I joined ABN AMRO International Diamond Jewellery Clients, one of the major lenders to the midstream over the last century, as the CEO more than two years ago. My background is in private banking and finance, particularly hedge funds, so I entered the diamond industry with a fresh perspective.
I have seen the industry’s attitude to change evolve. A couple of years ago, the midstream had a large culture of blame: blaming miners for high prices, retailers for stealing margins and bankers for limited support. Recently, however, midstream players have looked at themselves in the mirror and become self-critical in their practices. There appears to be a readiness to embrace change from within, in order to tackle the increasingly competitive landscape.
There is general lack of transparency in business practices and quality of reported financials across the midstream, leading to a loss of trust. This is compounded by the fact that the midstream is highly levered. Banks are therefore being more critical and thorough with funding decisions, and looking for a greater level of security against their loans.
When approaching financing decisions, we assess the ‘bankability’ of the clients - whether their business is in good financial health with transparent business plans, if they apply International Financial Reporting Standards or equivalent Generally Accepted Accounting Principles standards and streamlining processes such as the removal of inventory round-tripping. Financiers reward sound fiscal management and good compliance by providing better lending conditions.
In an increasingly competitive landscape, competitors have to adopt strategies to ensure survival and sustainability. Sustainability is the right to exist. This is achieved by being prepared to compete in a saturated space with dynamic and flexible business plans, investment in infrastructure and technology, and diversification.
The rate of change is still very slow, so I do not envisage much consolidation in the next five years or so. However, I do see the competitive landscape getting tougher, which will lead to those less sustainable businesses disappearing.