the biggest in the world. Diamonds change hands freely across the rows of long dark tables that line the hall. On one side a seller could be local, while a buyer across the way could represent a client on a different continent.

They scrutinize the stones under a magnifying glass, weigh them on sensitive scales and when a deal is reached they say mazal ubracha, a Hebrew phrase recognized in centers around the world which means “luck and blessings.”

In 2011, rough diamond imports to Israel topped US$4.4 billion and US$7.2 billion in polished diamonds were exported. Every second diamond sold in the US, according to value, was Israeli.

Yet only US$1.5 billion of the stones were cut and polished locally, a much lower percentage than a decade ago. The rest were sent abroad to foreign firms or Israeli-owned factories.

“Once, everyone who sat in this room was a manufacturer,” billionaire dealer Lev Leviev said at the opening of a Gemological Institute of America (GIA) laboratory in September. “There was not a diamantaire who was not a manufacturer, and over the years we lost it.”

Salaries were just too cheap to compete with, he said, first in India — the world’s biggest importer of rough diamonds — and later in China.

Israel has subsisted on larger, high-end stones whose owners pay more to have them manufactured close to home. Yet industry leaders hope to change that, in part because polishers in developing countries are demanding more money.

The GIA’s decision to open a lab in Israel was a first step. Manufacturers can now have their diamonds graded and evaluated in Israel rather than sending them to the US.

“It’s critical for the growth, for the international branding of the export business, and we think that we’re a good partner to help the manufacturing grow,” GIA president and CEO Donna Baker told reporters when the lab opened.

By cutting costs and allowing increased turnover, it will add between US$30 million and US$50 million a year to the industry.

At the peak of manufacturing in the 1980s, there were 20,000 people cutting and polishing diamonds in Israel. That has dropped to about 2,000.

“There is no new manpower. Most polishers are 50 years old and up,” diamond factory owner Roy Fuchs said. “If they don’t invest and bring in new blood, there simply won’t be manufacturing.”

“It’s not easy. You need cooperation with the government,” said Udi Sheintal, the Israel Diamond Institute’s managing director. “Here in the middle of Ramat Gan, you don’t get incentives. There are only incentives for certain populations, like the haredi.”

The term haredi, which in Hebrew means “those who tremble before God,” refers to people who strictly observe Jewish law.

Between 8 percent and 10 percent of Israelis are haredi. According to the Bank of Israel, less than half of Orthodox men work.

The issue has created a rift in the mostly secular Israeli society and put a strain on an otherwise robust economy. The Isreali government has earmarked US$200 million over the next five years to encourage haredi integration in the work force.

Many in the new generation of haredis are open to the idea of getting jobs. The key is finding one that fits, said Bezalel Cohen, 38, who promotes employment among his fellow haredis.

“The diamond industry’s initiative [to hire Orthodox] has potential to really succeed,” he said. “As long as the pay and training is proper, it should take off.”