by Chanaka Ellawala
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 :
·
History
·
Background
·
Challenges
·
Strategic
Response
History
The gems from
More
recently, the sapphire and diamond engagement ring that Prince Charles gave
Princess
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.
Throughout
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
The
industry 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.
The 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
The 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
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 is forever’.
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
Under the
Indo Sri Lanka Free Trade Agreement, duty on jewellery imported from
Beyond a
shadow of doubt, our manufacturing sector will come under severe pressure over
the next few years.
Strategic Response for
Growth and
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
The hub strategy aims to integrate the other two
strategies by providing the necessary infrastructure, support services, and
policy and business environment
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
At industry
level we are working on registering a geographic indication under the TRIPS
agreement of the WTO.
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
addition
Our aim is
to bring both the brand and the cash home.