Why Antwerp is under threat as the world’s diamond trading centre

May 27, 2014

–Vashi Dominguez is the founder of Vashi.com. The opinions expressed are his own.–

When the European Union and the U.S. took action against Russia over the invasion of Crimea and the crisis in Eastern Ukraine, alarm bells immediately rang for the diamond industry. Russia is one of the biggest suppliers ($2.8 billion last year) of rough diamonds for Belgium, through which 80% of all rough diamonds and 50% of all polished stones pass. If Antwerp were to lose access to Russia’s diamonds, it would be the latest in a string of challenges facing the world’s diamond trading centre.

Aside from Russia, Antwerp has seen great success recently with Zimbabwe. To much surprise, the EU lifted sanctions placed on diamond trade with Zimbabwe in September 2013. Antwerp’s newly formed relationship with the Zimbabwe Mining Development Corporation (ZMDC) saw its first two sales, in December 2013 and February 2014, yield an impressive $80.5 million from 1.3 million carats.

However, Antwerp’s Zimbabwean successes bring great risk. It will stand accused of offering a direct route to European jewellery shops for unethical diamonds, and of removing a source of pressure on Zimbabwe to eliminate abuses and improve transparency in its mining operations. The ever-present chance of further European sanctions, or the involvement of other political powers, means a trading relationship with Zimbabwe is not a stable basis for Antwerp to rely on.

Diamond traders could get a boost if Belgium’s biggest political party N-VA achieves its European Parliament manifesto (immediate tax reductions to stimulate the economy and close the 103.7% of GDP spending deficit), but it is not clear that N-VA will be able to wield any real influence in the European Parliament.

Antwerp’s cries for a favourable tax regime have not gone unnoticed domestically, as competing Belgian political parties openly push for a new sales tax. Companies in Belgium are subject to a 33.99% tax on profit, meaning companies in competing diamond centres such as Dubai or Hong Kong, taxed at 16.5%, are biting at their heels. The Antwerp World Diamond Centre (AWDC) says the current tax regime is also unpredictable, due to its constant changes in local laws, national legislation and new regulations.

Antwerp has debated a series of initiatives to improve the centre’s competitiveness, including a Diamond Carat Tax, suggesting the removal of high corporate tax in exchange for diamond companies paying a turnover tax on volume, irrespective of profit. This approach, as practised by Israel’s diamond trading centre, would remove incentives for companies to transfer profits elsewhere, and give Antwerp a chance to continue competing. If it can’t, the consequences could be serious for the wider Belgian economy.

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