Panama to open up Latin American diamond market

Written by Reuters

Wednesday, 06 August 2008

Reuters---Diamond sellers are setting their sights on Latin America's increasingly prosperous middle class, which is benefiting from economic growth and stability, as U.S. and European sales of the rare stones slow.

Latin America is rich in minerals, providing the gold, silver and emeralds that bankrolled Spanish and Portuguese empires, but it has long been a backwater in the diamond trade despite modest production in Brazil, Venezuela and Guyana.

To meet the new demand, Panama is building Latin America's first diamond exchange expected to be recognized by the World Federation of Diamond Bourses, one of the main players in the wholesale diamond market.

"Latin America is the last frontier," said Erez Akerman, who heads the Panama Diamond Exchange, the group behind the project. "We are looking at four main markets: Brazil, Mexico, Argentina and Chile," he told Reuters in the exchange's temporary offices in one of Panama City's upscale districts.

The $200-million project, due to be up and running by 2010, will include a purpose-built 50-story building in Panama City with safes, a gemological institute, laboratories, polishing and cutting facilities and a trading hall.

Panama will make the exchange a tax-free zone and has applied to join the Kimberly Process to stop the spread of conflict diamonds so rough stones can be traded there.

Akerman hopes to draw 300 traders to Panama to create a place for buyers and sellers and raise the profile of the jewelry market in Latin America.

"We believe the jewelry market here grew about 5 to 10 percent a year in the last 10 years. We think we can change that number to 20 to 25 percent per year," he said.

NEW WEALTH

Economic growth and ample access to credit have sparked a boom in parts of Latin America. In the past two years, some 23 million Brazilians have jumped from low-income status to earn up to $745 a month and the ranks of the wealthy are swelling.

Only China and India are producing new dollar millionaires at a faster rate, according to investment bank Merrill Lynch.

Varda Shine, head of the De Beers trading arm the Diamond Trading Company, which handles half the world's trade in rough diamonds, says Latin America should be part of the global expansion already being felt in India, China and Russia.

"Opportunities are opening up in new markets," Shine told an industry conference in Israel in February, predicting that "in addition to China and India, Latin America will become a large market for diamond jewelry."

Much of production in Latin America today is sold under contract to established traders in New York, Antwerp and Israel and what little regional trade exists is highly informal, with many diamonds being sold on the black market to avoid taxes.

"Right now, if we sell on the Brazilian market we are heavily taxed and the market prices are 15 to 20 percent lower than in Europe or elsewhere," said Kenneth Johnson, president of Toronto-based Vaaldiam Resources, which runs two diamond mines in central Brazil producing around 120,000 carats a year.