Recently, the EPL Alliance and Diamond and Jewelry Manufacturers Guild of the Republic of Sakha (Yakutia) backed ALROSA in the press, welcoming its position in support of Russia’s diamond-cutting businesses in view of the abolition of the 6.5% export duty on diamonds.
Tatiana Kyrbasova, Executive Director of the Diamond and Jewelry Manufacturers Guild of the Republic of Sakha (Yakutia) and Member of the EPL Alliance, has agreed to comment on the position of the Guild and EPL Alliance and answered the questions from Rough & Polished.
What is the abolition of export duty for diamond miners and for diamond manufacturers?
First of all, it means that the diamond miner proper, ALROSA, will have higher competitiveness in the world market. Many do not understand that the global rough diamond market has changed dramatically becoming competitive. Starting from September 1, 2016, ALROSA has a chance to do business on a level playing field with other competitors: De Beers, Rio Tinto, Canada-based companies and a host of other smaller firms. It makes us happy.
What was the attitude of Yakutia’s diamond manufacturers to the statement of ALROSA that it was ready to share with them some part of its revenue from zeroing export duties?
From the very start, we viewed this position as "a step of good will" on the part of the company. We believe that ALROSA could use these funds for its own needs - for the development of underground mines and other geological workings. The Mirny City is located in Yakutia, and we, the population of this republic, were shocked by the news of the collapse of underground workings resulting in human victims one year ago. In this situation, it would be more logical and understandable to strengthen security measures for labor protection at the company’s mining divisions or to improve the conditions of workers’ life in the Far North, to build kindergartens, schools and so on. Finally, it would be good to use these funds to implement the program aimed at resettling ALROSA’s veterans to cities in the central part of Russia. After all, the miners have deserved it!
Again, it is important to note the changing realities of ALROSA’s operation in the rough diamond market, which, in the same way as the polished diamond and jewelry market, has become competitive. This means that any additional burden for the company operating in a competitive environment may lead to deterioration of its position on the market and even to eventual losing this position in the future. In this regard, the call to expropriate the "excess money" seems shortsighted and incompetent.
We believe that if the company will feel itself well, sooner or later this will be projected onto the company's customer policy.
However, not all Russian diamond manufacturers have accepted the proposal made by ALROSA unequivocally, haven’t they?
Yes, recently the management of Smolensk-based Kristall voiced their position saying how ALROSA should help the diamond cutting industry. In the opinion of Maxim Shkadov, CEO of Kristall, one of the key measures of state support is "to ensure the priority right to purchase rough from ALROSA," as well as some others. It sounds strange, since all the ‘fuss’ about another round of state support began in connection with Russia’s entry into the WTO, and the proposal on the "priority right for purchases" is a serious violation of the WTO rules and antitrust laws.
Isn’t Kristall a true diamond manufacturer interested in the same things?
We believe that true diamond manufacturers are those who operate in a true market environment and who are self-sufficient in terms of liability, risks and so on, who do not hope for any aid from the state. As for Kristall, the essence of their proposals boils down to manufacturing polished diamonds from rough given by the state using federal budget funds and then deliver resulting goods to Gokhran. This is a complete anachronism, having nothing to do with the market.
In fact, ALROSA has recently taken significant steps to support true diamond manufacturers. First of all, it is the transition to rough supplies based on the ordering procedure, which is improving from year to year. We regard this as assortment assistance. And now the company is ready to give partial payment installments for purchased goods! This is a real support for true diamond manufacturers.
There are many who believe that the State should support Russian diamond cutters and jewelers. But in what way?
The main thing we want from our dear State is to create normal working conditions for diamond and jewelry manufacturing industry - such that we can compete with foreign companies in the world markets. This is all the more important that the country's leadership has announced a priority to support non-oil exports. The package of rulemaking proposals initiated, among others, by our Diamond and Jewelry Manufacturers Guild is in the works at the Ministry of Finance. Vasily Vlasov, President of the Guild, is a member of the Working Group established by the Ministry of Finance under the leadership of Deputy Finance Minister Alexey Moiseev. I think that the most important part of the whole package is the proposal to zero the VAT on purchases of raw materials within the country and making customs procedures easier.
As for direct cash infusions into the sector, the history of the diamond cutting industry in this republic and in the country as a whole proves that the effect is more often negative rather than positive. Let’s call a spade a spade: unearned, "freebee" money has never brought good and never contributed to the development of any business, but, on the contrary, only slowed the whole thing down. The so-called "freebee" has always resulted only in dissolving the diamond manufacturing industry making it roll back in its development, as there was always a corruption-factor leading to total criminalization of the situation.
This is proved by the story of the parastatal Tuymaada Diamond company, which was lavishly anointed with all sorts of benefits and preferences from the Republic of Sakha and ALROSA, as well as by the story of the municipal Nurba Jewelry and Diamond Manufacturing Factory, which left the entire population of the municipality without annual dividends, and by others.
We must understand that not everyone can become a diamantaire, as well as not everyone is destined to become an Olympic champion. If you are not to be one, then no amount of money will help you! After all, not everyone can become another Usain Bolt! For example, even if you will invest billions of dollars into me, I am jolly-well sure to miss this opportunity!
There is an opinion - at least I've heard it time and again - that there is impossible to survive in this industry without ‘gray’ schemes and speculation on rough...
‘Gray’ schemes and speculation undermine the stability of any market. I think that it is in fact the existence of this 6.5% customs duty was the reason for all sorts of abuse and the base for all kinds of ‘gray’ schemes on the part of foreigners.
This looks really surprising...
From our point of view, the anxiety about the nearing death of the diamond and jewelry manufacturing industry in Russia is greatly exaggerated and far-fetched. Unfortunately, this anxiety is at times skillfully implanted in order to obtain state support in the form of irrevocable money, while simultaneously we see ‘gray’ schemes being launched to 'split' this money between their participants, including government officials at various levels. All this we have already seen. At the same time, nothing of these amounts has ever reached true diamond and jewelry manufacturers.
But something is surely changing for the better?
Yes, Russia is developing as a legal state, where antitrust laws are being enforced, while all those crafty ‘gray’ schemes and speculations in rough diamonds are left behind in yesterday. The cancellation of the export duty on diamonds is one more step leaving no ground for all sorts of "grey-scheme addicts." And finally, the time for subsidiaries of foreign companies operating under the guise of diamond-cutting factories is coming to an end, leaving in the market only those manufacturers, who are running real diamond-cutting business, having found their own niche and perfecting their skills.
What are the specific consequences after the abolition of the 6.5% export duty? What are your predictions?
During a quarter of a century, Yakutia witnessed the rise of businesses and entrepreneurs able to withstand competition from diamond manufacturers and jewelers in other countries. If the export duty of 6.5% will be abolished, then in Russia it will be profitable to cut rough diamonds 2-3 grainers in size and above. The manufacturing costs displayed by the members of the EPL Alliance suggest that there will be no decrease in diamond manufacturing in the new reality, while polished production is only projected to increase in the future.
Of course, no one believed in the fairy tale that rough diamonds belonging to the +11 category and smaller may be profitable if cut on the territory of the CIS. It is $ 50 per carat in the CIS against $20-25 dollars per carat in India and China, which was due to the cheapness of life in these countries.
Over the last year, the economic downturn led to the bankruptcy of such firms as ADAMAS, YASHMA and JAK. What kind of anti-crisis measure are taken by the EPL Alliance?
Yes, a series of bankruptcies points to the market difficulties. Not everyone can survive in such conditions. The rough diamond market has become competitive like the polished diamond and jewelry markets.
This downturn was expected and the consequences of joining the WTO have been long known. EPL took steps to counter the downturn before it started and due to this the EPL Alliance is now demonstrating growth, not stagnation. And it is primarily the merit of Peter Fedorov, CEO of EPL Group. Thanks to his entrepreneur expertise and experience and the ability to anticipate and respond to market fluctuations, EPL has always managed to overcome crisis situations.
The Group’s polished production is continuously going in line with the current market conditions. The Group’s actions are aimed at strengthening the EPL's presence on the domestic market and abroad. Today, EPL is operating in 5 countries - Russia, Kazakhstan, Croatia, Germany and Austria. The efforts of all members of the EPL Alliance are focused on import substitution on the one hand and on strengthening non-oil exports on the other hand, according to the strategy declared by the President of the Russian Federation.
Please, tell us about the EPL Alliance, of which you are a member.
The EPL Alliance is an association of independent entrepreneurs operating under a single brand of EPL. Currently, it involves 32 small and medium-size businesses and their strategic partner, which is the EPL Group of Companies. All the 32 members of the Alliance are small and medium-size businesses, which are based and pay taxes in the Republic of Sakha (Yakutia). Last year, the EPL Alliance produced and sold more than RUB 4 billion worth of goods. In the near future, the Group plans to bring this figure to the level of RUB 10 billion and above.
The most important thing is that with the creation of the Alliance the people, who dedicated their lives to the development of the diamond cutting and jewelry industry of Yakutia, got the chance to create their own businesses within the framework of EPL, the most successful jewelry brand.
We know that you came to the diamond industry over 20 years ago and recently established your own business. How is it going?
After 10 years of work at the National Diamond Center, I was the executive secretary of the Diamond Council at the President of Sakha (Yakutia) for over 10 years. It was only after 22 years that I got my own business at the intersection of jewelry and diamond manufacturing industries. Thanks to the EPL Alliance I have an opportunity to produce diamond jewelry of my own design. It turned out to be a very fascinating and exciting process!
Now my goods are sold all over Russia at EPL boutiques and soon, I hope, they will be sold abroad.
Galina Semyonova for Rough&Polished
