I receive calls on a near daily basis, from clients who have a strong desire to get into the rough diamond business. Many people join so-called diamond and gold groups on LinkedIn or similar sites. Here they learn about manifests, NCND’s, MFPA’s, SBLC’s, 103’s, CIF, Kimberly Certificates, export documents, export taxes, broker agreements, fees. and other relevant documentation. In a short time, they gain knowledge of the correct verbiage of these agreements, and are not easily fooled by poorly written documents.
They gain knowledge of table top meetings in Geneva, Dubai, New York and other locations where there is a Brink’s or Malca-Amit office. They discover most buyers want D-H VVS-VS rough from 5.00 ct. plus. They find out these parcels belong in a price range often quoted on the manifest from $1800- $2800 per ct.
With further inquiry, they find out the diamonds are coming from South Africa, Botswana, DRC, Angola, Sierra Leone, Guinea, Namibia and several other diamond producing countries. They even hear of parcels coming out of Ghana and Kenya.
Getting to this point in their education, they rightfully feel they have learned a great deal. It is a task learning this part of the diamond business. People who master this area of the business often feel they know a great deal about the rough diamond business. When I talk to people who have reached this level of understanding, they speak with pride in having come this far. They are rightfully proud of their knowledge.
Many of these well-informed people establish themselves with contacts they have made who are, or who have, “direct” access to sources of rough in Africa, Russia or Brazil. These contacts mostly come to them through LinkedIn or other internet sites. Robert believed he had made valuable connections.
Usually, these ‘valuable’ connections send manifests with great prices and wonderful promises. They assure their potential clients they can supply large quantities of rough at super competitive pricing.
At this point, many buyers put deals together with MFPA’s, NCND”s and all the other relevant documents and procedures. Buyers, often with expensive gemologists in tow, fly to Geneva, Dubai, New York and other locations where there is a Brink’s or Malca-Amit office. As they attempt to close transaction after transaction, they are met with rare success, and constant, expensive failures. After a few failures, most realize the obstacles to success are extremely difficult and expensive to overcome. It is usually not long before buyers come to the conclusion that in order to buy rough at the right price, and to have a consistent supply, they will have to buy directly in Africa.
Most people who work with rough diamonds, are a tenacious group. In a short time, they seek out African sources and develop close, over-the-phone relationships with the very friendly suppliers in Africa. The suppliers will assure the buyers of the ease of doing business with them, as well as guaranteeing the buyer will find abundant supply and great pricing, Buyers, believing they have studiously completed their due diligence, hop on a plane to Africa.
It pains me to hear of their tales of loss when they go to Africa. As I have said, I have made every mistake you can make and have lost a great deal of money working in the diamond business. I also have made a lot of money, but losses are difficult to recover. Aspirants, are intelligent, and are often successful in their fields. As I said, they do their best to educate themselves. Unfortunately, there are few avenues to prepare one for working in Africa. Without the right contacts, local knowledge, extensive experience and education, it is rare to succeed in the rough diamond business.
When I ask these people if I could be successful in their fields of endeavor without great contacts, local knowledge, experience and education, they laugh out loud. Yet, these same people come into the rough diamond business with limited experience, education and contacts and cannot understand why they have lost their money. To those people, I have to ask: What were you thinking?
I have been in the diamond business for more than 41 years. I am still learning! For those of you who are considering entering into the rough diamond business, or wanting to buy rough diamonds in Africa, I can help.
For a free education I have paid dearly to obtain, please read the rest of my blogs. On the right hand side of the page, click on “ALL”. This will bring up all of my articles.
These articles address all the questions involved in doing this business. Once you have finished reading my articles, you will truly understand the questions. If you would like help to obtain and understand the answers to these very important questions, please feel free to call me.
Recently, I have read articles bemoaning the seemingly out of skew relationship between the high cost of rough diamonds, and the low price of polished diamonds. The authors correctly state that the high price of rough does not reflect the realities of the polished market. Of course, everyone blames DeBeers, Rio Tinto, Alrosa, and all the other mining companies for their unrelenting greed in setting the price of rough far beyond its real value. They demand the mining companies open their eyes and hearts and adjust their pricing in order for the people who manufacture, export, import, wholesale, broker, and retail diamonds be given a fair shot at realizing some kind of reasonable profit in their businesses.
Those bad boy mining companies always seem to come out smiling. It is unbelievable that the mining companies should look out for the interests of their stockholders, governments, and mine owners before caring about the poor people in the diamond supply chain. It’s as if the mining companies only care about profits and their own costs and problems. How could you not hate them?
Before we grab a rope and string them up; consider this: The margins in the diamond supply chain have been eroding steadily for 25 years. In the past there were many small and medium sized retail jewelry companies. This meant there were a large number of companies who could afford to buy diamond inventory for their stores and life was good for all who were engaged in supplying them. Then a terrible calamity took place. The larger chains found that the only way they could increase sales and profits was though the unrelenting opening of new stores. Because there are a limited number of great locations, the large chains began gobbling up the small chains and even single stores who were in prime locations. Before long, the mom and pop stores, and small to medium chains disappeared and we were left with relatively few large chains like Zales, Sterling, Fred Meyer’s etc. The large chains then bought whatever large chains they could purchase and this further reduced the number of retailers who could afford to buy diamond inventory. In addition, because competition became so fierce at the retail level, some large chains who did not adapt to the changes in the world soon found themselves out of business, further limiting the number of retailers in the market.
The result of this consolidation was difficult for the industry to adapt too as there became fewer retail customers. Suppliers at all levels were in a bad predicament. Yes, too many suppliers, too few customers in the market. Many diamond suppliers watched their margins erode dramatically as manufacturers and wholesalers had to compete for a much smaller pie. Some manufactures with deep pockets, enticed the large chains with memo programs and very generous terms. In order to combat these programs, their competition had to lower their prices in an effort to make the memo programs less attractive to the chains. This of course caused the companies doing the memo programs to reduce their margins in order to keep the business with the chains. What a mess this created and the negative effects are now evident throughout the industry. The only saving grace for the industry was the opening and development of Asia as a serious market. (Please do not give DeBeers credit for single handedly turning Japan into a diamond buying powerhouse, even though they single handedly were responsible for this.)
At about the same time as this was all taking place, two new factors began to emerge that would completely change the way diamonds were bought and sold at the wholesale levels. These two factors were at first embraced as a way to modernize the industry. Many an article was written on the virtues and advantages these two companies would bring to the diamond business. I am speaking of course of the G,I.A. and Rapaport companies.
G.I.A. as most in the industry know, is the dominant diamond grading lab in the world. In reality they are the Holy Book when it comes to diamond certificates. In the beginning, G.I.A. appeared to be a blessing to the industry. For the first time in the history of the diamond business, there was an accepted world-wide grading system. Consumers and the unskilled in the business benefitted greatly. Both consumers and the unskilled were now able to know exactly what grade their diamond really is, and were able to compare prices from various sources with verified data. For diamond manufactures, importers, wholesalers and brokers, G.I.A. seemed to make it easier to sell more diamonds. In addition, those of us who were buying diamonds directly from the manufacturer could use our knowledge of grading to our advantage when buying. When you buy a stone as a G color and it came out F, or when you bought a stone as an SI1 and it came out VS2. A dealer could realize an instant increase in his profits and an easier time competing with other dealers. Because of this, G.I.A. was embraced by the diamond industry. All was fine as long as the G.I.A. certificates were only made and available in America.
When G.I.A expanded and certificates became readily available in the world bourses and when just about every manufacturer began to certify their productions, the inevitable happened. Almost overnight, diamond knowledge and skills learned over many years were now needed only for those diamonds not of value to justify a G.I.A. Certificate. This meant that even a monkey could buy diamonds. It also meant that the people in the supply chain who could increase and maintain their margins using their skills lost one of the few advantages they possessed. What began as a great tool to the industry is now a curse to the very people who originally glorified the G.I.A. Because almost no skill is needed to buy G.I.A. certified stones, profits once garnered with skill have disappeared into the darkness of the past.
The Rapaport Company was not looked upon with respect in the first few years of its existence. Over time, like the G.I.A., it was embraced by the industry because it made it easier for those whose knowledge of the value of the various grades of diamonds was limited. The Rapaport sheet made it easy to know the value of any diamond listed on the Rapaport sheet. Once one knew the correct discounts to apply to any particular shape and quality, one could accurately value a stone. This sounds great, and it did make it easier for all of us. And, herein lies the rub so to speak; because anyone could determine the price of any diamond quality listed on the Rapaport list, the ability to make profit, and hence, the profit one could make using market knowledge also disappeared into the darkness. Not only did everyone in the industry have a Rap sheet, but the public too found out about the Rap and retail jewelers soon found themselves dealing with customers walking into their stores with Rap sheets in their pockets. Once again, what was initially praised as a blessing is now one of the main causes of the loss of profitability in the industry. It could be argued that G.I.A. and Rapaport have had more to do with the destructions of margins in the polished diamond industry than all other factors combined.
Misery loves a lot of company, another important factor that has contributed to a loss of margins and profitability must be mentioned. The culprit is FedEx. Yes, FedEx. Before FedEx, most retailers were forced to buy diamond inventory for their stores. When you have inventory in your store, you can stop the customer from looking elsewhere. In the event a customer came in to the store and the retailer did not have the stone the client requested, he would call his local diamond dealer and the dealers would send him a stone through the U.S. Mail. This was a problem, because by the time the package arrived many days later, the customer had time to visit other jewelers and the stores lost a great number of sales. When FedEx became available for shipping and insuring diamonds, the jeweler could keep the customer’s interest by bringing in several stones within one day. This meant the jeweler no longer needed to stock inventory and by calling several diamond dealers for the same size and quality stone, he was able to pit one diamond dealer against the other.
Diamond dealers knowing this, further cut their margins in order to compete with rival companies. Before long, it became very difficult for diamond dealers and brokers. The retail jeweler would seem to enjoy the benefit of this situation. Alas, it is not so. Because every retailer can do this, customers soon realized they could easily see as many stones as they desired simply by have several retailers bring in stones for their viewing and inspection. Yes, they did not have to wait many days, but they still had time to visit as many jewelry companies as they desired because there are so many jewelers in the same mall. The poor retailer was faced with a public requesting G.I.A. certificates walking in with a Rap sheet. The customer could view as many stones as he wished from several of the retailer’s competitors, all within easy walking distance within the mall. Yes, you guessed it, this further increased costs and lowered margins, thus lowering profits for the retailer and the other “smoes” like me in the supply chain. Thank you FedEX.
Lest you think we are finished, let me add two more factors for the erosion of margins and profit: The big box stores and the internet. With companies like Wal-Mart and Costco in the mix, retail jewelers, like other retail businesses, found themselves under incredible pressure. These stores have taken a huge chunk out of the traditional jeweler’s business and once again, a major cause of diminished margins and returns.
Last, but certainly anything but least, is the internet. With companies like Blue Nile and others of the same irk, retailers watched with horror as diamonds were being offered to the public at near wholesale levels. In order to compete, brick and mortar companies created websites and did everything they could to compete. The pressure put on the retailers reverberated all the way up the supply chain.
Interestingly, in the years that this was all going on, a new buyer of rough diamonds emerged. These are people and companies who buy rough with no intention of polishing the stones. These investors are not in the jewelry industry and care not an iota about polished prices. These companies consist of private investors, banks, hedge funds, and wild cat investors looking for a safe haven in tumultuous times. Some buy rough and just put it away. Others flip it to their clients, while some put it into platform trades. Generally, these companies do not buy directly from DeBeers, or the other major mining companies. However, they indirectly buy up rough from these companies and often buy from African government and private mining companies all over the world. Their presence in the industry has been a boon to the mining companies and diamond producing governments as they buy up much of the oversupply of diamonds available in the market. If you doubt the investor-speculator’s impact on the mind-set of the mining companies of the world, you need only look at the “I-could-care-less” attitude of the mining companies in response to the pleas and curses of their traditional customers.
People in the diamond supply chain are rightfully worried about their future. They lament the passing of the good times. Many are leaving or have left the industry. Fewer, are bringing their children and close relatives into the business. The diamond business is capital intensive and with ever diminishing margins. Only the very large and the very innovative can survive and flourish.
Stop complaining, and blaming the bad boy mining companies; free yourself from foolish hopes. Face reality, innovate, and create a niche for yourself. If you can’t do this, get the heck out of the business. “The person, who says it cannot be done, and cannot do it, should not interrupt the person doing it.” (Chinese Proverb)
My gemological consulting business brings me in contact with people in top levels of government, military, mining, shipping and exporting. It also has me dealing with country village people, hard working laborers, and a variety of nefarious characters who are out to scam the unwary and are very dangerous. These guys would not think twice about kidnapping and murder. I have had three close encounters in which I am lucky to be alive to tell my story.
This article is not about me or my adventures in Africa. This is an article to help American and other Western business people successfully conduct business in Africa. I give my background only to show that I am speaking as a seasoned veteran and not an arm-chair analyst who has never set foot on the continent.
To begin with, westerners have to let go of the idea that the African people are “just like us.” They are not. Their customs are different, their daily experiences are different, their way of conducting business is different and most importantly, their laws of business and redress of grievances are very different from ours.
We all know how the American business courts work in America, although, most of us would change that statement to how the American courts don’t work in America. In Africa, if your customer or vendor has cheated you, you are done. Do not waste good money after bad. No matter what you do, you are almost never going to see the money you lost again. Trying to transverse legal issues over trans-continental borders is beyond the ordinary man’s capacity and doesn’t make sense financially.
As I have written on the front page of my website; If the buyers you have tried to work with cannot perform. It is your fault! It is your fault if a buyer cannot perform because you do not know how to qualify a real buyer. If the vendors you have tried to work with cannot perform. It is your fault! It is your fault if a seller cannot perform because you do not know how to qualify a real seller. If you have been in-country and you paid taxes on the goods and did not get the goods out it is also your fault.
I have been in the diamond business as a gemologist since 1975. I have lost a lot of money over my initial years because as I said, I too was too stupid, too lazy, or too cheap and trusted the wrong people. I have worked in South Africa, Namibia, Tanzania, Guinea, Angola, Sierra Leone, DRC, Botswana, Kenya, Brazil, India, Hong Kong, Israel, Dubai, Antwerp, Belgium, Canada, London, England, Germany, Geneva and Zurich Switzerland, New York, Los Angeles, and many more locations around the world.
I have also embarrassed admitted to have nearly gotten myself kidnapped and killed. It took me a long time to learn how to work in Africa and I have paid dearly for my education, which, by the way, has taught me how to very quickly identify a true buyer and a true seller. I have also learned how to partner with governments, generals and ministers in these countries. I do so by engaging them through diplomacy that not only allows my customers and I to stay safe and ethical, but we also avoid becoming a victim of corruption.
If you are inexperienced regarding the African business environment in the diamond industry, including having to work in areas of abject poverty, corruption, lack of electricity, poor or non-existent internet, lousy roads and poor transportation, bad water and all the adversities, then you have two choices. The first is, forget Africa. The second choice; vet out someone who has worked in Africa in your industry extensively and knows how to be successful. You have little choice, you must hire someone who has the right connections, knows what must be done, and knows from experience who to trust. If he can protect you and bring you success in Africa, then whatever he is charging, it is well worth the money. This is the real secret for doing business in Africa and the rest of the world. It is not what you know, it is who you know.
The problems facing foreign business people in Africa are many, most can be overcome, some not. One of the expensive problems you can successfully overcome is shelling out hundreds or even thousands of dollars while conducting basic business meetings. There is a prevalent assumption that Americans and Westerners coming to buy diamonds must have a big budget to spend on business incidentals. Because of this belief, it is fair in their minds to make you pay for any, and all costs for meals, drinks, transportation, internet, telephone, gasoline, service on their cars, boat ferry, water, rental of their friend’s car, toll booth, snacks, taxis, parking, tips, baggage handling, “gifts” for the people who are needed to make the transactions happen, their transportation to the meeting, payment to use someone’s office, etc. etc. The list just goes on and on.
For those of us in the West, when you go out with a customer, the vendor nearly always picks up the check. There are times when the customer will pick up the costs, but most times the vendor sees the dinner costs as part of the expenses required to gain and maintain customers. If you’re going on a selling trip, it is not unreasonable for you to pick up the tabs as the cost of doing business. This is not the attitude in Africa. Their view is that you have come to Africa to buy and you need them in order to succeed. They have found that being an inexperienced westerner, you will put up with all the inconveniences, hassles and “incidental” costs because you have the possibility of making a successful buy, thus making a lot of money.
Now, I hear some of you saying, what’s the big deal? Don’t be so cheap. You too will begin to think it is a big deal when you add it all up. It will be an even bigger deal, if your trip is not successful. Let me give you an example; you set up an introduction meeting with the people you are about to engage in business. Because you do not know your way around, or transportation is not easy, they offer to meet at your hotel lobby or restaurant. They never come alone. If they reach there before you, they will not have ordered anything to drink or eat. Once you sit down with them, they will then ask you if you want to get something to drink or eat. Being polite, and understanding, that they actually want to get something, you say yes and order a drink. They will then order drinks and snacks. At the end of the meeting, after your second meeting has been arranged, they will stand up; shake your hand, and thank you for coming. They will smile and leave. The waiter will then give you the check and you will realize you just spent $50-$100. Not a big deal.
For the second meeting, they will ask you if you want to meet for dinner. Of course, you agree. You think they are inviting you for dinner and it is an opportunity to build the relationship. You show up to dinner at a very expensive restaurant they have chosen. At the table is your host and, what a surprise, two to four other people who will be joining you tonight. The food is good, the service is all smiles, your host assures you that you are going to make a killing on your deal with him, and, when dinner is over and the check is brought… No one reaches for it. That’s right, no one. You are sitting there wondering; when is this guy going to pick up the check? Only he doesn’t. It is now becoming uncomfortable. Your host is all smiles, his friends are all smiles and you most likely will feel embarrassed and pick up the check. If you don’t offer to pick up the check, once again, they will stand up, smile, and shake your hand. They will tell you how much they enjoyed the evening, and they will see you in the office in the morning. They will walk away without picking up the check. You will be too embarrassed to say anything. You will look down at the check and it will be for $200- $300 and you will now need that drink you decided not to have earlier.
When you go to Africa, expect to get nailed on some things. There will be no way out of it. Make sure you calculate these so called unexpected costs into your budget. Lest you think I have no suggestions to help you, then you have not been reading between the lines of this article. Actually, I have already given you some of the solutions by outlining where they will try to hit you.
Let us look at it together if you are not already clear and smiling. First, when you are making your arrival arrangements, tell your contacts that you want to be picked up at the airport right as you come out of customs. Ask them if they are going to charge you for picking you up and driving you to your hotel. No, I am not kidding. Observe what kind of car they drive. If you are dealing with people who have told you they are the vendors or buyers, then if they are successful in what they are doing, they should be picking you up in a nice vehicle. Yes, I know they could borrow a nice car from a friend. However, it has been my experience that they will not have any friends with nice cars unless they are also successful. If they pick you up in a crappy car, this is a big red flag. On exiting the parking lot at the airport, if they ask you to pay for the parking fee, this is another red flag.
When you go to your first informal meeting at your hotel, bring a large bottled water with you. When they ask you if you want anything else, decline and tell them you are fine with your water. If they order anything and when finished start to get up to leave, stand up and say politely and with a big smile on your face; “Oh, wait a minute please, let me call the waiter for your check.” Without hesitation, get the waiter immediately. Do not be shy. You drank nothing, you ate nothing. If they protest, or simply leave without paying you know these people were only out to nickel and dime you to death and your odds of closing a deal with them was most likely less than the odds of winning the lottery.
If they graciously pick up the check, that is a big thing. It means they value your business and want to close a deal with you. It is also your first clue on how to negotiate terms and prices for whatever it is you have come to buy or sell.
In most cases, to do business in Africa, you must set up your business properly. You will find that the only way to control the business and eliminate most scams is for you to open your own company in-country. You must get all licenses and business documentation, work visas, and fulfill any and all government requirements. Then, if you are buying or selling, find an importer or exporter with a proven track record and verifiable references. Unless, you are in the position to pay for an import/export license, you will initially be better off using an established importer/exporter. If your business is successful, it will pay for you to get your own license.
Once you have set up your company, you can now set up your banking. Having a local bank is important as it allows you take advantage of having ready cash on hand. Much of the business in Africa is done with cash. Not having a local bank means having to carry large quantities of cash or having to wait well funds are being transferred. This can lead to costly delays and often lost opportunities.
I have finally understood the wisdom of one of my father’s quips, “When a man with experience meets a man with money, the man with the experience gets the money, and the man with the money gets the experience”.
There is much, much more you have to know to be successful in Africa. It takes me about three hours to go over all that is involved in working successfully in Africa. If you would like to learn all that is involved, please contact my firm and I will be happy to give you an in-depth understanding.
As you may know, the current financial meltdown in Zimbabwe is devastating their economy. Between the misguided American sanctions on particular individuals in Zimbabwe and the poor management and policies of the Zimbabwe government, the people of Zimbabwe are in desperate straits.
My friends in Zimbabwe are well educated professionals. Yet, they are relying on friends and well-wishers to send money to them so they can eat. Companies and professionals who have been in business for years are going out of business at a rate never seen before. The domino effect is in full force and almost no one has any cash. People have no idea what to do. No one I have spoken with has much hope for any relief anytime soon.
Foreign investors will not open new companies when they required to appoint a black Zimbabwean as the 51% owner of the company. Sanctions imposed by the United States and others to punish the Zimbabwe government, do little or nothing to the government, but have wiped out the wealth of the common person. Anti- American sentiment is not hard to find and this American is perplexed that our representatives (from both parties) have so little understanding of how things really work in Africa.
There is some good news. The Zimbabwe government became very aware of corruption within the diamond industry and mining sector and did a full sweep and cleaned house. Just about anyone with any opportunity to be corrupted was replaced. The two gentlemen who are now heading up the MMCZ are men of stellar reputation and I am told are incorruptible. My contacts at the MMCZ were ecstatic at their appointments and believe that the future of the MMCZ and the Zimbabwe diamond sector are in good hands.
For those who were turned off by the previous managers at the MMCZ , I recommend you give these new guys a chance. The Zimbabwe tenders will be conducted fairly and those who are accepted as customers of the MMCZ will be afforded every opportunity to buy Zim goods. One caveat, although the MMCZ is keeping a very close watch on the mines, there is bound to be some siphoning off of some of the better goods. However, with the new procedures, this will be very difficult and likely to be on a very small scale. The MMCZ will deny anyone can do this, but my experience in this tired old world is that there will always be someone who can game the system.
For those of you who are unfamiliar with Zim goods and would like to buy in Zimbabwe, you can always check out my website for other articles on Zim and are welcome to give me a call to discuss how to work in Zimbabwe.
The title of this article would seem at first glance to be ridiculous. Really, how much of an economic impact can Ebola have on a small Northern California town? Consider this: I am a rough diamond gemologist living in Grass Valley and I earn my living working mostly in the DRC, Guinea and Sierra Leone. My normal business has been severely diminished because my clients are afraid to go into the bush in the DRC, Guinea and Sierra Leone because of Ebola. This means that I am delaying building my dream house on a gorgeous mountain property my wife and I bought recently. In addition, because I need a four wheel drive car for mountain driving, I wanted to buy a new Toyota 4 Runner, but have opted to buy a Toyota Rav 4 because I need to be financially prudent.
You may laugh because my small contribution to our economy is not of any great significance except to the sales people, vendors and contractors I would have done business with. Of course, there is a small ripple effect from these people. Still, I know it is not going to affect most of the people of Grass Valley. That being said; there are thousands of people in the world just like me. All of us together make up a pretty big group of people with a substantial impact on the overall world economy.
Already, Ebola is destroying the economies of Sierra Leone, Liberia and Guinea. These countries in turn are affecting the economies of their surrounding countries and all businesses and countries where there is trade. In addition, people are now afraid to go to other African countries even though those countries are free of Ebola. A case in point is Angola. I have an opportunity in Angola to purchase large quantities of rough diamonds. Normally, my clients would jump at the chance. Now all of my clients are afraid to go to Angola because they consider Angola to be part of West Africa.
I know what you are thinking. What do the far away problems of West Africa have to do with Grass Valley? The answer is simple. The world is a very small place where disease can travel without restriction and fear can spread faster than a California forest fire. What happens on the other side of the world today can cause disastrous consequences here tomorrow. With each collapsing economy, our economies become weaker and we may find ourselves suddenly in the middle of a world economic collapse with all the social-political problems inherent in such a collapse.
The sad part is that Ebola could have been stopped months ago. I was in Sierra Leone at the end of July and the government of Sierra Leone, Liberia and Guinea were begging the world to send help. Anyone who has ever worked in developing nations can tell you that these countries cannot cope with major diseases or calamities. They do not have the money, infrastructure and expertise to deal with it. Yet, knowing this, our government and the rest of the governments have done little. Even this week, the Presidents of these countries made a desperate appeal for help. Without serious intervention and assistance, Ebola will spread to the West and perhaps the whole world, if that happens you will be worried about more than you’re your pocket book.
One of my clients has asked me to go to Sierra Leone next week. I wonder how my trip will impact the economy of Grass Valley.
In the beginning, there were only Indians in the diamond business. This is because the first diamond mine was in India. The diamond men of India were brave, intelligent, business savvy, and were prepared to take risks to develop their Industry. Centuries later when diamonds were discovered in Africa, change was inevitable. With the advent and growth of DeBeers the modern Indian diamond industry was born, or should I say reincarnated. These men were also brave, intelligent, business savvy and prepared to take risks to develop their Industry.
DeBeers did not make it easy for the Indians. They gave America, Belgium, Israel and South Africa, the bigger, better diamonds and gave India the smaller poorer stones. DeBeers’ logic had a basis, and in many ways their policy towards India was correct. They reasoned that if they gave India the same goods as the other diamond countries, those countries would not be able to compete with India because of India’s much lower costs of production. This was absolutely correct and this policy made it possible for the other countries to expand and grow, albeit at India’s expense.
Interestingly, this vary lack of support was in reality a blessing. Indian diamond manufacturers were able to take any shape, size, color and clarity and develop a market for these stones. In order to do this, Indian companies marketed their stones all over the world where diamond tastes are varied and where they could sell just about anything they produced. This business model made India the largest diamond trading center in the world by volume.
Now, the world has changed again. DeBeers is still the major player, but their policies and the directions of other producers have eroded their market share and power. In addition, there are many more players purchasing rough diamonds today including hedge funds, banks and private investors. Other than sight holders, whose numbers have shrunk substantially over the years, most diamond manufacturers are short of profitable rough.
For those who understand Zimbabwe coated rough, and are lucky enough to win the tenders in Antwerp, they have few complaints. However, Zimbabwe has suspended all rough sales in Zimbabwe and one cannot currently purchase rough in Zimbabwe from the MMCZ, the only legal supplier. The rumor is that trade will begin again soon, but few, if any, know of any new schedule.
For the rest of the diamond world, it is a struggle to find profitable rough. For Western countries and for the hedge funds, banks, and private investors, finding rough with value has become a major challenge. This is because all of them want the exact same stones. 4.00 Ct. up to 20.00 Ct., If-VS2, D-H color, Sawable1, Sawable 2, Makable 1, Makable2. No flats, no macles, no cleavages and little or no florescence.
Despite the claims on the internet, these goods are hard to find and I rarely see any bargains when it comes to these stones. As a matter of fact, I am in Kono, Sierra Leone currently. If you are unfamiliar with Sierra Leone, Kono is the main diamond mining area in Sierra Leone and getting here is a driving nightmare. Further, these goods are in short supply and when you do find them, they are expensive.
And this brings me to the point of my article. It is a well-known fact that small goods, flats, macles, cleavages, strong blue florescence and off colors are not desired by the above aforementioned clients. Because of this, the various diamond source countries are sitting with a large stock of these goods. The DRC, Guinea and Sierra Leone are the countries in which one can find the largest quantities of these goods at the cheapest prices. For those who can use these goods, a fortune awaits you in these countries.
In other words, these countries are ripe for plucking by the Indian diamond industry. Why is it then that you see few, if any Indians in these markets? The answer is simple: The diamond men of India today are not cut of the same cloth as their fathers and ancestors. They are not brave, intelligent; business savvy people who are prepared to take risks to develop their Industry.
Wow! What a thing to say! My Indian wife is most likely not going to be happy with my statement. Despite my fear of the wrath of my wife, I have to say this. I do not say this statement lightly, or with ill will towards Indians. I say it because I get calls from many Indian companies who are seeking rough and almost without exception; they are unwilling to do what must be done today to secure a steady and reliable supply of rough. They are afraid to lose their money, they are afraid to waste their time, and yes, they are afraid to go to these countries because they are afraid they will be scammed, or become sick, or God forbid, they will be kidnapped and murdered.
To be fair, all of the above can happen to anyone who goes to the DRC, Guinea and to Sierra Leone. You must be connected to the right people, both in government and with suppliers. You must put into place your banking. You will have to obtain your diamond buyer’s license. You will have to set up a local company and you will have to obtain the correct working permits and documents. Unless you want to open your own export company, you must have a verified, reliable exporter. In addition, the right security is essential, as is having the right driver and SUV for in-country transportation. Knowing where to stay and more importantly where not to stay, is also of paramount importance. if you do not know how to work with the Ministry of Mines in DRC and Guinea and the GGDO in Sierra Leone you will also find it difficult. And of course, if you do not understand how to safely ship and import your stones back to India you will suffer costs and delays.
Have I not outlined the cause of all your fears? Of course you have none of the requirements to go to DRC, Guinea and Sierra Leone. How could you? However, it is because you are unlike your fathers, that you see only obstacles and risks, while your fathers saw opportunity and wealth to be created because of the very adversity that stops the timid and unimaginative. Herein lays the difference between you and your fathers.
Let me give you an example of the way your fathers thought. I have told you of the abundance of diamonds that are available to the Indian diamond trader. I explained that most of the goods available are unwanted by the Western diamond companies, hedge funds, and private investors. And immediately, many dismissed my premise because they too would prefer the larger better goods. Your father’s minds would have had a different view. They would have understood that by buying the goods the miners could not easily sell, they would endear themselves to the miners, and would be given the opening to buy the better, larger goods. The miners would happily sell them the better goods because the miners would much rather sell to those who will also take the less desired goods. Your fathers would have bought up the production. They would have sold off at cost, or below cost, any goods they did not wish to manufacture. They would have made up their losses, and garnered large profits with the other money-making goods. By working in this way, your fathers would have found reliable, grateful suppliers.
Who would you rather sell to, someone like your fathers, or those companies who don’t give a damn about you and only want to take the cream?
Is it easy to be successful in the DRC, Guinea, and Sierra Leone? Is this an easy task to accomplish? No; but it is certainly easier than what your ancestors and fathers had to go through to establish and build their businesses.
Now the only question is; who do you know that has all these connections, experience and expertise to make this happen for you. Gee… I wonder where you could find a guy like this?
Last week, two clients who are also friends, asked me to go to Los Angeles to defend a parcel of rough diamonds for their client. The client is new to the business, and had purchased a parcel and wished to sell it. They did not know why the gemologist who prepared the parcel was not defending it. That being said, my friends arranged for some buyers and they were to meet in the main diamond building in an office owned by another one of my friends. The office owner was my neighbor in the diamond building for many years. I spent 35 years in the diamond district of L.A. and know many people there.
My friends sent over the manifest for me to get a sense of what the parcel consisted of. As soon as I looked at the manifest, I told my friends that the manifest was worthless and that the prices asked for were several hundred per cent below cost. In addition, there were many other problems with the manifest that showed that the manifest was a complete fabrication. Further, they were offering some extremely large VIVID, Internally Flawless colored stones that do not exist in this world.
I told my friends of my concerns and they told me they did not believe in the details of the manifest, but were absolutely sure diamonds would be there in the morning, and regardless of what was on the manifest, there would be diamonds to sell. They agreed that I would go through the diamonds first and grade and evaluate them and only after that, would they show them to the buyers.
Normally, I only go to a gig, if I have been paid up-front. I have tried trusting people to pay me after the work, but have found that system leaves me chasing after my money. In this case, they needed me in L.A. the next morning, and there was no way for them to pay my fees up-front. Because of my friendship, I put my procedures and good judgment aside, and hopped on a plane in the early morning.
When I arrived in L.A., I went straight to my friend’s office and there, met the owner of the office, and my friend who arranged the sale. Also, one of the buyer’s representatives was sitting patiently waiting for the Brink’s delivery. The delivery was scheduled for the morning and everyone was in a good and jovial mood. The lawyer for the seller was due any minute and as we waited for him, we sat around talking about jet aircraft as the buyer’s rep is a world renowned aircraft designer.
Finally, an hour later, and the subject of jet aircraft exhausted, the lawyer walked in. He was a short, thin man in his early 50’s. He seemed good-natured and friendly. He had been the lawyer for the seller for more than 30 years and had great confidence in his client’s abilities. After pleasantries were completed, I took him aside and voiced my concerns. He was quite confident that the goods were as represented and assured me every precaution had been taken to ensure the success of the sale.
It was now afternoon and despite repeated assurances, the parcel had not arrived, nor had the seller’s representative. My friend called down to the Brink’s office which is on the 8th floor of the same building and they did not have a delivery on hand. I suggested to the lawyer that he and I go down to Brink’s in person and find out about the delay.
We went in to Brink’s office, talked with the manager, and of course the manager asked for the shipping number. The lawyer did not have one. The manager then asked where it was being shipped from. The lawyer said Beverly Hills. No shipment on record was the manager’s answer. The lawyer looked and was confused. He got on the phone and called his client. The client got on the phone with his supplier, the supplier got on the phone with my friend; my friend looked at me and said that the seller’s source did not send it with Brink’s after all and it was coming with an independent shipper and t would be here in one hour.
We rushed up to the office so we could hurry up and wait. We knew we only had 59 minutes to go up 7 flights and the elevators always take so long in this building. Patiently we waited. We waited and we waited and we waited. Finally, at 6:00 P.M. the seller called and said they were sorry for the delay but that the stones would be in the office at 9:00 A.M. the following day.
I smiled at my friend and told him, if they wanted me to stay, they would have to pay me before I began any work. If it were not for my friendship, I would have jumped on the next plane out. The next morning we met in the office and once again. 9:00 came and went. The lawyer had assured my friend they would take care of me this day. The lawyer and the buyer both showed up after 12:00 P.M., still no goods, just more promises from the seller.
I told the lawyer and my friend I would not even open the parcel until I was paid. The lawyer and my friend went outside to discuss the situation and when they came back in the office, he offered me an additional $25,000 if I would let them pay me after the work. I refused. They then called the seller. The seller said his partner would be there shortly and would take care of everything. His partner arrived at 3:00. Still no goods and the partner did not have my money. Again they begged me to stay and do the deal. I said to myself, “This is a $30,000,000 sale and between the partners and the lawyer they cannot come up with a small 2 day fee? The goods are not here, and all I hear are stories.”
Again, I smiled sweetly and went over to the buyer, shook his hand, said my good-byes, kissed the cheeks of the office owner, went over to my friend and told him I was leaving and explained to him how to protect himself in this deal. Then I went over to the partner and the lawyer and shook their hands and wished them all success.
Neither the seller, the buyer nor my friends believed I was going to just walk out and kill the deal. There was a lot of money involved and they had spent weeks preparing for this sale. There were the countless conversations, the negotiations, the contracts, the promises of future deals. I was screwing up their deal and they were not happy with me. One of my friends lightly chastised me and told me I had spent too much time in Africa. The other just kept working on the deal, sure that it would happen. One week has passed. The goods have still not shown up.
None of these problems would have arisen, and much time and money would not have been wasted, had the parties followed a few simple steps. If you do not know what these few simple steps are, then call a rough diamond gemologist who does.
I am sitting at the airport in Paris waiting for my flight to the DRC (Congo).As I am awaiting to board my fourth flight on this very long day, I thought about all the offers I receive daily. Several times a week, I receive offers for very large quantities of 5 carat to 25 carat D-H VVS-VS rough
diamonds. In addition, almost as often, I receive requests from buyers to purchase very large quantities of the same. You would think with all these offers to buy and with customers who have gigantic appetites, I would be one of the richest gemologists in the world. After all, if you have the seller, and you have the buyer, you would expect to make large commissions as well as
gemological consulting fees.
How is it that although I make a very good living, I am not filthy rich? Why is it that despite these incredible offers of great riches, I am still running around to third world, diamond producing countries doing simple evaluations of rough? Why should I bother to do 30 plus hours of travel
when easy money is just begging me to pick it up?
Yes, you could be correct. Maybe I am just not smart enough to make one of these deals work despite 39 years in the diamond business. Maybe I m just unlucky. Perhaps I was born under a bad star; it could be bad karma, or I don’t close megadeals because I am mean to dogs. You may even think I am being punished for beating my wife and children. (No dogs, wives or children were beaten in the writing of this article.) Or maybe, just maybe, most of the people who tell you they have large quantities of diamonds available are liars, fools or thieves.
I have never completed a deal for hundreds of thousands of carats and I have never closed a deal for hundreds of millions of dollars. However, I have been paid many times to go to Zurich, Geneva, New York, Dubai and South Africa to evaluate hundreds of millions in diamonds that were to be shown at Malca-Amit and or Brink’s and when we got there, the stones did not exist. It is painful to watch your client when they realize they were fooled and threw away many thousands of dollars in expenses.
I always ask my clients if they have verified the seller before I accept the assignment. They almost always say yes they have. At this point, it is none of my business how they have verified the seller. I have asked the question and do not question the abilities of my clients. I will of course, offer to verify sellers as part of my consulting services if the client requests, but few do. It is well known that gemologists get paid before we go on assignment. If your supplier does not show up with goods, or the goods have no relationship in quality and quantity to what was promised, gemologists still get paid. In addition, when you go to these countries to view goods, you incur all the transportation costs as well as expenses for hotels, meals, and everything else. This often adds up with gemo fees to be around $20-$30,000 a trip.
You would think that with a $20-$30 grand risk, you would be very careful when you engage a seller. My experience has been that people are blinded by need and greed. They want to believe. And, because they want to believe, they miss the RED FLAGS flapping all around them. For you brokers and buyers here is one easy step to verify the seller. If you follow my advice you will save
yourself hours of phone conversations, useless paper work shuffling, and much time, money and disappointment. Here it is…
For brokers, before you begin any introductions to your valuable and easy to lose clients, ask the seller where the goods are currently. If he tells you they are at Brinks or Malca then tell him that your clients will only engage if you have verified that you are dealing with the actual seller and that you must verify that the goods are where the seller says they are. Tell him to call Brinks or Malca and to instruct the safe-house manager to disclose to Mr. Buyer that Mr. Seller indeed has a large parcel at the safe-house. Tell the seller, you do not need to know the amount it is insured for, or even the quantity available. All you want to do is to have the manager at the safe-house verify that they have the sellers diamonds in their possession and they are under the company of Mr. Seller. Make sure the seller understands that only the buyer will call the safe-house.
If he agrees to do so, then get the name of the manager and the phone number to the safe-house from the seller. Now go to the web and look up the number for yourself to verify you have the right number. Call the number and verify the name of the manager. If everything checks out, give this to your buyer to call and verify. If Brinks or Malca are instructed by the seller to give out this information to a particular person they will comply. If the seller does not want to do this, then walk away from the so-called seller and quickly as you can. Do so without regret.
For you buyers: Once you have verified the product is at the safe-house you can show POF. Do so only bank officer to bank officer. If they ask for a financial instrument or to block your funds walk away. What you only need show at this point is an ability to pay. If this has been agreed to, hire your gemologist to talk to the seller’s gemo or sorter so he can ask questions that will help determine if the goods are as represented. If they will not do this it is because they cannot do this, which means they are not the seller. In order to come to a price, the seller had to have someone sort and evaluate the goods. This person knows what is in the parcel. Your gemologist knows the questions to determine if you should hop on a plane and put out thousands of dollars in expenses. It is better to pay a gemo a day’s pay to do a preliminary evaluation then to spend $30,000 to find out the goods are crap. If you follow these two basic steps you will eliminate 99% of the phony
deals offered. If you want to know the rest of the story, call me, or your favorite gemologist.
Oh, by the way, I actually don’t have a million carats to sell. I only have 900,000 at Brinks, no
POF needed. Every stone is D-E color VVS1 from 5-25 carats for $1800 per carat. Most of the stones have magic properties and each stone comes with a free coupon to Disney World. You can reach me at +1 (800) RED FLAG.
I make my living as a rough diamond gemologist. Most of my work is in Africa. In the last ten years I have seen a dramatic increase in the number of Chinese and Chinese companies in Africa. This does not surprise me. It would have surprised me if they were not moving into Africa in a big way. Africa is after all, the real prize.
Overall, the Chinese are a brilliant people. They do have their quirks and do some things that are plainly ill-considered. An example of their imprudence can be seen in their lack of sound environmental policies that would protect them from the unbelievable pollution problems they endure daily. Be that as it may, currently, China is moving into the 21st century as the dominant force of the world.
Interestingly, it is not intellectual superiority that is driving them forwards. It is not their financial resources, although their resources are certainly impressive. It is not their technological prowess or military capabilities. No, the driving force that will enable the Chinese to dominate the future world is an ancient warrior named Sun Tzu.
The strategies of the great warrior; Sun Tzu, are outlined in his text, “The Art of War”. It is the only strategy the Chinese need to accomplish their goals. If you have never heard of Sun Tzu, Google him; he may be considered to be the greatest military strategist in the history of the world. Mao used his teaching to conquer China and Ho Chi Minh used Sun Tzu’s methods to beat the French and the Americans in Viet Nam. In addition, it was required study for the KGB and our good friend Mr. Putin.
The uniqueness, genius and ruthlessness of Sun Tzu is undeniable. By following his strategies, a country, a corporation, or an individual, can defeat a stronger, more powerful enemy. It is said that a really good general defeats his enemy on the battlefield. However, a great general defeats his enemy without ever going to war! The Chinese are slowly but surely, annihilating their opponents. The great advantage for the Chinese is that most of their opponents do not even know they are engaged in battle.
If you are the leader of a country, and you want to expand your power, influence and territory, you can only do so at the expense of others. If you have an army of 100,000 men, you are unlikely to declare war or attack a country with sophisticated weapons and a million man fighting force. You would not only fail to defeat them, you yourself would be defeated and most likely you will be killed. Even if you can defeat an opponent militarily, why bother when you can overcome him like a trapper overcomes a powerful beast. A good trap is better than a bullet and a gun.
If you are going after a powerful opponent; you are looking for his weaknesses. Attack his weak spots and you will win. This is the first rule of war. Never attack a stronger opponent directly.
Okay, I know what you are thinking. Why is a rough diamond gemologist writing about Sun Tzu? The reason I write is because my own country, and most of the world are under attack and our leaders are incompetent, unaware, or just plain unwise. Of course I pick the “All of the above” check box. The Chinese are slowly, methodically, and continuously applying the teachings of Sun Tzu in order to overcome the rest of the world.
As I said, most of my business is in Africa. This means I have a vested interest in what happens in Africa. Because I visit many African countries I have seen first-hand the invasion of the Chinese in Africa. Not militarily of course, but an invasion is still taking place. The Chinese know Africa is the key to the future of China. Everywhere I go in Africa, the Chinese are setting themselves up to dominate and exploit the natural resources of Africa. The Chinese do not have a 5 year plan; that would not be the way the Chinese operate. They have a 100 year plan. And, their plan is working. As China invests in Africa, the Chinese influence increases daily. They will undoubtedly teach the African politicians and business establishment a thing or two about business.
Sun Tzu’s advice is clear. To take over, or dominate a country, you must undermine that country’s alliances; send in spies to infiltrate, watch, monitor, and influence the movements of your victim. You must sow lies, doubt and dissension amongst the population to undermine the government representatives who are opposed to you. In addition, you use your opponent’s greed and corruption to gain control of his policies. If you follow the directions of Sun Tzu, you can take over a country without ever firing a single shot. It is much easier to take over a country from the inside then to attack it from the outside.
The Chinese today are using technology to their advantage in many ways. They attack the computer systems of companies and countries. They steal their products, information, customer and accounting data and anything else of value. When the Chinese are careless, they are found out, and the news is blasted all over the country. (As an example, take a look at the recent reporting of the theft of America’s F-35 technology by the Chinese). What most people do not seem to realize, is that many of these attacks are not noticed by the victims and are going on continuously all throughout the world.
Our government, our industries, and our people do not realize, or do not know how to stop what is taking place. The Chinese, study and apply the teachings of Sun Tzu constantly. Sun Tzu would be proud. Our leaders in both government and business are watching this happen without any idea of how to combat the Chinese and to a lesser degree, the Russians.
Just this week, an expert on the tactics of Sun Tzu has just taken over the Autonomous Republic of Crimea. Experts on Sun Tzu, like Putin, engage the world using the methods of Sun Tzu. They enter without appearing to enter, and leave without appearing to have been there in the first place. By the time the quarry realizes what is happening, the Chinese and the Putins of the world have already finished their work. The weak leaders, the so-called Chamberlains and the rest of the inept Western leaders get slapped in the face publicly. In response to the Chinese and Russians, the Western powers spout worthless platitudes while the Putins, and the Chinese laugh at our weak incompetence. I do not blame or criticize the Chinese or Putin for their actions. On the contrary, it is our lack of action and understanding of Sun Tzu’s methods that is the fundamental root cause of their success and our failure.. Sun Tzu has been dead for thousands of years, but I can still feel the pain of his sting.
*(Article title originally quoted by Walter Brennen in the 1944 movie “To have and have not”).
The following article was published one day after I published my article.
Nearly every day, I receive white rough diamond offers from sellers. Most are not serious sellers or they are scammers of one kind or another. With the advent of LinkedIn, and the other social networks, the number of scammers has increased dramatically. If you are an experienced rough diamond buyer, it is not difficult to see the scam. However, for those with less experience, the internet offers look legitimate.
Even with experience, it can be very difficult to find a real seller. This of course, is very frustrating for buyers. Yet, if is far more infuriating for the legitimate seller trying to make an honest living. There is an old saying; “When you fly with the crows, you get shot with the crows, even if you are a dove.” This is certainly the case with diamond sellers. The honest sellers are lumped in with the crooks, and they are at a loss as to how to separate themselves from the flock.
Many sellers are angry when buyers refuse to come to see the goods in Africa. They cannot understand how the buyer can expect the seller to go to them. I have written on this extensively and you can read articles on the risks to buyers. Still, sellers keep calling and asking me to bring them real buyers. Well, I have real buyers. I have some really great buyers, buyers who are willing to go to Africa, buyers that understand the risks, buyers with experience. Yes, I can bring them!!
So why are my buyers sitting here, and not talking to you when they could be in Africa right this minute making money? Are they lazy? Are they afraid to travel? Are they too rich to care? Do they have an appointment with the pope? No, the reason they are waiting is because I cannot guarantee my clients that I can trust you, the seller. I cannot trust that when my client and I travel half-way around the world that you sir, will actually show up to meet us. If you do show up, I will then have to hope you actually have diamonds. If you do have the stones, then I have to worry that the diamonds are what you absolutely, positively guaranteed them to be. In addition, if they turn out to be what you say they are, I now have to hope that they have the value that you stated, and that we can come to terms and close the deal.
Because I have been disappointed once or 10,000 times, and because my client spends $20,000 to $30,000 on my fees, expenses, and other inherent costs of going to Africa, I will also have to line up many other sellers in order to hedge my bet on you. In this way, if you cannot perform, I have other options. This sir is why it is so difficult for me and for you, to convince a buyer to come to Africa. In my case, I have a fiduciary responsibility to my client not to bring him to Africa without doing my best to bring about a successful buy. And unlike you, I have to tell my client honestly what the risks of doing this business are, and what his chances of success are.
As I see it, your problem as a seller is that you do not have a track record with the buyer. Because of this, they are naturally and rightfully afraid to work with you. You on the other hand are in the same position; you do not know the buyer and you are naturally and rightfully afraid of him. There is a solution, perhaps you will consider it.
My solution is not without expense, because of this, some sellers will dismiss it out of hand. But for those sellers who are not risk adverse, and are confident that they have the right goods at the right price, consider this: Why not hire a gemologist who can bring you proven customers? A gemologist with experience and a good buyer clientele can verify both the buyer and your company. In addition, he can confirm your ability and the ability of the buyer to perform and can value your product for the sale. The credibility of the gemologist and his relationship with his customers will overcome the fear and reservations of the buyer. Further, you can make a deal with the buyer to split the gemo fees upon the completion of a successful sale.
I know what you are thinking; this idea of my mine is very self-serving. You are 100% correct. If you take my suggestion and hire my firm, I make money. However, there are other gemologists out there, so if you don’t like me and my self-serving ways, then hire a different gemologist. The truth is the truth, whether I make money or someone else does. It does not change the fact that my solution will work.
Once you establish your credibility, your business will have no trouble attracting buyers. So the question I pose is a simple one. Are you a crow or a dove? If you are a dove, then have courage and invest in your business. If you are afraid to invest in your own success, then you need not ask why the buyers you contact are afraid to trust you.
It is always easy to tell the other guy to spend the money. It is not so easy when you have to step up to the plate, is it?
Louis Pearl G.G.
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