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Valery Budny: There is no strategy and legislation in Russia enabling the full cycle processing of precious raw materials within the country

11 april 2024

Budniy_big.jpgIn February, a meeting of the Supreme Council of the Russian Jewelry Trade Club and the Association of the Guild of Jewelers of Russia was held as part of JUNWEX St. Petersburg 2024 exhibition on the topic "Strategy of Social Activities in the Context of Legislative Initiatives".

Valery Budny, Head of the Jewelry Russia program and CEO of the JUNWEX media holding, told Rough&Polished about the results of the meeting and pressing issues in the precious metals and precious stones (PMPS) and the jewelry sectors.

 

It is known that establishing the coalition public PMPS Council and the development of a unified strategy and tactics were discussed at the meeting. What are the results?

At the February edition of JUNWEX St. Petersburg 2024, the need for closer interaction of all PMPS market’s social forces was stressed at the joint meeting. This idea isn’t new. Ten years ago, the PMPS Union was officially established that envisaged the joint work of the existing associations in gold and diamond mining, refining, polishing, and jewelry manufacturing sectors. The PMPS Union has never started its work due to the disunity within social forces which instead focused on achieving their sector-specific goals only.

To this day, the vectors of efforts of public organizations show the same discord as the characters of poet Krylov’s famous fable did... The ALROSA’s snobbery and exclusiveness, the virtually unresolved dispute over the ownership of subsoil between the state and gold miners, the conflicting interests of mining and processing enterprises are cleverly used by some officials who prefer the principle of ‘divide and rule’... It’s easier to govern that way.

This has resulted in a lack of a strategy or legislation in Russia that would provide conditions for the full cycle processing of precious raw materials within the country.

Traditional questions are ‘Who is to blame?’ and ‘What to do?’. What should be the state policy in the PMPS sector?

Having the world leadership in diamond deposits and being among the leaders in gold reserves and in mining the palladium-platinum group of metals, Russia lags behind the global jewelry community and takes a back seat in the jewelry market.

All this looks provocative against the backdrop of the leader of Russia’s calls for increasing the efficiency of the economy. It is difficult to change the situation amid the comprehensive sanctions against Russia. The widespread embezzlement of public funds and bribery confirm the corrupt nature of existing laws where everything depends on a supervising official rather than on the needs of mining, processing of precious raw materials and jewelry manufacturing.

What to do? In short, it’s necessary to ‘open the doors’ wider and not interfere in the spheres where the state is not involved in production.

It is hardly possible to find a more regulated sector in the Russian economy than the PMPS sector, and it is unlikely that business activities in any other area are so complicated by an administrative burden. Where else is a special ‘state control’ used in addition to the customs control? Where else is there an additional control system like the GIIS PMPS (State Integrated Information System in the control over the circulation of precious metals, precious stones and products from them at all stages of their circulation) in addition to the control over cross-border diamond circulation within the Kimberley Process?

As for the GIIS, it’s a separate topic... Used by unprofessional officials, the process conceived as state control has become the main drag of the development of the real sector of processing the jewelry raw materials within the country created thanks to business investments, without any participation of the state capital! The saying is true - “teach a fool to bow with grace and he would fall flat on his face”.

One of the few high-tech industries that appeared in the country is being hindered and destroyed. The industry turned out to be unprepared for the GIIS, since there is no similar experience in the world, IT technologies still lag behind the initiative, readout devices haven’t been manufactured in the country, professionals needed at inspection departments are not trained, and their number does not correspond to the scale of the tasks. As a result, finished products are kept in the manufacturers’ warehouses for weeks, and the companies suffer material losses on the loans. After jewelers’ scandals and indignation, the onset of the transition to the GIIS has been repeatedly postponed. Well, those who don’t agree with the initiative just ‘go underground’. This is what happened to craftsmen working at home and making designer jewelry pieces to order. During the preparation for the May edition of JUNWEX New Russian Style 2024 (May 13-16), they tell us that they cannot work officially and are forced to ‘secretly’ look for clients among our visitors. There are also widespread complaints from enterprises about the non-functioning GIIS system and its inability to test new collections for the exhibition.

The same absurd situation is throughout the entire PMPS sector. Recently, we have learned about another initiative of the people in power who have, apparently, very low professional competence in their sector. A practically unrealizable strengthening of control in precious metals mining has been initiated, and draft ID143813 has already been submitted for discussion to amend resolution of the Government of the Russian Federation No. 270 dated February 26, 2021, according to which the information on mineral raw materials containing precious metals should be entered into the GIIS PMPS immediately from the moment of their extraction, and the incorrect information would be subject to punishment under criminal law …. It would not be surprising if anyone decides ‘it’s better to fly under the radar’.

What goals and objectives are set, and has a coalition public PMPS Council been set up on the basis of the Guild of Jewelers of Russia and the Russian Jewelry Trade Club?

Considering the absence of a much-needed state strategy for the development of the PMPS sector today, the lack of development goals for the PMPS industry among its regulator’s goals (the Ministry of Finance of Russia), and given the insufficient effectiveness of the existing tools the businesses have for defending their interests when adopting new legislative acts regulating the industry, the Guild of Jewelers of Russia and the Club of retailers have prepared their proposals to D. Yu. Grigorenko, Deputy Chairman of the Government of the Russian Federation and the Chief of the Government Staff of Russia.

The proposal includes making additions to the Regulations on the Ministry of Finance of the Russian Federation (approved by Decree of the Government of the Russian Federation No. 329 dated June 30, 2004) that define the tasks of implementing state policy and statutory regulation in processing and circulation of the PMPS as the elaboration of legislative acts aimed at the development of processing industries (jewelry, etc.) and increasing the share of these industries in the total turnover of the PMPS sector;

• Reorienting the vector of improving the laws and regulations of the PMPS sector from strengthening the control and supervisory functions of state regulation to solving the problems of the development of the PMPS sector, first of all, by minimizing the administrative burden on market participants;

• Involving industry business in the working out of the state industry development strategy for all PMPS sectors, and working out and adopting such a strategy for the development of the PMPS sector in collaboration with the Government Commission for the elaboration and implementation of state support measures in mining, processing and circulation of precious metals and precious stones;

• Identifying separate subgroups in the working group responsible for implementing the ‘regulatory guillotine’ mechanism in the PMPS sector for each of the four main areas (mining, processing, jewelry sector and pawnshops, and banks) and, if possible, strengthening the role of the regulatory impact assessment (RIA) procedure and expanding the powers and authority of the PMPS Working Group.

It is known that more radical proposals were made at this meeting.

They are aimed at initiating the withdrawal of PMPS market participants from the Ministry of Finance’s supervision and the transfer of the supervision functions to the Ministry of Industry and Trade. Perhaps, there will be officials in the Ministry of Industry and Trade able to think not only about control, but also about development.

Today, in the absence of a strategy for the industry development, it would probably be effective to establish an interdepartmental body with the participation of leaders of the industry public organizations and give them the right of veto and vote in the elaboration of state policy in the PMPS sector that will facilitate the full cycle processing of precious raw materials within the Russian Federation.

The importance of the participation of representatives of gold and diamond mining in the interdepartmental body, as well as representatives of the public bodies from the raw material processing industry is obvious. What happened in domestic diamond cutting and polishing sector in Russia can be an example of the negative consequences of a lack of cooperation between officials and professionals. In the 1990s, cutting and polishing factories were set up at every large enterprise when the privatization began in Russia and market relations were established. Foreign investors have also appeared who set up cutting and polishing factories in the country. Obviously, it was very beneficial for someone to amend the legislation and move the Russian business away from diamonds. Recently, numerous cutting and polishing factories have been closed down. ALROSA remained a monopoly company that occupied and administered the assets inherited by Russia, at the will of a narrow group of stakeholders.

During the ongoing war and under the economic sanctions imposed on our country, I consider the attempts to impede the development of the economy - even if we only take the PMPS sector into account - as criminal. However, as the experience of fighting the corruption shows, only those who left the country with the ill-gotten gains are recognized, for the most part, in our country as criminals.

But I would like to end on a more optimistic note: life goes on, and there is hope that our proposals will be heard, and the industry will continue developing thanks to people who work honestly and do their job persistently - for the benefit of our society and the Russian jewelry industry.

In mid-May, the JUNWEX New Russian Style exhibition will be held for the first time in St. Petersburg. Why won’t it be held in Moscow?

The pavilion where the JUNWEX Moscow exhibition is usually held in May is occupied by the International Exhibition-Forum RUSSIA at the All-Russian Exhibition Center, so the JUNWEX New Russian Style exhibition will be held this spring at the EXPOFORUM Convention and Exhibition Centre in St. Petersburg. All market players and guests are welcome to the XXXII International Forum of the Jewelry Industry in St. Petersburg where a lot of interesting and important events will be held in the most beautiful time of the year in St. Petersburg - the beginning of the White Nights.

Galina Semyonova for Rough&Polished