Israel Back On Track: Investors Take Notice

By Michelle Smith – Exclusive to Diamond Investing News

Serious diamond investors, or those who plan to be, should direct their radars to Israel, a country often omitted from the lists of nations important to the industry.

“The diamond business is such that you can’t get into it without dealing with Jews and Israelis,” author and journalist Jim Krane told Bloomberg.

Figures released Sunday by Israel’s Ministry of Trade, Industry and Labor appear to back that statement up with cash. Israel’s exports of rough diamonds for the first quarter of 2011 totaled $1.158 billion and exports for polished diamonds totaled $2.123 billion. Compare that to last year’s totals during the same period, when rough diamond exports were only $916 million and polished stone exports totaled $1.234 billion, and Avi Paz, President of the Israel Diamond Exchange (IDE), is justified in saying that there is no doubt that the numbers show recovery.

Israel is a major force in the rough and polished diamond industry. Its rise to prominence dates back to the days when Jews had limited career options and the diamond business was one they could indulge in without trade and guild restrictions. Today, the nation’s diamond trade is one whose success is made evident by the IDE’s fortress. Composed of four interconnected skyscrapers that serve as a one-stop-shop for the world’s diamond players, the IDE headquarters, with its high-tech security is nearly impenetrable.

When the global economic crisis hit in 2008, luxury goods was an industry whose revenues experienced deep cuts. Among those feeling the pain was Israel’s diamond industry, which accounted for about 30 percent of the nation’s exports. Last year, the nation’s diamond operations saw a strong recovery and this year has started off even stronger. Yet, to put the figures into perspective, Paz says that exports are still 20 percent less than they were in 2007, although bank debt is also 45 percent lower.

Israeli diamonds for the investor

Israel’s role in the diamond industry is not due to its possession of vast underground reserves or mining efforts. On the contrary, this Middle Eastern state is a sieve; it acts as an international diamond sifter. Israel imports diamonds before examining, sorting, cutting and then distributing the stones to world markets. The US is the leading destination, importing nearly half of what Israel offers, and a further 26 percent of this year’s stock has flowed to Hong Kong.

Diversify your portfolio takes on real meaning when considering Israeli diamond investments. The industry is largely composed of private, highly successful family businesses that are passed from generation to generation. For example, in 2010 Leo Schachter Diamonds Ltd exported $359 million in stones, M.I.D. House of Diamonds exported $160 million and LLD Diamonds Ltd topped the list with exports of $366 million. Instead of cash for shares, in this investment arena, it’s cash for hard goods.

According to the IDE, diamonds are available however an investor likes them– every type, size, shape and quality. The IDE claims to have the largest diamond trading floor and the most advanced polishing capabilities in the world. Whereas other countries’ diamantaires mainly polish small stones, Israel does it all, which includes making a specialty of polishing medium and large stones.

Though the options are greater in Israel, a trip to the country is not mandatory. Many Israeli diamond companies have locations in places such as New York, London, and Hong Kong. Companies like Reddiam, Dalumi, and Seren Diamonds assist their international clients with online inventories and other services. Israeli diamantaires are also notable attendees at trade shows around the globe, such as the Mumbai Jewelry and Gem Fair, JCK Las Vegas and the Vicenzaoro Winter Edition in Vicenza.