Development Prospects for Cutting Industry in the Republic of Sakha (Yakutia)

The groundwork of diamond cutting industry in the Republic of Sakha (Yakutia) was laid in 1991, when the Council of Ministers of the Yakut-Sakha S.S.R. issued its Decree No. 68 dated 08.02.91 to establish OAO Tuimaada Diamond. It took a brief period, from 1992 to 1995, for the company to build 16 cutting factories scattered across the Republic. Up to 2004, their output of polished diamonds in physical terms was growing at a fast pace being stipulated by the material assistance on the part of the government, by the tax abatements and supply of local raw materials on a give-and-take basis.

The cardinal changes taking place in the world diamond business at the turn of millennium did not skirt the diamond cutting industry of the Republic. At that time there was developed a state goal-oriented program called “Development of jewelry and gem-cutting industry in the Republic of Sakha (Yakutia) for 2002 – 2006.” This Program, which can be viewed as the industry development strategy for the mentioned period, did not anticipate a change in the situation on the rough market, which was evident due to aggravated competition. There came a rise in rough prices reaching 39% in 2002-2005, while polished diamonds went up merely 5-10%. Besides, in the period of planning the U.S. currency rate trend was accepted as permanently increasing, which proved to be a serious mistake later (see Fig. 1). On the contrary, from 2002 it went down and its fall is continuing up to now.
Moreover, the objective reasons were joined by subjective reasons: many enterprises of this industry, up to a certain time being preserved in a “hothouse” environment, were not prepared to acute competition and a drastic change of the market situation. The ignorant strategic management and marketing policy brought them to the brink of bankruptcy.  Eventually, the Program turned out to be almost a complete failure (see Table 1). One may be relieved to know there was some growth of economic indicators compared with the 2002 benchmark despite the general crisis in the world diamond cutting industry.
 
Table 1
Results of the Program “Development of jewelry and gem-cutting industry in the Republic of Sakha (Yakutia) for 2002 – 2006.” 
 

* Author’s estimation
The new strategy aimed at developing the diamond-cutting industry in the Republic is currently defined by the departmental goal-oriented program “Development of diamond-cutting and jewelry industry in the Republic of Sakha (Yakutia) for 2007 – 2009.” The goal of the new Program is to generate economic, social and legal conditions for stable and rapid development of the cutting industry as one of the promising export-oriented economic segments of Yakutia. Since the current acute competition on the domestic market led to survival of the most competitive enterprises in the industry, this should facilitate their further successful business on foreign markets, as well as the cluster-type development of the entire rough and polished diamond complex of the Republic. 
The cutting industry output and sales figures in 2003 - 2007 are given in Tables 2 and 3.
Table 2
Polished diamonds output in the Republic of Sakha (Yakutia)

Sources: 1. V.M. Vlasov. State of affairs, problems and development perspectives of the diamond-cutting industry in the Republic of Sakha (Yakutia). RDMK-2006: Documents and materials. The Ninth International Business Conference: “Russian Precious Metals and Gemstones Market: Today’s Situation and Future Developments.” Moscow, November 1-3, 2006, pages 162-168.
2. The diamonds output in Yakutia in 2007 went up 16%. www.k2kapital.com 12.02.2008.
 
Table 3
Yakut companies’ sales of polished diamonds in 2003 – 2007
 

Sources: 1. Annual Reports of ZAO AK ALROSA for 2003 – 2006.
2. Yakutia has failed to fulfil the diamond manufacturing plan for 2006. REGNUM Information Agency.16.01.2007. 
3. The diamonds output in Yakutia in 2007 went up 16%. www.k2kapital.com 12.02.2008.

The Republic’s government continues to pay special attention to developing the cutting industry in Yakutia. OAO Nizhne-Lenskoye and six cutting enterprises are grouped into a holding with a vertically integrated structure including mining, processing and sales of diamond jewelry. A feasibility study is currently under development to establish a special economic area in the City of Yakutsk aimed at producing up to $500 million worth of jewelry and polished diamonds with a possible participation of German companies in the project. During the implementation of these plans attention should be paid to the further aggravation of competition in the diamond-cutting industry due to similar programs launched in some African countries, as well as to the experience of the previous Program. 

Yuri Danilov, Senior Research Fellow, Department of Rough and Polished Diamonds Complex Economics, Institute for Regional Policy of the North (Federal State Scientific Entity)