For more than 20 years, Russian entrepreneurs are trying to master the diamond business hitherto unknown in this country. However, so far they failed to achieve tangible results – the country does not have its own diamond cutting industry as such, while jewelry trade is flooded with low-quality imports and there are virtually no prospects for any financial well-being taking into consideration the current realities in the tax and customs legislation. Paradoxically, but it is the fact that developed markets, which are manufacturing and trading in polished diamonds and diamond jewelry, as well as in rough diamonds, are held by countries deprived of their own mineral resources and hence forced to import raw materials - gold and rough diamonds. Nature seems to be mocking us, those living in Russia, which has countless mineral wealth.
Studying foreign experience and analyzing the current state of the national industry it is possible to conclude that the causes of our problems are not due to the notorious mentality of the local population (though not without it), but above all due to the state policy in terms of support to be rendered to business. Or putting it point-blank, due to its absence. It is no secret that the Indian government has been extremely active in promoting goods produced by the country’s manufacturers. Measures in support of the diamond industry taken by the state authorities and banking community in India or, for example, in Israel, may raise genuine envy and sometimes even open irritation in Russian diamond manufacturers and jewelers. Numerous preferences from the government, various reputable social organizations and influential associations of jewelers and diamond manufacturers, the banking system, which provides loans to the diamond industry – all this works to maintain efficient functioning of their national processing industry. As a result, Russian diamond cutting factories are facing dangerous, if not fatal competition from Indian consumers of Russian rough diamonds.
And here comes the eternal Russian question posed by Chernyshevsky in a different time and on a completely different occasion, but nevertheless quite relevant these days even for such a specific industry like the one dealing with diamonds: What is to be done? Is it appropriate to cherish hopes that the Russian state will recover its sight and dramatically liberalize the tax laws? Or hope that banks will start giving credits to diamond cutters and the Criminal Code will be purged of all articles on gems and jewelry circulation? Of course, such hopes may be hatched, but it is better to be realistic and understand that a big thing is achieved in small steps. And this is something our government authorities are quite capable to do. The tactics of small steps should solve the main problem at the moment - to eliminate or at least minimize excessive state control. This can be achieved by discontinuing the registration of transactions at the Finance Ministry after each purchase of rough diamonds, by canceling rough resorting in case boxes are separated, as well as by making export procedures for rough and polished diamonds as simple as possible. A set of such quite specific and absolutely non-short-lived measures can significantly improve the existence of Russian diamond-cutting companies, which are already on the brink of survival. For them, excessive control is one of the risk factors. The state is able to apply such tactics of small steps without affecting the important aspects of tax regulation and prosecution. Ideally, any member of the diamond market should be able to buy rough diamonds in Russia and sell it, in whole or in part, depending on the needs of the customer as quickly as possible. After all, in such a volatile market as the diamond market it is important to be able to buy and sell goods on the spot.
In light of recent changes in the marketing policy of ALROSA everything said above turns out to be particularly relevant. Under the pressure of crisis phenomena in the global financial market, even such a diamond mining giant like ALROSA has to change. Over the past few years the Russian monopoly has been steadily improving its revenue slightly declined during the economic recession in the end of last century. This intensive growth has been achieved due to commissioning new diamond mines and higher prices for rough diamonds. Following the logic of the market and pending IPO, the company is currently reforming its distribution system, increasing the number of its clients buying rough diamonds, because it is not possible to boost sales only due to growing prices. In this regard, Russian diamond manufacturers will be found at a disadvantage compared to their foreign counterparts, because once again according to market logic, large amounts of rough will be intended for export just because the company may sell more in this way. As it is known, export sales are free of VAT and the diamond monopoly has shorter shipping periods just to keep up its reputation as a seller. Everyone is well aware that the international market is a priori larger than the post-Soviet market. As a consequence, there may be shortage of rough among consumers in the domestic market. And this may be a very serious deficiency. It is common knowledge that domestic diamond manufacturing is entirely dependent on foreign customers. Only large companies like Kristall in Smolensk and EPL Diamond in Yakutia have their own domestic and international markets. Due to a well ramified retail system, EPL Diamond has a well functioning sales system for its goods. What shall other market participants do in this case? I am not afraid to say that many of them are doomed to extinct.
In order to promote a market where precious stones will be traded legally it is necessary to facilitate the establishment and efficient functioning of an institution of rough diamond traders in Russia along with easier supervision procedures. Today, this group of business community appears to be the most reprehensible, even though traders - without diminishing the merits of diamond manufacturers - are the backbone of any business. This country should create a market for free circulation of diamonds. This will help keep the current members of the Russian diamond market, who will stop doing their business on the brink of survival and start finally developing it. It is free traders that will lay the foundations for the emergence of a real diamond exchange in Russia. Funny, but the country possessing the largest reserves of diamonds has no independent diamond trading platform of its own!
We still cherish hopes, which as we know are the last to die, that our diamond and jewelry future will be bright. Or at least it will be the same as this market looks now in Belgium or Israel. China, which in our eyes was quite recently a backward and agrarian neighbor in the east, where the main transportation vehicle was a bicycle, has quickly changed its social status and become a leader in consumption of luxury goods, leaving behind the European countries and catching up with the United States. Unfortunately, we remained where we were – in the positions of 20 years ago, when getting rid of the Soviet system, were happy to see a bright capitalist future ahead. But the methods of supervision "to hold and not let go" are the same, preserved from the "old school." As time has shown, this is not the method we should follow and it is high time to gradually discard it.
Yegor Yegorov (OOO Infinity Diamonds)
