Wednesday, February 25 2015 11:26

The
agreement of cooperation with Russia in import of natural gas, oil products,
and rough diamonds in Armenia on preferential terms was to ensure additional
growth in the field of lapidary industry. Russia has canceled the 6.5% customs
duty on the rough diamonds exported to Armenia, at the same time imposing
strict re-export restrictions.  What has
changed in the lapidary industry of Armenia? 
 

 

The agreement has had a
positive effect on the field. Actually, 90% of the rough diamonds imported from
Russia were cut in Armenia unlike previous years, when the country re-exported
80% of the imported rough diamonds to third countries. Nevertheless, the
agreement coincided with stagnation in the market of diamonds.

Re-export is a
speculative sale of stones, though it was banned in all the agreements made
with Russia previously.  In this light,
our enterprises engaged in diamond production faced quite an unusual situation,
as the agreement restricts re-export and the government is responsible for it.
The country gains nothing from such deals. The lapidary industry has been
exempted of taxes. What government seeks is to settle the employment problems
through development of the sector.

 

After Armenia’s
accession with the Eurasian Economic Union, the situation has changed.  The agreement mismatches many provisions
dictated by the EEU. The point is that for the EEU countries there is no such
idea as re-export. There is only export. We have no border. What re-export you
are talking about, if we work in the same customs area. No customs document
contains such concept as re-export, and supplies to third countries is also
export.  On the other hand, all the
stones that are imported from other countries, not Russia, are processed as
customer-supplied raw materials and the new legislation applies to such
products.

 

What countries Armenia had re-exported the
rough-diamonds imported from Russia previously?

 

Belgium, Thailand,
India, Canada and other countries.

 

ALROSA offered 380,000 carats of diamonds in 2014. How
much did the local lapidary enterprises buy? 

 

They bought some 5% of
the total volume. It is around 10,000-12,000 carats of Russian rough diamonds.
This is business and the private enterprises buy as much as they need. The
parties to the agreement are ALROSA, the Government Treasury and lapidary
companies of Armenia. ALROSA’s permanent customers – big companies have
priority access to the lots and are bound to buy, but our companies have no
such capacities to join that club of 47 enterprises from various countries.
Actually, a year ago Armenia’s lapidary companies complained that Alrosa
offered them small-size stones, while last year they complained of being
offered too big and expensive ones.

 

By data of the Customs
Service of Armenia, in 2014, the country exported 160.1 thousand carats of
diamonds versus 202.7 thousand carats in 2013, and imported 345.7 thousand
carats versus 406.4 thousand carats in 2013. 
Did Armenia re-export Russian diamonds last year?

 

Part of the imported
rough diamonds undergoes cutting and polishing and falls under quite different
category and different customs code. Part of the rough diamonds - unfit for
cutting - is re-exported.

 

We buy rough diamonds
not only from Russia. The turnover with Russia is very low, much lower than it
could be. I cannot bring specific figures for the last year, but in 2013,
Russia accounted for 25% of the total import of rough diamonds in Armenia.  We did not anticipate that everyone would
rush to Russia for diamonds, but those who really benefits from it – the
operating lapidary companies - took advantage of that opportunity. Lifting of
the 6.5% custom duty does not settle all the problems in the sector. It is just
an impulse to development, but much depends on the enterprises, not the
government.

 

Do you mean that local lapidary companies operate
insufficiently effective? 

 

That’s not the
point.  Our labor force is not cheap and
there is deficit of human resources. Many have left the country for earning.
This industry requires highly qualified specialists, and it is not that easy to
find and prepare such human resources. 
The cutting price in the country averages about $17-$22 per carat. For
instance, in India and China, the price is lower. In Russia this price is much
higher, while in Belarus there is one state lapidary enterprise. In Kazakhstan
they do not cut diamonds, actually. Therefore, new opportunities are available
there.

 

It turns out that it is still favorable for Russian
companies to open enterprises in Armenia, isn’t it?

 

Everything depends on
the terms. Even Indians may benefit from it.

 

Shoghakn Company – once the flagship company in the
sector – had been idling for a long time already. In January 2015, it announced
re-launch of the production. Do you have any information about it?

 

I have no information
that they launched procurement of raw materials for production. As far as I
know, the enterprise was under repair. Once Shoghakn employed 1,500
people.  Now, it will have to hire
specialists again. This is the problem. We have deficit of lapidaries.  Relevant training takes, at least 6, months.

 

What is happening to the
lapidary business in the country? Once, it was one of the most developed ones
in Armenia.

 

Besides the stagnation
and falling demand in the world, there are also other reasons, such as the
currency rate fluctuation and more expensive labor force. The lapidaries that
migrated to Russia, Africa and other countries easily found jobs as highly
qualified specialists.  About 1,000
Armenian lapidaries work abroad now.

 

What is diamond?  I think it is a product the value of which is
comparable with a work of art.  In India
there is a many-million middle class that can afford jewelry. India is the gold
consumer number one in the world due to big domestic demand and market. After
all, that country has a population of 1 billion people.  Meanwhile, we do not work for the internal
market, in actual fact. Armenia has entered the 170 million market of the EEU,
which will significantly increase our domestic market.

 

Do you anticipate any activation in the market in
2015?

 

Everything
will depend on how actively, seamlessly and effectively we will integrate into
the new system of relations in the EEU area. We are not a country-supplier of
raw materials. We do not recover our own diamonds. Much depends on our
partners, particularly, Russia – the world's top producer of rough diamonds.