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Turkey Targets Growth in Diamond Trading

Q&A with Ayhan Güner, Chairman of the Turkish Jewellery Exporters Association

Mar 13, 2015 8:59 AM   By Avi Krawitz
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RAPAPORT... Turkey has ambitions to grow its diamond trading activity to complement its vast jewelry manufacturing and rich heritage in gold jewelry consumption. The country recently abolished various prohibitive taxes on diamond imports and believes it now has the structures in place to pursue growth. Rapaport News recently spoke with Ayhan Güner, Chairman of the Turkish Jewellery Exporters Association, about those plans and the state of jewelry manufacturing in the country:

Rapaport News: What is the function of the Turkish Jewellery Exporters Association?

AG: The association is a structure that helps Turkish jewelry manufacturers export their goods worldwide. It develops the guidelines for exports and examines ways to enable manufacturers to explore new markets and strengthen their position in existing markets.

To enter different markets, for example, we encourage our members to participate in trade shows and we finance 50 percent of their show fees. We also finance their marketing and sometimes even their travel expenses.

Rapaport News: What is the typical profile of your members?

AG: We have 1,380 members. They are all jewelry manufacturers but of different sizes. We have members that export $100 million worth of jewelry each year and some exporting $100,000 worth.

The strength of the Istanbul market is that we have many small workshops that manufacture jewelry. There are over 10,000 of these small workshops that work with the exporters. So the exporter receives an order from overseas and brings it to the workshop to manufacture on their behalf. That gives our exporters flexibility in terms of their costs.

Having these small workshops is an advantage because an exporter can spread an order out between a number of workshops. If, for example, a big order comes in, an exporter can easily employ 50 workshops so that the order can go out very quickly. This is the most flexible aspect of the Turkish market.

We also have big fabricated manufacturers that make up the top ten of our members.

Rapaport News: What are the major markets for Turkish jewelry?

AG: We export globally with particular strength in the U.S., the Gulf, Germany and Russia, including all the former soviet countries. Turkey is focused on markets that most other centers do not necessarily consider. So we have a unique perspective on places like Azerbaijan, Kazakhstan, Iran and Iraq. These are also countries that are not easy to go to but buyers from these countries can easily come to Turkey to trade.

Rapaport News: How are those markets performing at the moment?

AG: Those markets are important to us in terms of our trading volume; but Russia is struggling because of the oil crisis and due to the devaluation of the ruble.

In such economic conditions, all markets are a little down, including Turkey. However, Turkey’s strong point is that we work with a diversified range of countries. So, when there is a crisis on one side, the other side is ready to do business.

Rapaport News: How was 2014 for your members?

AG: The first three quarters of 2014 were quite good for the Turkish market. The fourth quarter was more difficult and our exports to Europe declined a bit. Although our focus on Iran compensated for those declines.

Women in Iran have very few options regarding where to spend their money, so jewelry is a popular choice. Therefore, in countries such as Iran and Iraq, women are investing in gold and diamond jewelry.

We saw in the fourth quarter that demand from Iran, Iraq and North Africa helped stabilize our market

Rapaport News: What was the level of Turkey’s jewelry exports in 2014?

AG: Our exports reached $4.5 billion, according to Turkish customs measurements. I say that because $4.5 billion was declared, but there is still a large volume that is exported unofficially.

Our exports grew by about 28 percent in 2014, which makes jewelry among Turkey’s fastest growing export products – about double that of other products.

What impact has the recent abolishment of the tax on precious stone imports had on those numbers? One would expect that would encourage trade through official channels.

The Special Consumption Tax was abolished only in the second half of 2014, so the infrastructure was not yet properly established to have a full impact in 2014. The new legislation is designed to encourage manufacturing and exports. Our manufacturers will be able to import the precious stones they require for manufacturing jewelry without paying the tax, which was previously extremely prohibitive for them.

New members are registering every day to take advantage of this. So even though it is taking time to fine-tune the infrastructure, we’ve already seen a spike in the volume of trade. From September, when the new regulation took effect, until the end of the year, we did nearly one full year’s worth of imports.

[Editor’s note: the exemption applies to a 20 percent special consumption tax on polished diamond imports. In addition, polished diamonds being traded in Borsa Istanbul Diamond and Precious Stone Market by members are exempt from an 18 percent value added tax.]

Rapaport News: What percentage of your exports are diamond jewelry?

AG: About 30 percent of the $4.5 billion of recorded exports was in diamonds and the rest was gold.

The diamond content is growing. Diamonds previously accounted for about 15 percent of the total. We made a decision to grow our diamond exports and our goal is for diamonds to eventually account for half of our jewelry exports, with gold making up the rest.

Rapaport News: How important is the local market for Turkish jewelry manufacturers?

AG: If you consider that there are approximately 25,000 jewelry retail shops in Turkey, it’s really important for the Turkish economy.

A strong local market provides a basis for our export sector. It gives us a plan B so that when the world economy is changing, we have our own internal market working for us. That is very important for a stable manufacturing sector. Local demand is better than global demand in the current environment.

Due to the structure of Turkish manufacturing, does it not become difficult to monitor your sourcing practices – given that ethical sourcing has become an important element of the diamond and gold jewelry business today?

When an exporter works with the small workshops, they supply all of the materials. So the sourcing problem is out of the question.

We’re also working under a new structure called Borsa Istanbul, which is a government institution. So any illegal processes have been dramatically reduced.

Our gold sourcing practices are enhanced because we have a number of refineries that are approved by the London Bullion Market Association (LBMA) and they are always checked for the responsible sourcing of gold. Gold mechanisms are audited and all invoices are checked. When a sale is made, manufacturers need to produce all of the necessary identifications and documents.

Regarding diamonds, it’s not very complicated because we always buy from legitimate companies. Turkey is a member of the Kimberley Process, although we are not polishing diamonds, so there is no issue with conflict diamonds.

Rapaport News: What is Turkey’s strength and what added value does it offer buyers?

AG: Istanbul has one of the largest inventories of mountings in the market. Whoever comes to Istanbul to buy mountings can easily find 250,000 different available designs.

In markets like Iran, Azerbaijan, Kazakhstan and old Russia, buyers are not really used to working with order systems. They want to come and choose what they want to buy and then go.

A buyer who comes to Istanbul to choose their mountings can source their entire product there since we have all of the sectors in Istanbul anyway. That is why we want to grow the diamond sector in Turkey so that a buyer can find whatever diamonds they want in the market.

Our aim is for Istanbul to become a jewelry and diamond hub. That is part of the government’s 10-year strategy for 2023.

Rapaport News: How are you going to achieve that?

AG: Turkey already has gold, silver, mounting and jewelry manufacturing. The only thing missing in a meaningful way is diamonds.

We feel there is an opportunity to grow our activities in the diamond market, given that there has been some consolidation in other diamond centers. Therefore, it’s important to establish joint-venture partnerships with those big hubs, and to attract diamond companies to open offices in Turkey.

People travel to diamond trading centers like India, Israel and Belgium to find their diamonds, buy and leave. But Istanbul is different since you can go there and get everything, including your gold, silver and mounting. A jeweler can finalize their product before leaving.

Istanbul is also a place where everyone can go. It has everything. In creating a hub, you cannot think only about business, you also have to think about social aspects. For example, hospitality is also very important.

Rapaport News: What are the biggest challenges that the jewelry industry in Turkey faces with its growth initiatives?

AG: Turkish legislation and infrastructure is being established relatively late compared to other centers. So we are now working to close the gap. To grow, we need to develop collaborations and joint ventures wherever possible with today’s diamond hubs.

Rapaport News: Where do you envision the level of exports in the industry to be in 2023?

AG: We want to get at least one-third of the volume of trade in global markets. It’s ambitious, but if you check the government’s plans, they are really pushing toward that. If the geopolitical environment improves, we can easily reach that through relatively untapped markets such as the Middle East, Russia, Ukraine and Syria. Syria used to be a great market for us. If the wars were to end, we could double our exports the next year.

Rapaport News: There still seems to be a lot of work to be done in terms of the structures in place to enable that growth.

AG: The infrastructure is already in place, so all that needs to be done is the fine-tuning of those laws.

We have an incredible heritage of jewelry dating back thousands of years. But we’re not marketing that. We are marketing 600 years of heritage, but in Anatolia we have a 10,000-year tradition of jewelry manufacturing. So that’s a powerful message and heritage.

Imagine that before people were establishing diamond hubs, in the Ottoman Empire time, there was diamond polishing in Istanbul and the surrounding areas. Most of the precious stones were coming to Istanbul at the time. We’re confident that history can be recaptured.
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Tags: Avi Krawitz, Borsa Istanbul, diamonds, jewellery, Jewelry, Rapaport, Turkey
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