Valery Radashevich, General Director of the Guild of Russian Jewelers, in his interview to the Rossiyskaya Business-Gazeta told about Russian jewelers’ present-day concerns.
In what way has the crisis affected the jewelry industry?
Demand is low and gold jewelry output is down 60 percent. It means we have a lag of more than 13 million pieces in our jewelry production. During the first 9 months of 2009 we produced a total of 19 million gold jewelry items whereas in 2008 the figure was 43 million pieces. If we speak about output dynamics it appears that we have reached hardly more than 50 percent of the 2008 level. But every cloud has a silver lining – gold jewelry import has considerably fallen. It was reduced 10 times. Now it is easier for us to work on the market.
As for silver, the picture is different – silver jewelry output is up approximately by 50 percent. It is quite understandable since people are all the same disposed to buy jewelry though they cannot pay as much as before. If earlier retailers sold, say, gold earrings with tourmalines, topazes and aquamarines, now they offer the same stones, but set in silver. The gold version cost 40-50 thousand roubles, while its silver alternative is sold at 8-10 thousand roubles. So people have an opportunity to buy jewelry and they buy it. It is noteworthy that silver import too has decreased.
Are there any signs the situation is improving?
As for prospects, it should be stressed that recession has stopped. Last September, jewelry output was about 0.5% percent higher than in 2008. I think that the fourth quarter will please us, and we will be able to narrow the gap by about 10 percent. However, so far there is no firm confidence that the crisis has ended. Purchasing capacity of the population is still low.
What are the major problems of the Russian jewelry industry?
When economic transformations here took place and the country turned to market economy, the jewelry industry which had been rigidly regulated during the Soviet time was also freed from the former state administration system, but its market debut was not complete. As a result, what was natural within the former administration system - the rigid state control - reappeared in the new environment. Here is a concrete example: today the Russian Constitution protects private property rights and the Law on Precious Metals and Gems, which regulates jeweller activities, says that lawfully extracted precious metals may be owned by their proprietor, but taking into account the specificity of the industry. It means that if you have bought a precious ingot you cannot dispose of it as you like. You should provide for rational use of metal, its rational storage, and accounting procedure, keeping in mind that transportation even of a small piece of gold should be carried out by special vehicles protected by armed security guards. According to the Criminal Code, any infringement of all this is a crime and is punished by imprisonment for the term of up to four years. There are a great lot of requirements which were natural in a rigid state administration system when all this belonged to the state, but now it looks ridiculous. Unconformity of this legal field with laws of potential competitor countries interferes with intensive development of the Russian jewelry industry. At the same time the jewelry trade here is left to the mercy of fate, we do not feel any significant attention towards this problem on the part of the state. At first it was said that the market would set everything in its proper place, but when later it was clear that it would not we began to create mechanisms of state regulation. As for our industry, there is no distinct state policy toward it so far. We spent three years asking to permit voluntary hallmarking of jewelry going for export. Firstly, our state hallmark has no international circulation and even Ukraine, Belarus and Kazakhstan buying our products put their own hallmarks. Secondly, foreign buyers ask us to avoid putting our hallmark on products which we export. Importers are hindered by our hallmarks, but we cannot meet their requests because it will weaken the state control which by and large does not operate – our companies import anything they like from the countries where there is no state control. Our requests fail to get any reply since the state bodies do not pay any attention to us and our requests are filed by minor officials who do not wish to incur the responsibility for cancelling meaningless rules. They are afraid that if they will solve the problem to our advantage they will at once be questioned as to who and how much was paid for this. This is why we are compelled to stamp every trifle piece of jewelry where, as they say, there is even no place for a hallmark.
And Russia in fact could have a very advanced jewelry industry which would produce no less than 10 billion dollars worth of jewelry per year and which could easily export 1 billion dollars worth of its production. But to achieve this it is necessary to create an environment equal to what is enjoined by jewelry industries in other countries.
We have experienced personnel, good technologies, and design, and it should be kept in mind that our jewelry industry was developed in such poor provinces as the Kostroma and Ivanovo Regions where there is no oil, gas or other deposits, but where people need jobs. We could provide 150 thousand jobs for them.
To the existing problems I would also like to add the production prime cost. The price for gold in all the countries is identical; the price for gems is more or less identical as well. What remains is design and quality. Let's make the starting conditions equal. We have never brought up the issue of increasing import duties for foreign jewelry coming into this country. We spent three years talking about cancelling import duties for jewelry-quality gems.
Back in the Soviet time there were 30 jewelry enterprises in this country, and now we have 2000. The jewelry industry could develop even further. But we are hindered by a paradox: on the one hand, the industry is overregulated, while on the other hand no one pays any attention to it.
Is there any chance to weed out smuggling if state control and state monopoly will be eased?
In 1998-1999, illegal jewelry traffic in Russia reached 70 percent because with ex-factory prices offered by Russian jewelry manufacturers 4 to 5 times higher than those for similar products made, say, in Thailand, it was just inevitable that jewelry smuggling was to grow, and this was particularly true for jewelry which could be transported in pockets. There were introduced economic measures slashing illegal jewelry traffic down to 40 percent. We have to adopt further economic measures to reduce the prime cost of production. On several occasions we suggested to supplement the Code of Administrative Offences with a clause envisaging confiscation of contraband plus a penalty equal to the retail cost of confiscated goods, but our proposal was not accepted. We plan to introduce voluntary certification of jewelry to let buyers know what stores are free from smuggled goods and counterfeits.
What kind of pricing policy is pursued by jewellers due to rising gold prices on world markets?
Jewelry prices do not depend only on gold prices. Taxes, credit rates, payments under settlement procedures and duties - all this is included into the cost of jewelry products. In Italy gold is sold to jewellers without the VAT and payments become due after finished goods are shipped to stores - all this improves competitive ability of Italian jewelry. In our case everything in this field looks much worse, but our jewellers do everything possible to make their products affordable to buyers. If gold prices on the world market make their daily fluctuations, jewellers revise their prices once in three and sometimes even in six months.
What is your vision of the future for the domestic jewelry industry?
The jewelry industry should meet the needs of the Russian market. It does not mean that we are against import. But domestic jewellers should be the masters of this market. To achieve this goal they have all kinds of metals and gems, as well as rich traditions and good design. Besides, the industry should be focused on export. We are able to export at least one billion dollars worth of jewelry. This would not only serve to earn hard currency for the state budget, but also to upgrade our domestic range of jewelry products to the world level. But first of all it is necessary to increase jewelry demand for any further development of this industry. The following thing to be done is to shape up a civilized market and reduce illegal jewelry traffic to a level below 10 percent. This target may be facilitated by introducing self-regulation principles in the Russian jewelry industry.
