This presentation, delivered by Chanaka Ellawela (founder president
of CMBAAA) at the recent AGM shares some insights into the gem & jewellery industry, particularly with regard to developing
industry level strategies that will increase competitiveness.
The presentation was made under four headings :
· Strategic Response
The gems from Sri Lanka and sapphires in particular
is the stuff of legends. It is probably the oldest industry in the country along with the spice trade. One of the earliest
references to our gems goes back around 3000 years to about 960BC when King Solomon is said to have offered Ceylon Sapphires
to the Queen of Sheba.
More recently, the sapphire and diamond engagement ring
that Prince Charles gave Princess Diana, featured an 12-carat oval Ceylon sapphire. The value of this ring is estimated at around ½ million dollars.
Legend has it that when King Dutugemunu decided to build
the Ruvanweli Seya, his treasury didn’t have the necessary funds. One day, near a village gold was found, on the banks
of the Mahaveli Ganga a copper mine was discovered, in another village gems came to the surface of the ground, silver was
found in a cave at Ridhi Vihare, coral and pearl beds rose out of the ocean and four superb gems of immense value were found.
All these treasures were brought to the King on the same day.
the centuries there have been many references to the amazing gems that have been found in this land. There are documented
references by Ptolemy, Fa-Hsien, Ibn-Batuta and Marco Polo just to name a few who were “wowed” by our gems.
Ceylon Sapphires is the stuff of legend, possessed by
Royalty, worn by Super Stars, written about by scholars and coveted by many.
Background and Some Industry Statistics
remained in the informal sector until the early 70’s when the then government set up the State Gem Corporation and brought
the industry into the formal sector.Since then, exports have grown from around $13.5m in 1975 to $359m in 2005.
total value of the gem & jewellery trade at retail and export points is estimated at about Rs. 55 Billion annually. The
market for gems and jewellery in Sri Lanka
can be divided into 3 segments :
largest segment in value terms is the export market.
The Domestic jewellery
market is the second biggest segment and is made up of jewellery sold to local consumers.
The third segment is the tourist
market which sells gems & jewellery to the 500,000 + tourists that visit Sri Lanka each year.
The total number employed
in the industry is estimated to be around 170,000. Nearly 60% of those are employed in the mining sector, this is a clear
indicator that the industry is still quite underdeveloped with very little down stream activity. About 25% are employed in
the manufacturing sector. The balance 15% are employed in the wholesale and retail sector
Exports have grown from just under $250M to over $350m
in the past 5 years. It is quite remarkable that the industry has outperformed the country’s average export growth rate
for the period.
In a study done by Prof. C. B. Dissanayake, potentially
gem bearing land represents about 70% of our land mass. Research indicates that we may have only tapped about 10% of our resource
up to now. Our annual mine production of sapphires is estimated to be around 20million
carats, worth about $40m dollars or about $2per carat. By contrast, The annual global production of diamond is around 120million
carats worth about $7billion dollars, which translates to $60 per carat.
Challenges - Opportunities and Threats
There are many threats and opportunities that we face
in the gem & jewellery industry. I will briefly touch on 4 of the these :
· Per carat price gap
Capturing the value added potential
· Gem tourism
· ISFTA/ CEPA
The street value of a 1 carat sapphire of average quality
can go up to about $500
In comparison a 1 carat diamond could fetch 10 times
that value or about $5000,
That begs the question why? The answer is marketing! Everyone has heard it, “Diamonds are a girls best friend’, this is
one of most successful marketing stories in history. Some obscure journalist coined this phrase and Debeers the diamond cartel,
used that phrase to make diamond the symbol of love and the promise of marriage. They made us believe that ‘a diamond
In 2004 we exported around 250,000 pieces of blue sapphires
worth about $40million at an average price of $160 per piece. If we can halve the per carat price gap, that could translate
to a 5 fold increase in export value.
To give you an example that illustrates the opportunity
for value addition :
Geuda is a variety of sapphire that can be color enhanced
by heat treatment. Each year we export over 10 million carats of unprocessed Geuda. We dig it out of the ground and put it
on a boat, without any value addition what-so-ever, officially earning around 2 million dollars. If we heat-treat this material,
cut and polished it, we could generate over $ 60 Million in export earnings. If we export this material in finished jewellery
we could realize over $250 Million in export earnings. The opportunity cost in this case is over ¾ million dollars per day.
A tourist visiting Sri Lanka spends on average about $165 on shopping. Out of this about $45 dollars
is on a gem & jewellery product. As we head towards 1m tourist arrivals by 2010, the industry is targeting $100m in earnings
from this market segment. Everyone knows about adventure tourism and eco tourism. We want to create a new tourism product
specifically around gems & jewellery. Gem Tourism is a new concept that the industry is developing right now.
Under the Indo Sri Lanka Free Trade Agreement, duty on
jewellery imported from India will become zero from March 2008.The government
has commenced negotiations on a Comprehensive Economic Partnership Agreement with India
which will further open up our economy to India.
If that wasn’t enough, Indian jewellery fashion is rapidly growing in popularity in Sri Lanka mainly due to the Bollywood factor. Our manufacturing sector has failed
to respond to the change in trend. Therefore finished goods are already coming in from India through unofficial channels to meet the demand.
Beyond a shadow of doubt, our manufacturing sector will
come under severe pressure over the next few years. India’s
export of gems & jewellery in 2005 was a staggering $17billion. India
is the biggest importer of gold in the world, using up 800 tons per annum. India
simultaneously presents both a huge threat and an opportunity.
Strategic Response for Growth and Ceylon Sapphire Branding
So how can we not only capitalize on our opportunities
but also convert the threats in to opportunities ?
Industry stakeholders have formulated 3 primary strategies
to develop the industry :
The manufacturing strategy
aims to build both gem cutting and jewellery manufacturing capacity to add maximum value to domestic raw material as well
as to imported raw material
The branding and repositioning
strategy aims to differentiate products and services from Sri Lanka,
reposition the industry up in the value chain
The hub strategy aims
to integrate the other two strategies by providing the necessary infrastructure, support services, and policy and business
Several critically important strategic initiatives need
to be implemented to give effect to these strategies. These initiatives represent an investment of about Rs. 1 Billion that
we need to make upfront. We have raised about a ¼ of that already mainly from within the industry and the donor community,
the government is yet to make the investments that they have promised to make. As Branding is the future of the industry,
an elaboration will be useful.
Super brands like Cartier, Bulgari and Tiffany use Ceylon sapphires in their branded products selling
them as natural Ceylon Sapphires. Ceylon Sapphire already enjoys some brand recognition in international markets. Our branding
strategy basically has 2 elements one at industry level and the other at firm level
At industry level we are working on registering a geographic
indication under the TRIPS agreement of the WTO. Sri Lanka
is pursuing this strategy for Ceylon Tea, Ceylon Cinnamon and Ceylon Sapphire. Once that is done, like Champagne,
only sapphires originating from Sri Lanka
can be sold as Ceylon Sapphire, making it a premium product.
The other element is to develop firm level brands like
Dilmah has done for tea. We have started a pilot project with an initial investment of about Rs. 150m. It is a public private
joint venture with 8 leading exporters and the Export Development Board investing in the project. We hired the services of
a world renowned jewellery designer to design a collection of sapphire jewellery for us. We have now completed the product
development phase. The idea here is to pool our resources and develop one successful brand that will lead the way for others
in the industry to follow.
Finally here are the broad objectives that we aim to
achieve by 2010 :
· $ 1 Billion in foreign currency earnings
· Halve the diamond-sapphire price gap
· Export most of our gems as finished jewellery and thereby optimize local value
Our aim is to bring both the brand and the cash home.