SHINE BRIGHT

Panama 2015 | FINANCE | VIP INTERVIEW

TBY talks to Erez Akerman, President of the Panama Diamond Exchange, on the gemstone and jewelry market in Panama and beyond.

Can you brief us on the jewelry and gemstone markets in Latin America?

Let us first define Latin America from the perspective of the Panama Diamond Exchange. We are talking about a market that covers an area from Mexico in the north, encompassing the Caribbean Basin and traversing all of Central America and South America. It stretches over a vast area, including 20 countries and many islands, with widely divergent population groups. Latin America is a region rich in precious minerals and metals, and a result has a history of jewelry production stretching back literally thousands of years. But despite that, it is today considered one of the most under-developed jewelry markets on the face of the earth. More than two years ago we conducted a survey and discovered that the annual demand for jewelry and gemstones in Latin America hovered above the $8 billion mark. But with 8% of the world population, Latin America consumes less than 5% of the fine jewelry produced. On the one hand that indicates that it is performing way below its real potential, but on the other hand it show that there is room for tremendous growth. This is particularly the case where diamond-set jewelry is concerned, because there the region's market share is even lower. What is lacking in Latin America, when compared to other parts of the world, is a well-organized business infrastructure, which is exactly what we are creating in Panama with the World Jewelry Hub, which will be the first trading center in the region dedicated to the professional gemstone and jewelry trade. The Panama Diamond Exchange, the only recognized diamond bourse in the region, will be its anchor organization.

What factors made Panama the prime location in Latin America to establish Panama Diamond Exchange?

A variety of important factors provide Panama with a clear strategic advantage. Geographically it is located at the virtual midpoint of the Americas, and this factor is complemented by the presence of Panama's national carrier, Copa Airlines, which is the most connected airline in Latin America, and by Panama City's Tocumen International Airport, which is the most connected airport in the region. It can honestly be claimed that, in Latin America, all roads lead to Panama City. Panama is also home to one of region's most stable and prosperous economies, and it one that flourished, despite the fact that the population is relatively small. Its economic strength has been built on its status as both a regional and international logistics and financial service center, with the largest concentration of banks in all of Central and South America. Panama also has a dollarized economy, which is particularly important in the diamond and gemstone business, itself conducted internationally in US dollars. Panama's government has traditionally been business friendly, and from this perspective we have received strong support for our venture over the years. This was underscored by the government's declaring the area of the World Jewelry Hub a Free Zone, with no customs or duties on goods traded within its confines, and no tax on the profits of companies registered on its premises. And meanwhile, the attendance in person of the official grand opening ceremony in April by President Juan Carlos Varela further emphasized its significance.

“A variety of important factors provide Panama with a clear strategic advantage."

Panama has the second largest free trade zone (FTZ) in the world: the Colón Free Trade Zone. Why have you decided not to build Panama Diamond Exchange there?

The economic environment in Colón is excellent, but it is a Free Zone designed to cater to merchandise coming through the canal on ships. This is not relevant to the diamond sector. Diamonds enter the country by air, meaning that a diamond exchange and jewelry-trading center would better be served by being in close proximity to an international airport. The World Jewelry Hub is situated just minutes away from Tocumen International Airport in the Santa Maria Business District, which is fast becoming Panama City's most exclusive business address. The diamond trade also requires extremely tight security, with careful control over people and merchandise entering and exiting the complex. Furthermore, lighting and trading conditions need to be optimal. The World Jewelry Hub, home to the Panama Diamond Exchange, is being built to the very highest standards, and when complete will almost certainly be the most luxurious and exclusive facility of its type in the world. Importantly, with the area of the World Jewelry Hub also having been declared a Free Zone, the gem and jewelry-trading complex today enjoys that same benefits and advantages as exist in Colón.

Can you elaborate on the synergy that you will create between the World Jewelry Hub and the Diamond Exchange?

The World Jewelry Hub is being created as a specialized trading center, where members of the jewelry and gemstone sectors from across Latin America and the world can gather and do business. By bringing together a critical mass of companies and dealers in one secure facility, it is possible to provide a selection and range of merchandise that is considerably larger and more varied than any one of them would be able to find anywhere else in Latin America. This would preclude the need to travel beyond the region, and also would engender the type of competition that ensures fair market prices at all times. The Panama Diamond Exchange is the anchor organization of the World Jewelry Hub, and in that respect provides a structured trading environment for diamond and gemstone dealers, be they Panama Diamond Exchange members or affiliates, or members of other diamond exchanges from around the world that are associated with the World Federation of Diamond Bourses. It is important to remember that, internationally, diamond-set items constitute about 50% of all fine jewelry sold, and that in excess of 90% of those diamonds are handled by WFDB-bourse members. This means that anyone using the World Jewelry Hub and Panama Diamond Exchange would effectively have access to most of the polished diamonds on the world market at any particular point in time.

What are your main priorities before the end of this year?

We are following a strict schedule. The Phase I building of the World Jewelry Hub, providing a headquarters for the trading floor and administrative offices of the Panama Diamond Exchange until the Phase II building is ready, was completed at the end of 2014. The building includes additional office space for up to 60 companies, and all the offices and showrooms were rented before construction had ended. Occupation of the Phase I offices began at the start of this year, and most were active by the time that we had the official opening of the facility in April, in the presence of President Juan Carlos Varela, as well as other senior government ministers and leaders of the international gemstone and jewelry trade in April. The event was highlighted by the first Latin American Diamond and Jewelry Week, with buyers flying in from 16 Latin American countries, and suppliers from nine international centers. The Phase I building is now fully operational, and at the Panama Diamond Exchange we are working to ensure optimal trading conditions in the new facility. At the same, PDE is conducting a membership drive. Construction of the Phase II building of the World Jewelry Hub will begin during the third quarter of this year, and is scheduled for completion by the end of 2017. From a design perspective, the iconic office tower will introduce a new level of luxury and design to the industry, not only in Latin America, but internationally as well. Office space in the facility is available for purchase, and the pre-sales campaign is about to begin, with an official sales campaign starting within the coming few months.

© The Business Year - June 2015