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Russia
By Svetlana Shelest
Russia held its first Eastern Economic Forum (EEF) on September 3 to 5 in Vladivostok, the country’s easternmost seaport and administrative center of the Primorsky Krai region, which has the largest economy in the Russian Far East and borders on China and North Korea. The forum, whose main objective is to facilitate economic development of Russia’s Asia-Pacific territories, was established by Russian President Vladimir Putin and is planned to be held annually. The forum’s opening day included a session devoted to the development of rough and cutting and polishing diamond business in the Russian Far East and the world’s Asia-Pacific (APAC) region.
One of the forum’s most notable discussion items on the agenda was the proposal to establish a diamond exchange in Vladivostok, first voiced earlier in July by the Russian Deputy Prime Minister and Presidential Envoy to the Far East Federal District Yury Trutnev. The main goal of the project is seen in localization of transactions with rough diamonds in the Russian Far East. As Trutnev elaborated previously, he believes preparatory talks and procedures can be completed in 2015, allowing a move to the implementation stage next year. At the forum, Trutnev confirmed that Russia’s number one diamond miner ALROSA will be in charge of developing the project. He also pointed out that it’s very likely that the task of launching a diamond bourse will require creating a Territory of Priority Development (TPD) in Vladivostok, which is a designated tax haven with simplified administrative procedures and a range of other privileges. “More than that, I believe a standard TPD won’t be enough. We shall have to address the procedures pertaining to movements of precious stones and metals,” Trutnev said at the forum in an interview with Interfax. ALROSA President Andrey Zharkov told reporters at the forum that the key to the success of a diamond exchange in Russia is in learning from the experience of India’s cutting and polishing industry and China’s jewelry retail. “I believe the idea of creating a trading platform in the Russian Far East has potential. I don’t see any reason for this project not to fly if it wins support of both ALROSA and China. But infrastructure is key to any platform — such things as a special customs station, state control procedures, export licenses,” Zharkov added.
Russia’s main polisher Kristall Smolensk is, however, more cautious of the idea. At the press conference held by the company in Moscow on September 11, the company’s General Director and President of the International Diamond Manufacturers Association (IDMA) Maxim Shkadov said, “The idea of developing the economy of the Russian Far East can only be welcomed. However, the question here is what to do with the rough and polished business there. Speaking of rough, it’s already well developed in the Russian Far East, as that’s where ALROSA operates, in the Republic of Yakutia, which is part of that region. Speaking of a bourse, we need to understand that in the modern world, this is much more than a trading facility. In the first place, it’s an area governed by a certain set of laws and regulations concerning customs procedures, logistics, taxation and so on. The idea of driving forward the development, creating added value and stimulating movement down the pipeline is no doubt a good idea, but its implementation under the current market conditions is highly challenging.” Shkadov went on to say that he also remains wary of the idea of developing cutting and polishing business in the Russian Far East. “If cutting and polishing were cost effective in the Far East, there is no doubt the investors would come there and do it. But the current situation in the world is such that there are about 20 percent more cutting and polishing facilities than there is rough to process, so under these conditions one would rather think of maintaining the facilities that already exist rather than of creating new ones.” Shkadov pointed out that Kristall Smolensk, in alliance with the Russian Jewelers Guild, has been working actively on improving the value added tax (VAT) legislation to create a more favorable environment for the jewelry trade in the country. The import tax on precious stones in Russia has already been reduced from 20 percent to 12.5 percent, thanks to the company’s previous prolonged efforts. Kristall Smolensk has now initiated a new proposal to either waive the tax completely or bring it down to between 2 percent and 2.5 percent. This would give jewelers the much-needed ease in acquiring the categories of diamonds that Russia’s polishers do not produce and also provide support to the jewelry market currently on the downtrend. “This would facilitate creation of a proper dealer center in Russia capable of supplying diamonds of any grade and properties, the way it is done everywhere else in the world,” explained Shkadov.Article from the Rapaport Magazine - October 2015. To subscribe click here.
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