Antwerp / Brussels: For Antwerp, the world’s biggest gem trading hub, diamonds may not be its best friend after all.

Cutting edge: Workers at a diamond processing centre in Antwerp, Belgium. Some 80% of the world’s uncut stones pass through the city. Jock Fistick / AP

“There’s very, very little trading going on now," said Philip Claes, a spokesman for AWDC, based close to the four gem trading exchanges squeezed into Antwerp’s narrow backstreets. “We’ve seen a dramatic decline."

Some 80% of the world’s uncut diamonds pass through Antwerp and the worst financial crisis since the Great Depression is taking its toll on a city already battling competition from gem centres, including Dubai and Mumbai. Add raids by the police investigating alleged tax fraud and a slump in prices, and traders are talking of tough times.

The cost of buying a 1-carat diamond has declined 11% in the last two months alone, according to the Rapaport Trade Index, used as a barometer of global prices.

“Diamond people always complain," said Penny Weinberger, who has run Tresor Wines on the edge of the gem district since 2002. “The difference is, they say they mean it this time."

As the credit crisis mounted, AWDC cancelled a two-day conference and gala dinner due to be held last week in the city. British entrepreneur Richard Branson had been booked to address guests largely from the diamond trade.

Last year, as the city prepared to host the sale of the 493-carat Letseng Legacy diamond for $10.4 million, Bob Geldof spoke at the gala. The Irish anti-poverty campaigner was following in the footsteps of speakers, including former US president Bill Clinton and Al Gore, who talked at earlier events organized in Antwerp.

“People expect the diamond business to be about glitz and glamour," said Claes. “This year, with everything that’s going on, that just felt wrong."

To make matters worse, diamond traders are the focus of a police crackdown on tax fraud. Officers have raided about 25 Antwerp diamond companies over the last 18 months, Claes said.

While an Antwerp police spokesman said they are simply weeding out traders who don’t play by the rules, Claes is concerned about the city’s reputation. At least 10 dealers have left because of the probe, and the number of diamond companies may shrink further given the state of the market, he said.

“Five minutes after the raid, everyone in Antwerp knows about it," said Claes. “Ten minutes later, the entire world knows about it, and we’re getting calls from New York, Dubai, India wanting to know is Antwerp a safe place to do business."

Rival centres, though, are also feeling the pinch. In Israel, where some of Antwerp’s Jewish traders settled after World War II, exports of polished diamonds fell 46% in October from a year earlier, according to the Rapaport News website. An Indian industry grouping of diamond companies this month asked members to stop importing rough rocks for a month.

At a one-day conference in Antwerp last week, ZAO Alrosa, Russia’s diamond monopoly, said it may cut gem supply by as much as 40%. On 19 November, Sotheby’s failed to sell three of the top diamonds offered in a Geneva auction.

“We are all aware of the sort of speculative bubble that was created by dealers taking advantage of the ill-conceived credit policy of a number of banks," Alrosa president Sergey Vybornov told the traders, cutters and bankers who had gathered at Antwerp’s Province House.

Nowhere is more vulnerable than Antwerp.

On the banks of the Scheldt river, the city in Dutch-speaking Flanders has been a centre of the global diamond industry since the 16th century. The start of the main thoroughfare through the gem district in the city of 470,000 is marked by banners proclaiming “Diamonds Love Antwerp."

The industry directly and indirectly employs 34,000 people in Antwerp, a study by Leuven University for AWDC found. The grey streets are home to 1,500 diamond banks, retailers and dealers.

Based in the city’s Diamond Club, Andre Gumuchdjian’s family has traded gems in Antwerp since 1908. On the wall of his cramped office hangs a framed black-and-white photograph of his grandfather hauling diamond equipment through the streets of Istanbul before settling in Antwerp.

“For sure, things are going to get slower," said Gumuchdjian, 50, as his three employees pick through gems destined for the US. “Prices got so out of control. Now we are looking at a 30% fall in rough diamond prices."

Exports to the US, the biggest gem market, have fallen 14% this year. Sales to Italy, Europe’s fashion centre, have dropped by 13%. Retail diamond sales will drop 10% in 2009, according to Chaim Even-Zohar, the industry analyst who moderated last week’s symposium in Antwerp.

And at Tresor’s wine shop, Philip Weinberger, who runs the store with his wife, says diamond traders are cutting back on gifts to their customers, suppliers and banks. He doubts Christmas sales this year will match 2007.

“Are you going to buy a case of wine for your bank manager this year?" said Weinberger. “I don’t think so."