You wouldn’t know it by the prices at your local Tiffany’s, but the global diamond industry is having a very bad year. The general sense of chaos and mayhem in Shanghai and Shenzhen equity markets has lowered demand for luxury goods in China – which is now the world’s second-largest buyer, after the US. Shares of Hong Kong-based Chow Tai Fook, the world’s largest listed jewelry store chain, have dropped 38 percent this year.
And a surging US dollar is also creating serious problems. The diamond industry’s notoriously long supply chain between Botswana and Russia – the world’s largest diamond producers – and your local mall is heavily reliant upon small- and medium-sized dealers. Most of those dealers buy and sell on credit, and a stronger dollar has squeezed an increasing number of them to the breaking point. DeBeers, the world’s largest seller of diamonds, reportedly felt the pain this month when buyers rejected up to 50 percent of its stones during a recent sale.
Botswana is being forced to take measures to counteract the crisis. The African nation has until recently enjoyed years of a Chinese demand-fueled economic boom, during which it accumulated US$ 8 billion in foreign-exchange reserves, established a sovereign wealth fund, and routinely won plaudits as one of Africa’s best-run countries by every conceivable measure. Now President Ian Khama admits that economic growth will probably be half of last year’s rate. A recent Cushman Wakefield property report, which once again placed Botswana at the top of its list of most appealing frontier markets, acknowledged that “opportunities are high for existing occupants approaching lease events” in the CBD of the country’s capital of Gaborone.
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