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Russian Jewelers Guild: If the church will not support us, then soon everyone will have to wear crosses made in China

20 april 2020

eduard_utkin_xx.pngThe Ministry of Finance of Russia proposed to include the jewelry industry in the list of sectors of the Russian economy that were most affected due to the deteriorating situation as a result of the spread of a new coronavirus infection. The corresponding proposal was sent to the Government of the Russian Federation.

A week ago, the Russian Jewelers Guild addressed the Prime Minister with a request for measures to support the jewelry industry and with proposals that take into account the specifics of the jewelry market and its individual segments.

Eduard Utkin, General Manager of the Russian Jewelers Guild Association answered the questions from Rough&Polished about what kind of measures these may be and what the industry expects in the near future.

How difficult is the situation in the industry today?

We are dealing with a global problem: the decline in jewelry sales began in the fall of 2019, before the pandemic and devaluation of the ruble, as closer to the new year, sales fell by 5-8%, January and February yielded minus 15-20% in sales and sales in early March were the worst in 20 years. I repeat, this was before the virus and before the war with OPEC. Consumer demand in the economy is squeezed as in a vice. But the horror of the situation in which small businesses found themselves after closure (without being employed in the public sector) has not yet been evaluated. Next up is a colossal drop in income and a collapse in consumer demand, then total unemployment, massive bankruptcies, property arrests and sales, poverty and need...

The already kindled fire in the Russian economy could have been extinguished at an early stage by pouring money. If it is undesirable to spend gold and hard-currency reserves, then at worst it can be done by freshly printed rubles. But if the Government delays with financial support measures for business and people until the end of May, then by this time we will already pass the point of no return.

The introduction of administrative restrictions on economic activity for millions of market entities should, of course, have been accompanied by measures to compensate for shortfalls in income (as the Ministry of Finance likes to say). But in the minds of our authorities, small business is some kind of a cross between crooks and scammers. This is an iceberg in which shadow revenues, offshore accounts, accumulated profits and surplus inventories are hidden under water. In the near future, business owners will save from complete loss what they consider the most valuable - capital. Everything will be subordinated to the solution of this task, and for the sake of this it will even be forgotten that it is people that create any capital. People are the most valuable potential in our industry - not machines, not equipment and not inventory, but competent, highly qualified personnel in the field of manual craftsmanship and decorative processing of metals and stones. Today we need to save this potential. Without their "golden hands" the industry will not rise. This task is impossible for employers. Both small and medium and large businesses are now knocked out and will not recover any soon. And no one will keep employees in production with a complete lack of sales.

Well, what measures of assistance from the state can now be effective?

For business - tax breaks until the end of 2020 (as well as a moratorium on the enforcement of measures to collect debts on taxes and fees. For people - to substantially increase unemployment benefits, two to three times as much (up to 24-36 thousand rubles). And the most important thing - in relation to the jewelry industry, it is necessary to recognize the fact that it is the most affected of all industries in terms of reduced sales, and therefore it is urgently necessary to add it to the appropriate list [of most affected sectors]. This is the most necessary minimum.

Can it save the industry?

Well, not to save, but let’s say, to alleviate the fate and save at least part of the industry. If there are no support measures, then 75% of the industry will go under water. If support measures will be taken, then perhaps 30-40% of the industry will die. In any case, it will be impossible to avoid victims.

Recently, our president said that the main thing in this crisis is to save people, and that the main thing is people. Do you think our industry employs robots? It employs living people, who are very highly qualified specialists, who are of a much higher class than those working in the automotive industry. I wouldn’t dare drive a domestic Zhiguli car, but domestic jewelry is worn by all our women. Because we have highly qualified and well-educated staff. And if these people are left without work and livelihoods, they will simply die of starvation.

I am afraid that if the jewelry industry is recognized as one of the most affected, it may not be considered the most important and vital for the population.

And therefore, the industry cannot claim to support measures? I would understand, if we only had machines - why save iron machines? All you have to do is to turn them off and then turn them on again. But people cannot be turned off or mothballed or pickled. They need to live and hold out for some time - this requires support measures. We are talking about saving people - nothing more.

There are still extractive industries that are more difficult to recover, unlike small industries...

The mining industries have no problems: today gold is a very expensive and highly liquid commodity. It is no problem at all to extract it and sell. Diamond production can be stopped - this is not oil. Of course, in this case much depends on resilience margins, that is if ALROSA has the money to last two or three months. I believe that this company has these means - unlike jewelers, who definitely do not have them.

There are the restaurant and tourism industries, which also employ people...

I do not say that the jewelry industry is more important than tourism or catering, but I work in the jewelry industry. I agree that it is necessary to define industries that have suffered the greatest losses. Among them, yes, the jewelry industry is in the first row, we are down by 97%, followed by tourism and catering – their business went down by 95%, and then some other industries. But, unfortunately, the tourism industry is currently included in the government list [of most affected industries], but the jewelry industry was forgotten. Tax deferrals, loan restructuring, rent reduction - all these measures apply today only to the list of the most affected sectors, in which we would like to include the jewelry industry. These measures involve a six-month tax deferral - this can really help a lot. Providing concessional loans for salary payments can also help. These measures suggest halving the insurance payments, and a number of other steps, including credit restructuring.

And most importantly, we expect that in relation to this list of most affected sectors, the Government will take some further support measures in the near future. And although we consider these measures half-hearted, belated and incomplete - but nevertheless, they can help at least half of our industry. Therefore, we must fight for the right to receive them. Today we do not have the right to receive these measures of assistance, since the industry is not considered to be affected.

Please tell me which companies are now in the most difficult situation in the jewelry industry - large enterprises such as Russkiye Samotsvety, Estet, or small ones?

Small ones. Do you understand what the most important problem today is? Look, if you have no money to pay wages - well, you can always resort to retrenching employees, dismissing some of them, settling a bargain with others or explaining the situation to them, but in any case, you will have to make large-scale staff reductions and cut costs. If you have no money to pay taxes, then you have to bankrupt your company and establish another, without tax debts, and start from scratch, as they say. Yes, you can survive. But two problems will persist - if you have a loan and no money to service it, and if you have a rent. Regarding loans, someone has them and someone hasn’t, but everyone has a small business rent. Be it a store or a workshop, everyone has a leased space. If you do not pay the rent for a couple of months, you are simply thrown out into the street with your equipment and furniture, like a cat out of the window. And that's the end of it: your equipment is rotting in the rain and gradually vandalized and you have even nowhere to take it – this is what happens if you do not have money to pay the rent. Meanwhile, large companies have as a rule their own buildings. They have at least this pillow - this is the advantage of big business. Though they also have a joint in their armor, as it is more difficult for them to say goodbye to staff and to carry out staff reductions.

To what extent is the state able to help?

The state has the opportunity to earmark expenses in the country’s budget to support industries. Yes, this will cause a budget deficit, and probably it will be necessary to run into debts, borrow money - if you do not want to touch the accumulated foreign exchange funds. Putting it bluntly, the state has a printing press in its hands. Since people need money, just take it, print some amount of money and give it out in the form of subsidies to compensate for lost incomes: if there was a salary of fifty thousand rubles confirmed by an income tax certificate - well, give 75% of this amount in the form of a subsidy so that people can feed their families, so that they can pay loans, utilities. The state has this opportunity. Or one of the options that we offer is to double the unemployment benefit. Today the size of unemployment benefits is 12,130 rubles – frankly, it is impossible to live on this. The minimum amount that is necessary in order to at least somehow exist is at least 24,000 rubles. And the state could take it upon itself - as people quit their jobs and are retrenched, they could use these benefits of 24,000 rubles for several months to survive this period, and when the situation will improve they will go to work. Meanwhile, our government offers entrepreneurs to pay this money to employees. And where can they take it from to pay if all their stores are closed and there are no cash flows? The state believes that small businesses have some rainy-day funds, but they ended back in 2014 during the last crisis. Therefore, they have nothing to pay people from.

Which part of the industry is more likely to survive?

First of all, in truth, we have social stratification, on the backdrop of general poverty there are people who can afford to buy something. Second, we must take into account the fact that the industry today has mainly switched to the production of silver jewelry, and so, the average paycheck here is 3,500 rubles. These products can be bought by state employees - after all, half of the economy in this country is state employees. And their wages are not reduced and do not get smaller. So, demand from their part will remain - therefore, I believe that half of the industry can survive even with minimal measures of support from the state. But if there will be no such support at all, then there will be left a trifle, 20-25 percent, no more.

What about the diamond industry - diamonds and diamond jewelry?

Let's start from the end of it, as they say. When we talk about diamond manufacturing, the only diamond cutting factory which we really have, and which provides some tangible amount of goods is Smolensk-based Kristall. You may ask about the amount of their supply to the domestic market. They will tell you it is probably one percent, or as much as two percent - everything else is exported. Therefore, any drop in consumer demand in the domestic market cannot in any way hurt their economics. They have a problem in the international market. I'm not an expert and cannot say how to help them with sales in the international market, this is something which needs research.

We do not buy diamonds from domestic manufacturers - we buy them in India. Are you very worried about the fate of Indian diamond cutters? I am not.

How India is going to solve the issue of compensating losses to its diamond manufacturers is a matter of India. Now about Yakutia’s diamonds: Yakutia has its own diamond manufacturing operations, but they are very small. Yakutia produces a very small amount of polished goods – diamond jewelry sold by Yakutia contains by an order of magnitude more diamonds than what is produced by its diamond manufacturers.

What are the steps taken by the Jewelers Guild?

We have already written many letters - to the Federal Tax Service, Ministry of Economic Development, Ministry of Industry and Trade, Ministry of Finance; we addressed our request to Prime Minister Mishustin, we asked for help from general industry organizations: the Chamber of Commerce and Industry, then from OPORA Russia, Business Russia... and they also appealed to the Government with a request to help the jewelry industry. That is, we have already submitted our requests to every authority possible.

We have not yet addressed our plea only to our Lord God. We rely on Him: We are working on a plan to organize a religious procession of jewelers so that God helps us and advises the Government to include us in the list of most affected sectors.

Are you kidding now or...?

No, it is all serious: I'm writing a letter to the Patriarch. And if the church will not support us, then soon everyone will have to wear crosses made in China.

Well, Eduard Yuryevich, can we wrap up our conversation on a slightly more optimistic note?

As you know, now there is no reason for optimism, unfortunately. We are falling into the abyss, the Government does not control the situation, and unfortunately, as I understand it, they don’t know how to control it.

Well, summing it up: I really want to wish our Government to rouse themselves and roll up their sleeves. There is need to do something.

Galina Semyonova for Rough&Polished