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ARTHUR ASHUGHYAN: FUTURE OF LAPIDARY INDUSTRY DEPENDS ON HOW COMPETITIVE AND EFFICIENT IT IS
ArmInfo's interview with Advisor for Economy Minister of Armenia
Arthur Ashughyan
by Arthur Yernjakyan
Wednesday, February 25, 14:26
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 -
theworld's top producer of rough diamonds.
http://www.arminfo.am/index.cfm?objectid=1F520550-BCE1-11E4-88910EB7C0D21663
From: Baghdasarian
ArmInfo's interview with Advisor for Economy Minister of Armenia
Arthur Ashughyan
by Arthur Yernjakyan
Wednesday, February 25, 14:26
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 -
theworld's top producer of rough diamonds.
http://www.arminfo.am/index.cfm?objectid=1F520550-BCE1-11E4-88910EB7C0D21663
From: Baghdasarian