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Armenian Diamond Industry In Further Decline

23.07.2007

By Anna Saghabalian

Armenia’s diamond-processing industry, once a driving force of economic growth, recorded a further steep decline in the first half of this year, a senior government official said on Monday.

According to official data made public by Gagik Mkrtchian, head of the jewelry department at the Ministry of Trade and Economic Development, local plants produced 25 billion drams ($74 million) worth of gem diamonds, down by 48 percent from the same period last year.

Armenia’s total diamond output similarly dropped by over 17 percent to 93 billion drams in 2006, continuing a serious downturn in the sector that began in 2004. As a result, refined diamonds ceased to be the country’s single largest export item and now account for just 1 percent of its gross industrial production.

Citing the sharp appreciation of the Armenian dram, which began in late 2003, foreign investors dominating the export-oriented sector have laid off a considerable part of their workforce. Shoghakn, the country’s biggest diamond-cutting company owned by an Israeli billionaire, alone slashed about a thousand jobs before suspending its manufacturing operations last month. The company located in a small town 15 kilometers north of Yerevan is now facing an uncertain future.

While admitting the stronger dram’s negative impact on the dollar-based industry, Mkrtchian said company owners exaggerate their losses. He argued that their workers’ wages are paid in U.S. dollar equivalents, meaning that the latter now earn considerably less than they did a few years ago.

“Workers complain less than their employers who have cut their wages,” Mkrtchian told a news conference. “Practically speaking, [the employers] have not been incurring huge losses.”

The official reiterated his view that continuing weak global demand for refined diamonds, 60 percent of them sold in the United States, is another major reason for the crisis. He said the Armenian government has drawn up an anti-crisis program aimed at helping the industry avoid complete collapse.

“We are primarily talking about financial, insurance, transport and other infrastructures and speeding up our integration into international processes,” Mkrtchian said. He singled out the need for local manufactures to boost their efficiency and productivity.

The sector’s decline has only been compounded by the fact that a 2001 intergovernmental agreement that entitled Armenia to importing large quantities of Russian rough diamonds has essentially remained on paper. Imports of those diamonds began falling sharply in 2004 and ceased altogether in 2006.

Mkrtchian confirmed reports that the Russian diamond mining giant Alrosa is considering setting up a joint venture with another major Armenian company, DCA. The latter is believed to be controlled by Ara Abrahamian, a Russian diamond tycoon of Armenian descent. His brother Gagik, who runs DCA, told RFE/RL last week that the two parties are close to cutting a deal.

According to Mkrtchian, Alrosa is also discussing with the Yerevan government the possibility of resuming supplies of Russian raw diamonds to other Armenian firms.

(Photolur photo)

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