ARMENIAN DIAMOND INDUSTRY IN FURTHER DECLINE
By Anna Saghabalian

Radio Liberty, Czech Rep.
July 23 2007

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.