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Smolensk Kristall: Nudging Bureaucracy, Pushing for Growth
Jan 7, 2000 10:24 AM
By Martin Rapaport
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RAPAPORT...
The following is an interview conducted with Yuri Rebrik, General director of SPC Kristall and President of the Association of Russian Diamond Manufacturers.
MR: What is the situation in the Russian diamond industry like these days?
YR: The previous years, from 1997 to 1998, were very difficult for the Russian market and economy. More than 50 factories closed down for a variety of reasons — primarily because of the world market problems — then Russia’s domestic economic troubles, and finally, due to the serious obstacles caused by the taxation policy the industry had to face.
MR: How is this year going for Smolensk and for Russia as a whole?
YR: During the hard period I mentioned above, we learned and came to some conclusions. We realized the importance of direct marketing and now, I am pleased to say that even with a fewer number of factories we maintain the same level of polished diamond production in Russia. Last year Russia’s exports were valued at about $700 million. Three thousand polishers are employed in the industry; half of them work in Smolensk. About $300 million worth of polished diamonds are produced annually in Smolensk. We are talking about Kristall Production Corporation, and six smaller factories.
MR: What kind of goods are produced in Smolensk?
YR: In general, Smolensk produces the entire range of world production from 0.01 carats to l-carat and up.
MR: What is your average size?
YR: If we take into account all the Smolensk factories, the average size is about 0.20.
MR: Who are your customers?
YR: We have clients all over the world. Our traditional and major customer is Belgium where we sell more than 60 percent of our production. We sell a significant amount in Tel Aviv as well as in Asia, Hong Kong, Germany and Switzerland. Now we are starting to explore the Persian Gulf market, and we are planning to start direct sales to the U.S. market. That is our major strategic goal. Based on past experience, we think we will be able to successfully enter the U.S. in 2000.
MR: How do you view the demand for your polished?
YR: As we say, “knock on wood.” After all these years, today we have customers waiting to buy our production. Fortunately, quality is and has always been of a primary importance worldwide, and it is the key to competitiveness today. A customer buying a diamond wants to get a real thing.
MR: Do you get enough rough from
ALROSA?
YR: Recently there has been speculation in the media about some conflicts between us; I would like to say that it is not true. ALROSA is under contract to supply us with about 90 percent of our rough, and it satisfies our every need. Besides we purchase from Gokhran about $25 million worth annually, and we have become the first Russian sightholder with De Beers. A diamond brokerage firm, W. Nagel, plays a very important role in our partnership with De Beers. Owing to Mr. Nagel’s personal efforts, we have well-established relations with De Beers, and receive a very good assortment of rough.
I must add that all our rough suppliers are very attentive and responsive to the needs of the Russian diamond industry. We cooperate in a very constructive way, however the process is extremely complex. It is a real buyer and seller relationship.
MR: What do you think about the rough from ALROSA? Is it of a good quality and easy to work?
YR: This is a difficult question to answer. The rough ALROSA supplies to us comes from different mines. In other words, the quality of the rough we get reflects the quality the mines yield. Unfortunately, the tax policy is very strict in Russia, and that makes cutting certain goods unprofitable. For example, turnover tax in Israel is 0.6 percent, while in Russia we pay almost 5 percent. If the government would only reduce this, the great potential of the Russian manufacturers would enable them to easily cover the lost revenue by producing more polished.
MR: How does the rough from De Beers compare to the rough from ALROSA?
YR: About 80 percent of De Beers’ rough is produced in Africa, so it is hard to compare with the rough from Yakutia, but I have to say that the sorting is more consistent. When you know more or less what to expect from the box, it is easier to plan the production. Russian boxes are not that well sorted, but they are cheaper.
MR: Are the prices of ALROSA better than the prices of De Beers?
YR: You can only compare prices for the goods of the same quality. Here we have different rough and different sorting. If you ask me which is more profitable for us to cut, I would say that both are equally worthwhile.
MR. What do you expect will happen in the Russian cutting industry in the next few years?
YR: I have been in the business for about 25 years, and I notice there have always been periods of ups and downs. If today we feel strong, there is no guarantee that in five years there won’t be some decline. It depends on the world market.
Regarding Russia, the bureaucracy is the major problem, not the market. This is what slows down production. Russian bureaucrats are extremely unpredictable. For instance, taxes can be doubled overnight. How you can possibly work in this situation when you buy rough for millions of dollars, and tomorrow all the rules are changed? You can go bankrupt instantly or become rich just as suddenly.
MR: Do you think the situation will get worse or better in the coming year?
YR: I am sure it will stabilize because it is impossible to ignore it any further. To solve the problem today and to get something done, we have to go through several ministries and collect tens of stamps and signatures. And we are talking about us as a state-owned company. Imagine what smaller businesses face. It is just unbelievable.
MR: What lessons can the industry learn from Russia?
YR: To keep their word. I do not know a single Russian diamantaire who doesn’t keep the promise given to his partner. For the 35 years of Smolensk Kristall’s existence, this has never happened. If we build our relationship on trust, everyone will benefit.
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Tags:
Alrosa, Belgium, De Beers, Economy, Gokhran, Government, Hong Kong, Israel, Martin Rapaport, Production, Russia
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