8 - 14March 2001

The diamond trade

Sammy Cremona, Director of Gaba Diamonds, explains to Blanche Gatt how his company set up as leaders in the local diamond trade, and outlines the changes the company had to go through to adjust to fiscal changes in the 1990s

Few industries are as seductive as the diamond trade. Surrounded by an aura of mystique and romance, diamonds are the most coveted of all precious stones; in terms of investment, the most stable, saleable and convenient of any commodity.
But getting into the business is not so easy. Throughout the world, the trade in diamonds is strictly regulated, and finding a niche for yourself within one of the major diamond markets, or bourses, is very difficult. Of course, retailers are able to purchase stones for sale in their outlets from the multitude of dealers who emanate from these markets in the major diamond capitals of the world, but it is not so easy to obtain ingress to the source of the merchandise.
In Malta, there is only one company that holds the coveted position of sight-holder – meaning they get first “sight” or choice of diamonds to be sold by the mining companies themselves, before they go on the market. The company is Gaba Diamonds, whose name has become renowned among diamond lovers and young spouses across the islands.
Their unique status as the only sight-holders in Malta has naturally given Gaba Diamonds a certain advantage, so I went to meet director and company secretary Sammy Cremona to find out how his company breached the sturdy defences of the international diamond industry to grasp the valuable title of sight-
holders.
“The company was first established in 1972 as a diamond cutting factory,” explained Sammy. “There were several Maltese partners, as well as a certain Boris Soliman, a Swiss diamond merchant who had generations of international contacts to bring to our enterprise. My father helped finance the company.”
It was Mr Soliman who brought Gaba Diamonds their share of the “sight” that has given them their competitive advantage over the years. “You can only buy diamonds on diamond Bourse,” explained Sammy, “or from a sight-holder.” A sight-holder is someone who buys directly from the CSO – the Central Selling Organisation, which is owned by the De Beers and other mining companies. What we have at Gaba Diamonds is part of a sight, and we have been sight-holders since the 1970s.
“How it works is that you are asked to put up a guarantee. Every five to six weeks you are given a box of diamonds and you look at it and keep those that interest you. A small box is valued at US$2m, while the larger ones can go up to US$50m. Our box goes directly to the Antwerp Bourse, where we have a broker to sort it and share it out.”
Sammy himself became involved in the company right from the start, working part-time while concurrently studying the diamond trade. He spent long periods in Antwerp, following apprenticeships with various major companies, as well as working for a while as a sorter and grader at the Antwerp Bourse.
“During this time I learned an enormous amount about the diamond trade,” explained Sammy. “I learnt not only to identify the different types of stones, but also the specific market each type would be suitable for. For example, people in Nordic countries want very white stones, because there is so little light in their countries that in order to shine brightly, the diamond must be as white as possible. In India, on the other hand, an inferior white is desirable – there is more than enough sunlight in their country, so what they want is a clean, flawless stone, irrespective of colour.
Gaba Diamonds started off as a diamond cutting factory, supplying loose diamonds to the trade. “By the end of the 1970s however,” continued Sammy, “we started selling set jewellery. The reason for this was that prices of gold and diamonds were going up dramatically. Gold for example, in the early 1970s went for about Lm200 a kilo, but after America went off the Gold Standard, the price went up steadily to over Lm4,000 per kilo.
“In the early 1980s it shot up to Lm7,000 per kilo, then came down again to steady at around Lm4,000. During the 1980s there was this constant price oscillation, but during the 1990s it steadied to around Lm4,000 per kilo, which is where it remains today.
“At the time, our main line was diamond cutting, so we watched the prices of these stones very closely. In 1974/5 a one carat flawless white went from Lm600 to over Lm2,000 in the mid-1980s. It has continued to rise consistently, and today the price of one carat flawless white is around Lm2,800.”
During those early years, Gaba Diamonds competed with two other diamond cutting companies in Malta. “In those days,” recalled Sammy, “there was a lot of protection for local enterprises. There was no duty levied on rough diamonds or raw gold
bullion, while at the same time a prohibitive tax of 70 per cent was charged on imported gold articles. We used to employ 60 diamond cutters, and at least 70 per cent of our work was for the export market.”
With the fiscal changes introduced in 1995, the 70 per cent duty on imported gold articles dropped to 15 per cent VAT, and the same tax was also imposed on raw materials, including gold and diamonds. “We found ourselves with the market completely wide open,” Sammy said, “and the new circumstances made diamond cutting not feasible anymore, because if we were to pay 15 per cent on raw materials, we might as well pay the tax on worked and finished goods.”
So, in 1995 Gaba Diamonds made a strategic decision to step up the jewellery production, using imported semi-manufactured articles and polished diamonds. “We decided to give more importance to wholesale but refused to go into retail business because the market is saturated with shops,” he explained. “By then, even exports had become more difficult. From the mid-1980s to the mid-1990s our main sales were in Malta.”
“Today,” he continued, “we have opened up to retail from our own premises in Valley Road, plus we supply a number of old clients who have kept up a good working relationship with us and kept their commitments. Our core business now is retail and wholesale, though most of our diamonds are sold retail. We have also gone into selling diamonds and diamond jewellery as well as 18 carat manufactured gold and wholesale nine carat gold for the tourist industry. We have a substantial business with other shops around Malta – we supply 12
main customers as well as a few, carefully chosen, small clients.”
There are no more diamond cutters employed at Gaba Diamonds, but there still is the manpower to repair and cut large stones. Adjusting the focus of their business to be able to continue to operate profitably after the 1995 changes meant that the company had no need for diamond cutters any longer, and the last were shed in 1995. Gaba Diamonds staff now consists of office workers, plus several qualified gemologists, jewellery craftsmen and salesmen.
However, their diamonds still come from their sight-holder’s box. But, instead of bringing the rough diamonds to Malta to be finished, they are cut in Antwerp and then shipped here ready to be set or sold.
“We have created a culture of quality that no other local diamond seller can emulate,” said Sammy. “We sell diamonds for investments and offer a full refund guarantee on any diamonds returned, whether because of a broken engagement, or in order to up-grade to a bigger stone. This guarantee is something only we can offer, and it is without doubt the reason we have the market lead in investment diamonds.”
In fact, purchasing diamonds for investment purposes is still as popular as it was centuries ago.
“Many people want to buy loose diamonds in a portfolio to place in a safe and keep as an investment,” explained Sammy. “And if you’re ready to wait, then diamonds are a good investment. You have a definite guarantee that diamonds are not going to lose their value, and will go steadily upwards in price, though by how much is impossible to predict. But the greatest value in keeping diamonds as an investment is that they act as a hedge against inflation. Look at the Russians, as their currency devalued drastically, the ones who bought diamonds are unaff-ected by the fluctuations. Diamonds carry a strong stability value that not even property can match.”
The average rise in the price of diamonds, I learn, is around three to four per cent a year. Not spectacular, as Sammy said, but steady and dependable. “Diamonds are a stable currency that does not suffer from inflation,” concluded Sammy. “They are currency everywhere you go, they are easily transportable and transferable. Diamonds remain a very attractive investment.”