The Almaz-Holding Company is part of the leading trio in the Russian jewelry market. The holding’s mainstream business covers manufacturing of gold, platinum and silver jewelry with precious and semi-precious gems; wholesale and retail trade through the network of corporate stores; producing exclusive handicraft jewelry made to customers’ or designers’ sketches or by the catalogue of jewelry items also manufactured by other factories, including Kostromskoy Yuvelirnyi, Topaz, Gringor and Krasnoselsky Yuvelirprom.

Almaz-Holding accounts for more than 150 stores (including four stores in Kazakhstan) and has joint ventures in Tajikistan and the U.S.A. The company is a permanent participant of international jewelry exhibitions in Basel and Las Vegas.

Flun Gumerov, President of Almaz-Holding and Member of the Supreme Council of the Jewellers’ Guild of Russia, answers the questions asked by the Rough&Polished correspondent. 

There is a long-time discussion going on about the necessity of state protectionism in the field of jewelry production and trade. Are there any hopes or outlooks related to this problem?

I would rather not speak about protectionism. We should speak about the necessity of equal business conditions both inside Russia and among our colleagues abroad. We are not asking for preferences. Undoubtedly, jewelry industries are flourishing in those countries, where they are supported by the state, particularly in export aspects. In India, for instance, jewelry enterprises are closely collaborating with the export facilitating Ministry. In Russia, there are some aspects, which bring the jewelry industry into unequal conditions. What are these aspects?

In the first place, it is the excessive administration. In what way does it manifest?  Today, the market is regulated by the “Law on precious metals and gems” and by many government decrees, some part of which was generated as early as the Soviet time. In addition, the absence of the Russian Hallmarking Service in the market is increasing the administrative burden on the government’s part. Here we mean not only the state control exercised by the Hallmarking Chamber, but the monopoly on hallmarking services. As is known, monopoly is the bitter enemy of any economy. I have been repeating many times that Russia is one of a few countries having an assay supervision service and actually the only country in the world preserving monopoly on rendering services. Without even mentioning that neither hallmarking terms or the number of assay inspection offices are adapted to market conditions. I appreciate it very much that lately together with the Assay Chamber management we were able to turn from criticism to constructive dialogue and I hope that soon this dialogue will produce actual results.

In the second place, there is a serious fiscal burden. Remaining are customs duties on imported jewelry inserts and jewelry equipment. One has to pay a 20% customs duty and an 18% VAT to import almost any gem inserts, except diamonds. The result is that .585-grade gold in a two-gram item costs about $40, while a gem insert’s cost may exceed $100, so taking into account the rising costs of inserts our jewelry items become non-competitive as compared with imported products. I shall dwell on import expansion a bit later. The same thing is happening with equipment. To produce jewelry, one needs sophisticated and high-precision machine tools. They are not produced in Russia. To bring them from abroad, one has to pay a 20% customs duty and an 18% VAT immediately raising one’s expenses 40%.

No matter what this will be called – protectionism or creating equal opportunities mentioned by Dmitry Medvedev in his speech in Krasnoyarsk, - but the state should remove all obstacles to building a civilized jewelry market, which would make a harmonious part of the global economy.

What is your opinion about Russia’s crediting and tax policies in the jewelry industry?

The jewelry industry is part of the Russian economy and of course, as any enterprise in this country, it needs a liberal tax policy and low-price crediting to be able to renew one’s capital assets, to introduce new technologies and to invest substantially into human capital assets doing all this in due time. To be fair, it should be said that lately the state did quite a lot to relieve the tax burden on manufacturers, removing for instance the excise tax on excess profits. Trading companies switched over to an imputed or simplified tax system. Now trading companies have some operating assets. This made it more expedient to work with legal manufacturers than with “shady” companies, since legal manufacturers guarantee the quality and supplies of their products.

Consequently, many large-scale manufacturers produced their own brands. The bare fact that legal production was recently growing from year to year proved that “shady business” was being squeezed out of the market. Now about credits. Actually all jewelry enterprises take their credits from banks, then they manufacture jewelry and derive their profits from their own work. Of course, the price of Russian credits compared to that offered by Western banks is many times higher. This generates another negative effect onto the cost of our products. Many Russian enterprises begin to use various operation patterns, including the so-called give-and-take method, when gold is taken abroad to be processed and then brought back as imported goods without paying customs duties and VAT. I cannot miss the opportunity to stress it once again that such practice exists only in the jewelry industry, because nobody is taking metal out of the country to bring back automobiles, for instance Mercedes cars, arguing that our cars are bad and our design is bad. If the government will not cancel this practice in the nearest time, it would bear no sense to go into technical re-equipment and develop our own design school.  The share of imported goods, brought in under the give-and-take pattern and taken into account as being Russian, will rise from the current 20% to 100%, and we shall be able to state that “the fist of fate has knocked the industry down.”

In what way can we set off the competition imposed by manufacturers from Turkey, Greece, the Middle East and China?

The center of jewelry production is shifting in the South-East direction. The annual global output of gold is about 2,500 tons, while the amount of gold being processed is 3,200 tons including 2,600 tons processed by the jewelry industry. We have an enormous mineral base, and Russia is turning out 160 tons of gold and processing around 70 tons. China, where the jewelry industry emerged merely 10-15 years ago, produces approximately 200 tons of gold processing the same amount. India processes 500-600 tons, while turning out about 5 tons. Italy, which imports almost 100% of raw materials, processes about 250 tons. Of course, Russia on this background is distinguished for its strict orientation of raw materials to export and expansion of imported jewelry brought to its market. Please, take into consideration that import grew five times during the last six years. This was only legal import, without taking into account the concealed one, brought under the so-called give-and-take pattern, although this country’s government is strictly pursuing the task to develop an export-oriented and import-substituting industry. 

What is you opinion of generating domestic jewelry brands? Is there any need in government participation as far as their developing and promoting are concerned?

Yes, I believe that the government should assist in developing a unified Russian jewelry brand to make it recognizable all over the world. But unfortunately, today our business has no solid public organization on the federal level, which could maintain a constructive dialogue with state authorities leaving aside lobbying practices for the sake of single companies.

What could you advise to jewelry buyers?

Currently, jewelry companies re-new their product range every year following fashion changes and producing very small lots of jewelry. The price of gold is rising: several years ago, it was worth $250 per ounce, while today the price is $920. The price for gold jewelry will go up too. There was time, when jewelry was bought for investment purposes, but now more and more customers are buying jewelry adornments proper to add to their own image and they are also buying exclusive jewelry. I would advise to buy unique designer-made things, appealing to your eye and turning your good mood on. Of course, I am sure that it would be better to buy such things at corporate stores or at stores run by manufacturers. Due to the high labour cost, my foreign colleagues mainly specialize in machine-made products. We are producing much more sophisticated adornments and they look much more original and alive.

You have a beautiful company name – and a sizable segment of diamond jewelry. Do you work in team with diamond cutting companies, or do you have your own cutters among your personnel? 

Diamond jewelry accounts for a significant part of our products, namely one third of it.  29% of our funds – we can look it up in recent months reporting - we spend for purchasing diamonds.  We are buying diamonds from several companies, including Kristall of Smolensk, Amos and Tuimaady Diamond.  Maybe I am mistaken, but it seems to me that our diamond producers are sometimes selling almost cheaper to the outside market than to the domestic one.

What are jewelers doing in their free time?

I go in for hunting – once I was invited to hunt in Austria by Helmut Swarovski, then he came several times to Russia and visited the factory of Krasnoselsky Yuvelirprom in Krasno-on-Volga.  I also went for hunting together with Ludwig Karl (the Preciosa Firm) in the Czech Republic. Generally, I travel a lot. But mainly on business. Recently I came back from Japan. This is a phenomenal country. What struck me there most was the impression that this country was like one big corporation with an enormous system of cooperation and labour differentiation between enterprises.  While in our case, some plant may have a very expensive piece of equipment, for instance a continuous casting machine, which would be operational only 10-20% of working hours in a shift. The same situation may be encountered at some neighbouring factory. This is our mentality: I would rather buy for myself than would go for help to my neighbour. The image of Russia could gain from our jewelry industry: we have everything to achieve it – a mineral base, a splendid school and a target consumer.