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A hidden gem: How the Far East is cutting out its niche in the diamond industry

  • Published in Economy
© Valeriy Sharifulin/TASS

For decades, Russia’s diamond cutting center has been Yakutia, which owns a quarter of the global deposits of those stones

Development of the diamond cutting industry in Russia is hindered by bureaucratic formalities and the existing tax burden, by a lack of WorldSkills-standards professional training, the market participants and experts say. TASS writes about how the diamond cutting industry develops in its traditional center - Yakutia, and in the new center in the Primorsky Region, about where and how specialists in the rare profession of cutters are receiving professional skills.

Russia’s President Vladimir Putin earlier ordered the Ministry for Development of the Far East to prepare a program for training of specialists for the diamond-cutting industry jointly with the Ministry of Education and Sciences and the Agency for Human Resources Development in the Far East. The program’s due date was set for January 15, 2018.

Crisis in the sector and situation with human resources

For decades, Russia’s diamond cutting center has been Yakutia, which owns a quarter of the global deposits of those stones. In the 1990s, dozens cutting shops were working in the region. Back then, the republic began training programs, and the profession of a diamond cutter was one of the top popular professions among the youth.

Director of the SeverAlmazTehnologii cutting plant Boris Romanov says the region’s five educational institutions used to train diamond cutters. "Every year, 125 new students entered those institutions in the republic," he said.

However, the sector’s boom continued for only a limited time, and a lacking state support plus the financial crisis in the early 2000s ruined the sector. "As of now, we have fewer than ten cutting companies," head of the Expert information-analytical center of the North-Eastern Federal University Yuri Danilov said. "The annual diamond production has slumped to $67 million in 2016 (from $186.5 million in 2011 - TASS)," he said. "Thus, we see a clear slump of the republic’s recently booming processing industry."

The crisis has affected the training, too. Only the Yakutia College offers training in diamond cutting. According to the college, 25 people become students every year, and the share of employed graduates is about 60%.

The young specialists cannot find work at the remaining plants and have to seek employment with other sectors because of the low income the beginning diamond cutters may have - not more than 25,000 rubles a month ($422), the college explained.

However, despite the fallen demand for the profession, the human resources’ potential remaining from the earlier time still exists, Yakutia’s legislator, head of the local parliament’s committee on the economy, investments and industry, Viktor Fedorov said. "Good diamond cutters are in Yakutsk, Suntar, Pokrovsk," he said. "Every region has specialists, this is what the traditional locals prefer doing - accurate crafts work."

The Primorsky Region is a new center of diamond cutting

The Far East’s diamond cutting industry has high hopes related to the Primorsky Region, which develops into a promising cutting center - first of all, due to the successful neighboring Yakutia, which is the key supplier of diamonds. On the other hand, the region is close to the Asian markets and the tax benefits for investors at the Free Port of Vladivostok attract to the region leaders in the diamond business.

The first project in the region is the KGK-DV diamond-cutting plant (a resident of the Free Port of Vladivostok, a part of India’s KGK-Group). Besides, another company from India - M. Suresh - is now picking a location for its facilities in the Primorye Region. Thus, the demand for specialists in diamond cutting would be only growing in the region, the Region’s Investment Agency said.

As new players were coming to Primorye’s diamond market, the issue of shortage in skilled specialists is growing. "Today, the Primorye Region does not have specialists in diamond cutting," the Investment Agency’s press service said. A training program will be organized at the Far East Federal University.

The way out is not only to begin training in the Primorye Region, but also in using the potential of Yakutia’s specialists, who could be working at new plants. For example, students of the Far East Federal University, trained as future cutting industrial engineers are viewing plants in the Primorye Region.

"Yes, we are aware of the shortage in specialists in the Primorye Region, and our graduates are working already in Moscow, Vladivostok, or abroad," the University’s four-year student Pyotr Kornilov said. "As for me, I plan further education for a master degree here."

Education’s modernization

However, the training system in Yakutia requires big modernization to raise level of its graduates. The system needs modern equipment and application of the international WorldSkills standards. "From the moment the college opened back in 1993, the park of equipment in the jewelry and cutting shops remains unchanged," the industrial college in Yakutsk told TASS.

SeverAlmazTehnologii’s director says modernization of the technical base is impossible without subsidies for new equipment. "If modernization is done, the graduates would be able to work at any faceting company - be it Russian or foreign," he said.

Besides, the academic programs are also outdated. The college implements combined programs for training of specialists skilled in jewelry and faceting. "The employment level for jewelers is higher than for cutters," the college said.

The professional educational institutions have joined the process of using the WorldSkills standards. In the current year, the college’s students have won two medals at the Russian WorldSkills championships - in jewelry and in gem cutting. The market participants say it is necessary to focus on design in the professional education. "Design makes added value for the jewelry," the college said.

Another problem the industry is facing is the low incomes: in the Primorye Region, an experienced cutter earns 35-40 thousand rubles ($590-675), in Yakutia - 20-25 thousand rubles ($337-422).

However, in beginning of the career, cutters earn twice less - and this pushes the youth out of the profession. According to Romanov, a beginning cutter earns 20-25 thousand rubles.

Hoping for small businesses

Reviving of the diamond cutting industry should be not only by opening new plants with major investments, but also by opening small shops of private investor, Yakutia’s legislator Viktor Fedorov said, explaining - in that case exclusive hand-made products would be able to compete in the market. "Cutting machines do exist, but the result is not of that high quality, and, of course, hand cutting always will be of value," he said.

However, lacking access to raw diamonds stops development of private businesses, Romanov said, adding small companies should have the access.

"We need the situation, where stones are sold not whole-sale, but by piece," he said. "Nowadays, the package, which ALROSA (diamond producer) sells, is worth at least $200,000, but where a beginning business can get this kind of money?" According to him, the solution could be organization of a diamond exchange in Yakutia.

Besides, the sector’s regulation is heavily bureaucratic, legislator Fedorov said. "We should get rid of the socialistic attitude to gems, get rid of the excessive requirements for their storage. Those are just stones. Let a private investor buy them, and how he then stores them and what security there is like - those should be his problems."

Yakutia’s Minister of Industry and Geology Andrei Panov said about the wide opportunities for individual cutters in Yakutia’s diamond complex at the Kangalassy advance-development territory, supported by the regional Almazerginenbank. "I believe, next year, the project will be implemented already," he said. "Thus, the production in the republic will grow manifold."

According to the project, the advance-development territory’s residents receive an access to equipment. Thus, it would be possible to organize cutting and jewelry industrial shops, as well as storages and offices. The first stage would be construction of the administrative-industrial building of 1,300 square meters, then - the second administrative-industrial building and an exhibition complex.

Using India’s experience

Experts say, foreign experience should be quite useful, especially India’s experience. That country is a current leader in diamond cutting - thanks to the correct state policies in supporting the sector. For example, Romanov said, the Indian government since the 1960s has been training specialists.

"They have a state program to educate four million cutters and jewelers to 2022," he explained. "Specially organized institutes continue research, certification and training."

"We should compete with India, where the cutters are exempt of VAT, or social taxes, and, of course, the level of incomes is very different there," Minister Panov said.

Legislator Fedorov has made calculations, showing production costs of gems in India is ten times lower than in Russia. "The production cost of a diamond of 0.4-0.5 carats is $610, while in India the cost is $450," he said. "Guess, where cutting would be of demand? If we do not solve the issue of taxes ($112 in the production cost), we cannot compete with India."

Head of the Expert center, Danilov, expressed the opinion the products of the Russian cutting companies cannot compete in the foreign markets due to a lack of support. "Because of no demand, the sector’s companies are in a deep crisis, which could be overcome only with the support from the state," he said.