GEMS AND JEWELLERY EXPORTS
The proceeds can be increased manifold by curbing export of un-cut stones and smuggling
By SHABBIR H. KAZMI
Oct 07 - 13, 2002
Gems and jewellery have always held a magical allure. They have been the sign of power, prestige and wealth. Women of this sub-continent have always been the biggest buyers. With the settlement, temporary or permanent, of Pakistanis abroad the export of gems and jewellery has also gone up substantially. Entry of Pakistani exporters in some of the developed markets has also encouraged the local jewellers to introduce their branded jewellery. Pakistan's main export markets are USA, the Gulf region and the UK. Pakistan mostly exports ethnic designs and hand-made jewellery. Lately export of machine made jewellery has also increased.
According to the statistics for the year 2001-2002 released by the government, export of gem and jewellery was around US$ 35 million. However, some industry sources say that the figure is under stated and the amount is nearly US$ 60 million. They also say that if efforts are made to curb smuggling of gems and jewellery and stop export of un-cut precious stones, Pakistan's exports of these items can be enhanced to over a billion dollars per annum in next five years.
Pakistan is among the top 10 consumers of gold. The local consumption of gold is estimated over 120 tonnes per annum. The quantity of officially imported gold was around 29 tonnes for the year 2001-2002. This figure looks ridiculously low when compared with the official figures of export of jewellery. According to an industry expert, Pakistan's jewellery exports were US$ 27 million which had a gold content of US$ 17 million. The dismal figure of import of gold can be attributed to two factors: 1) massive inflow of gold bars into the country and import of gold against export of jewellery.
According to a report bulk of gold inflows into Pakistan and India is through people carrying gold bars. This inflow has increased manifold after the two governments relaxed rules about carrying gold and availability of these bars of guaranteed purity in the Gulf region. A lot of people prefer to carry home these gold bars for a number of reasons, ease and the premium being the top two. These bars have ready market in both the countries. Jewellers also prefer to buy these bars due to variety of reasons. Therefore, the official import of gold has always remained low as compared to the domestic consumption of gold.
The GoP has recently taken a historic decision to liberalize the import of gold. According to the new policy, now any one can import gold after paying Rs 63 per tola duty. This step is expected to curb inflow of gold through informal channels — the main reason being that there will be no more monopoly of a few. There will also be no incentive — the difference of gold price in the Gulf region and the local market. The policy is expected to increase influx of gold into the country substantially as well as increase export of jewellery from Pakistan.
This policy has been received with mixed feelings. While some people believe that massive inflow of gold will increase the export of jewellery, others believe that it is a disincentive for jewellers. Till recently jewellery exporters were allowed to import gold equal to the content of jewellery they export. Some of the exporters had complaints about the delays in clearing of imported gold. Therefore, it was decided to liberalize the gold import.
According to an exporter of jewellery free availability of gold, particularly branded gold bars, will allow the investors to also invest in this commodity. Therefore, the jewellers will not be required to make massive investment in gold. They will be able to buy gold as and when they require it. As such, bulk of the jewellery cost comprise of gold. The other two components are gems, if stone studded, and casting charges.
In Pakistan bulk of the jewellery is produced manually using the expertise of skilled workers. Mostly lost wax casting procedure is used. This process has two limitations: 1) jewellery can not be produced in bulk and wastage is high. As opposed to this production of jewellery by modern machines allows massive production and minimizes wastage. The wastage in hand casting is as high as 15 per cent. This is reduced to around 5 per cent by using modern machines.
Tessori has written a new chapter in the history of export of jewellery export from Pakistan. They are first ever producer of branded jewellery in Pakistan. After getting the tremendous response from Pakistan, Tessori also started exporting its branded jewellery. According to Kamran Khan of Tessori, half of Pakistan's total export of gems and jewellery is by his company. The efforts were acknowledged by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) by conferring number of trophies and medals to Tessori and Kamran.
Kamran has a very strong belief that gems and jewellery export from Pakistan can be increased manifold in a few years. His level of optimism is that gems and jewellery sector has the potential to earn even higher export proceeds than the amount Pakistan currently earns from export of textile products. To achieve this target all the stakeholders have to play their due role.
An area which has been grossly ignored in the past is capacity building of local workers. This includes, further training of workers already involved in this trade and developing of designing capabilities. Though, the GoP has established a jewellery designing institute, it is hardly making any contribution. In this regard the World Gold Council (WGC) arranged two designing competition in the past.
According to Faisal Hashmi, the local representative of WGC, organizing the two designing competition gave us the conviction that Pakistan has enormous potential. We also sent two of the winner designs to Italy. These designs were not only appreciated but also were among the top hundred designs of the competition. Thousands of designs are submitted in this particular competition every year.
Hashmi also say that Pakistan's conditions are not very different from those faced by India in the past. However, the Indian government came out with excellent policies and the result is that presently earns over US$ 10 billion from export of gems and jewellery — a amount even higher than total exports of Pakistan. The reason India was able to do such a miracle was that it provided the most conducive environment for production of world class jewellery. This included encouragement of machine made jewellery.
According to some industry sources the jewellery exported from India is studded with the precious stones smuggled from Pakistan. However, it is also a fact bulk of these stones are smuggled to India in un-cut form. Once these stones are cut and polished in India they fetch millions of dollars.
According to Mohammad Saleem of Almas Gems and Jewellery, the recently announced policy is good but has failed to address some key issues. If the GoP is serious in increasing export of gems and jewellery, it must declare jewellery production an industry. In the absence of such a status local financial institutions are not willing to extend long-term financing for the import of machinery used in gold casting. The same is also true about gem cutting equipment.
Saleem is of the view that due to non-existence of modern gem cutting facilities, bulk of the export of precious stones is in un-cut form. This deprives the traders as well as the country from the receipt of real worth of the gems. He said that significantly large quantity of Pakistan's precious stones is smuggled to neighbouring countries. After cutting and polishing these stones are sold in global markets and some quantities are also brought back into the country.
According to Mohammad Yayaha, Director, Export Promotion Bureau, the GoP has also realized the potential of this trade. The Bureau is following a multipronged strategy. This includes, recommendations to the government to make necessary changes in government policies. The Bureau is actively persuading cluster development philosophy. Above all efforts are being made to ensure greater participation of local jewellery manufacturers in international jewellery exhibitions.
The Bureau has been regularly organizing Gems and Jewellery Fair in Pakistan. Though, it managed to attract only a small number of foreign buyers, the response was not discouraging. Local gems have attracted the attention of foreign buyers. Nature has bestowed Pakistan by unmatched quality of Emerald, Ruby, Pink Topaz, Lapis Lazuli, Schorlite and Rose Quartz, Tourmaline, Moonstone, Chalcedony, Zircon, Appetite, Aquamarine, Garnet, Kunzite and Peridot.
While gems exports from Pakistan is increasing, the growth is insignificant compared to the large deposits found in the country. Profit in gem mining is subject to the existence of sufficiently enriched ore, favourable mining conditions and availability of reasonable infrastructure. Unlike other minerals, the mining of gems is not a very large mining operation involving relatively light equipment, which does not involve elaborate infrastructure.
Most of the precious stone mines in Pakistan are located in the northern areas. Access to these areas is difficult and conditions are conducive for smuggling. Jade is found in Gilgit. Flourite is found in Chitral, Kohat and some areas of Balochistan. The most expensive Ruby deposits are located in Hunza. Pakistan the second country that produces 'Blood Red' Ruby. The best known Emerald deposits are found in Mingora (Swat). The Mingora Emerald is transparent of sea green colour, making it the most precious gem mined in Pakistan.
Topaz is found in Chitral and Mardan. The rich, warm and yellow and pink colours are particularly suitable for jewellery. Pink Topaz of Katlang is a unique stone. It is found only in Pakistan. If properly promoted in the world markets, its price can be tremendously increased. Aquamarine occur in Balochistan, Chitral, Kaghan and Neelam Valley. This gem is transparent and ranges from sky blue to sea green in colour.
If the experts opinion is right and the sector has the potential to earn 3 to 5 billion US dollars, then the GoP must assign top priority to this industry. It has not only potential to earn huge foreign exchange but add tremendous value. The GoP must ensure soft-term credit for this sector, remove the remaining irritants, curb smuggling and ensure establishment of state-of-the-art gem cutting and polishing facilities. If India can export US$ 10 million gems and jewellery, why can't we do the same.
LOST WAX CASTING
Many of the sophisticated procedures used in the jewellery industry today are based on centuries-old techniques. One such technique is the process of lost wax casting. This was first employed by the Egyptians. Recently rediscovered, it is now the method used for creating around 60 per cent of all karat gold jewellery. This enables manufacturers to produce pieces in multiples at a favourable cost. This comprises of six main steps. 1) From an original design a model is made from metal. A rubber mold is then made using this model. 2) From the rubber mold, multiple copies are made in wax. They are affixed by heat to a solid bar forming a 'tree'. 3) This 'tree' is then placed in a metal flask and covered with plaster of Paris. Once it hardens, the plaster mold is heated in an oven. The wax melts or 'lost' leaving the hollow plaster mold. 4) Molten gold is then forced by pressure or sucked by vacuum into the mold. It fills every crevice and forms perfect copies of the original design. 5) The plaster is broken and washed away from the cooled gold casting. 6) The individual gold items are now ready to be cut from the 'tree' for hand finishing and polishing.
MEASURING BY KARAT
Gold in its pure state, 24 karat, is generally considered too soft for use in jewellery. By mixing or alloying it with other metals, its harness can be increased and its colour modified. The term karat is used to designate the proportion of fine gold in an alloy. The word karat has been derived from the Italian carato, the Arab qirat and the Greek keration — all meaning the fruit of the carob tree. The seeds of the fruits were once used to balance the scales in weighing gems and gold in Oriental bazaars. The proportion of gold in an alloy is expressed in karats using a scale of 24. The 24 karat is 100% pure gold. In the US market, 10 karat is the legal minimum standard of gold karatage — with 14 karat the most popular. In France, Italy and Switzerland, 18 karat is the lowest permissible standard to be called gold. England accepts 9 karat gold, while in some countries 8 karat is the legal minimum standard.
Cluster Development Project of gems and jewellery sector in Pakistan has been initiated by UNIDO in collaboration with different government institutions. It is aimed at promoting efficient relationship among the various players to overcome isolation and achieve collective efficiency and competitive advantage. This approach is aimed at strengthening the competitiveness of smaller units by developing a consensus based vision.
TEN TOLA TRAFFIC
In Pakistan and India jewellers often rely on small cast bar denominated in 'tolas'. Weighing just ten tolas, equivalent to 3.75oz or 116.638g, this seemingly lightweight fare is the world's most important small gold bar. Also called biscuit or TT bars, they continue to dominate the local markets. This bar is small and portable. Its dimensions are approximately 44mm (height), 27mm (width) and 5mm (thickness), with a usual millesimal gold purity of 999. The size of this bar enables it to be easily concealed. Another important feature is that the bar has no serial number, unlike almost all other cast bars available in the international markets. These bars are also bought by those who wish to invest in gold. These bars are also popular in countries where there are Pakistani and Indian jewellery fabricators and expatriates.