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Russia
By Anastasia Serdyukova
Although Russian mining and manufacturing companies pay a great deal of attention to their Corporate Social Responsibility (CSR), they don’t face the same challenges as companies working in countries with poor human rights records and inadequate labor safety legislation. In those geographic areas where diamond companies are the largest employer — or the only employer — they carry an even heavier social burden. Russian legislation is in line with the Kimberley Process (KP) requirements. All diamond lots sold in Russia or exported from the country are accompanied by special certificates confirming that the stones were mined legally. The certificates are produced by controllers of the Ministry of Finance and include data on the mining company, the volume and the price of the stones. KP representatives visited Russia in 2013 to inspect the country’s compliance. They studied the operations of ALROSA, the country’s largest miner, including its mines in the Yakutia region of Siberia, where much of its production is located. The official results of the visit are yet to be published. But the preliminary conclusion by KP monitors was that ALROSA’s circulation of diamonds complied with KP legal requirements that the stones not be involved in financing conflict. “ALROSA is trying to achieve maximum transparency of its operation,” the company’s representative said, adding that the company introduced a number of regulations to ensure that all its clients would have equal access to its rough and that all assembled lots were equal in value. The towns near the Yakutian mines hadn’t existed before the company started diamond production in the area and it had to create all the infrastructure, including roads and buildings. The company spends approximately 5 percent of its revenue yearly on various social programs, including health security for its employees and their families and the support of retired employees, along with sports and educational programs for the youth. The company also supports the delivery of food and other essential products to Yakutia, which has limited resources and accessibility due to its harsh climate. In addition, up to 1 percent of ALROSA’s budget goes to labor safety measures.
Russia’s largest diamond manufacturer Kristall Smolensk is one of the major employers in the city of Smolensk so the company also spends heavily on various local social projects. “Up to 70 percent of our costs are salary and various social responsibilities,” said Nikolay Afanasiev, the company’s head of marketing. He said that the company is constantly working on improving labor conditions for its employees. Kristall Smolensk is planning to increase its production by around 4 percent in 2014 to 143,000 carats worth $250 million. The company produced 137,700 carats in 2013, although it sold 159,000 carats, taking the difference from inventory. Afanasiev noted that stable rough prices had a positive effect on the market. “ALROSA didn’t raise prices at the end of April, while De Beers increased the prices slightly,” said Aleksander Maksimov, director of Yakutia Diamond Company, a manufacturer and jewelry maker. ALROSA has increased its prices by 4 percent since the beginning of 2014. Everyone expected the miner to increase prices again in April, but when it didn’t, the mood in the market improved. However, Afanasiev said, the lack of financing has had a negative impact on the market. Dealers and manufacturers expect sales to pick up around the Las Vegas show, but then to slow down in summer as they usually do. Demand was higher for best-selling stones between .20 carats and 1 carat in VS1 to SI clarity and Maksimov said that .50-carat stones are going very well.
So far, sanctions imposed on Russia by the European Union and U.S. over its involvement in the crisis in Ukraine have had little effect on the Russian diamond business. “All deals are going as planned,” said Afanasiev. There is speculation that the current sanctions may be expanded but the general consensus is that the sanctions are unlikely to affect the diamond industry. Still, the situation creates a level of uncertainty. Aleksandr Ilushenko from the Association of Importers and Jewelry Sellers said that the Ukrainian crisis had spurred the demand for gold coins and bars as an investment but diamond and jewelry sales were unaffected. However, there is a concern by some Russian companies working abroad that their sales may be affected because they are from Russia.
Ilushenko said that jewelry sales in April and May are at least at the same level as in 2013. Maksimov said that low-end and midpriced jewelry is selling well for the season, including inexpensive jewelry for teenagers as graduation gifts, wedding rings and jewelry with semiprecious colored stones. Maksimov said that expensive items priced at $300,000 and up are selling slowly. There was a time, he said, when “two or three pairs of very expensive earrings could be sold in Moscow during a month’s period, but no more” because rich people are cautious about spending money.Article from the Rapaport Magazine - June 2014. To subscribe click here.
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