Antwerp's Perspective

Is the global economy, led by the United States, coming out of recession? Or are the so-called "green shoots" of recovery simply weeds, as some have suggested? Against the undercurrents of ongoing uncertainty, what should be the actions of members of the diamond industry?
 
We have seen rising demand and prices for rough and polished diamonds in recent months, a development that we are relieved to witness. However, we should not be rushing to take this sign as evidence that the recession is over and that we can now relax our guard. I believe that vigilance must remain our most important priority. Vigilance in our industry translates to being logical about the divergence between rough and polished prices. Rough prices have now run too far away from polished prices and I am afraid that another bubble situation will ensue. It is in everyone’s best interests to prevent this from recurring.
 
The global economic meltdown is the worst that most people have ever had to witness and endure. Its speed and ferocity took everyone by surprise, including some of the best financial and economic minds to be found across the globe.
 
It is becoming clear that economic recovery will be very gradual and this is why a cautious approach is the safest approach. As in tending a garden, we cannot sow a seed today and expect to harvest tomorrow. Our preparation for industry-wide recovery must be today, regardless of when the next harvest will be. No one can forecast the pace or the extent of the economic recovery, but the good news is that we still have in our hands the seeds of hope.
 
Since consumer purchases are responsible for over two thirds of U.S. economic activity according to the latest U.S. Commerce Department report, the heart of a U.S. economic recovery will centre on consumer confidence levels and employment growth.
 
Many of the most recent economic data releases point to an economic recovery path that may indeed be slow – one step forward and two steps back, if you will. This may not necessarily be bad over the longer term as the survival of the fittest notion takes its course.
 
Americans have pushed up their household savings rate to the highest level in 15 years, which as a broader term indicator could be positive for the U.S. economy. Yet, over the short term, there is still very much consumer reluctance to spend as worries over the loss of their jobs and homes continue to take centre stage.
 
We have a situation where consumers are holding onto cash due to the uncertainty presented by the global economic data as the velocity of employment decline remains one of the key determinants to economic stabilization and obviously future growth. First, unemployment must slow down. Next, employment must begin to grow. What will ensue next? The bottom line is until we see consumer confidence and employment growth levels solidifying, overall economic growth is still only a mirage.
 
Whilst the global economic crisis has taught us that we can take nothing for granted, we must also realize that there is hope for global growth. We as human beings are conditioned for progress, and moving forward is the only direction we must and will go.
 
The question everyone has been asking themselves since the crisis began is: what should we do? I believe there are several steps we should all be taking. Firstly, we should keep a cool head and not take rash decisions. A sense of proportion is vital: there have been crises in the past and there will be others in the future. Although they are painful, they are also a natural element of the business cycle and can be seen in a positive light and thus regarded as opportunities. When we are running too fast, we need to slow down to catch our breath. View this crisis as an opportunity to make what you already have even stronger and you will emerge as a winner.
 
We must also make sensible business decisions based on actual client requirements. Diamantaires should not jump at the opportunity of buying goods nor should we speculate. We don't need, and must take all steps to avoid, creating another spiral of price rises of the type we saw up to mid-2008. None of us knows what the future holds, and taking a guess causes the whole industry damage if prices again start rising out of proportion with reality.
 
Another issue that the diamond business must seek to deal with is memo goods and long-term credit deals. These are business practices that have caused enormous damage to manufacturers. We pay cash to our rough diamond suppliers, and we must expect to receive payment either immediately or after a standard, short time period for the polished goods that we manufacture. We cannot simply hand over goods and tell our clients: 'Pay us when you sell them.' That is tying up precious resources that our industry needs for other operations.
 
Finally, it is also important that the diamond industry worldwide find a way to come together to create generic but compelling consumer diamond promotion programmes to reinforce the long-term emotional value of diamonds. Steps have been taken in this direction by some major members of the diamond pipeline, but this needs a cross-industry effort and a sincere commitment to promoting and uplifting diamonds in the minds of consumers.
 
To paraphrase the obvious: united we stand, together we become stronger. This is a time we must all challenge one another to do better and to be better. I believe this has never been truer than at this historic crossroads for our industry.
 
Kaushik Mehta is chairman of Eurostar Diamond Traders and vice president of the Antwerp World Diamond Centre (AWDC).