group 05- analysis of jewellery industry

AnalysisofJewelleryIndustryofPakistan

InstituteofBusinessAdministration2010

1SYNOPSIS

This report on the gems and jewellery industry of Pakistan was compiled using extensive tools of primary and secondary research. Primary research was done through questionnaires and detailed interviews from traders who are existent players in the field. In addition, an interview with manager training of Pakistan Gems and Jewellery Development centre (PGJDC) and a visit to its respective training centre in Karachi was also conducted. Chairperson of All Pakistan Gems and Jewellery Merchants Association (APGJMA), Mr. Saeed and Imran Khan, Managing director of the largest jewellery exporting brand, Tessori were also interviewed for the purpose of analyzing the industry. Secondary Research was conducted through an in-depth analysis of news articles, information available over the internet, government websites and various brochures that we were able to gather during the process. A reference to each source used has been quoted throughout the report.

In the course of our research, we gathered that The Gems and Jewellery industry of Pakistan is a lucrative trade to be in. Also, given the fact that Pakistan is one of the top ten consumers of gold in the world, the industry can expand beyond measures if provided with the proper facilities and investment.

Though the report progresses to present a detailed analysis of the basic workings of the industry in Pakistan, on-the-field research allowed us to gather the following points that are pivotal to the industry’s structure and workings. These points are also later explained and discussed in detail in later sections of the industry.

• Reluctance of the (jewellery) shop owners and traders to share information specially regarding the taxes imposed on them.

• Prevalence of high rate of illiteracy amongst dealers which reflected on the way transactions were carried out. Many dealers refused to provide us with information after having one look at the questionnaire, which was printed in English

• High illegal flow of raw material and finished goods both into and out of the country. Smuggling of goods was openly confessed by many of the jewelers, as ‘unofficial trade’

• Poor implementation of laws and regulations imposed by the government as traders were able to find loop holes in the process and a large number of them are still unregistered with the government. This results in poor documentation of the industry. The problem exists despite there being a proper policy design that has been chalked out to aid the jewellers in their transactions

• A personal observation was that the markets were also not very busy and the number of customers had significantly reduced. We visited the markets in morning, afternoon and evening times to reach to the same conclusion. Evening times registered only a slight increase in demand



2• Marketing efforts seemed to be minimal. This is probably because traders

are not aware of the opportunities available to them. As a result they do not work towards branding their products

• The law and order situation and security issues of the country had made both customers and traders unsecure which has further hindered the growth of the industry.

The overall condition of the industry was unsatisfactory. Most traders were upset of the fact that the government was not providing them sufficient help in these difficult times. The industry has a lot of potential but resources are not being fully utilized currently, as Imran Khan of Tessori said to us: “The price of gold has risen, but when compared to the rising prices of oil and dollar, it is still low. In addition, despite the high prices, the value of gold and jewellery can never really erode in Pakistan given the cultural position it enjoys in the inherited heritage. Nothing can replace jewellery, and more significantly, nothing can ever be a true substitute for gold jewellery. Adding to the significance of the sector, he added that the industry held the potential to pay off national debt, if documented and regulated properly.”



3BRIEF OVERVIEW, HISTORY AND EVOLUTION OF THE

INDUSTRY IN PAKISTAN

The industry is a flourishing one, though amidst the turbulent times it has experienced a lower demand, significantly affecting their revenues. Jewellery is an important part of heritage and culture in Pakistan (part of the Indian subcontinent!), given its long association and legacy with adornment of females, warding off evil and protection, and as valuable gifts. In Pakistan, jewellery shares a history as ancient as the partition, and dates even beyond that. Before discussing the association of jewellery with Pakistan, however, it is essential to shed some light on the general history of jewellery.

The first tribes of human hunter-gatherers created simple jewellery for adornment purposes, the ornaments later became a popular means to harness the magic believed to be in beautiful stones. The growing popularity and desire by the end of the Mesolithic period, lead to developed craftsmanship and many early jewellery styles could already be seen! Soon, the ancient world began to see a trade of jewellery, as it had of other commodities. With development of the trade, quality of craftsmanship and attention to detail also developed and increased. The ancient world saw the emergence of master craftspeople, dedicated to the production of jewellery. During the middle ages, when Christianity was rapidly growing, the overwhelming majority of popular jewellery had substantial religious or royal themes. Important Asiatic contributions from China, the Indian Subcontinent and African cultures are also noted. Through history, different periods hence forth have seen more innovative styles of jewellery emerging, the Art Nouveau period being the most important one because it saw a shift from classical art and design, towards a new modernism. Jewellery inspired by this movement focused on themes of nature and fantasy, incorporating flowing, organic shapes and floral motifs. Throughout history, globally and regionally, jewellery has seen to evolve according to the needs and demands of the time. The case of subcontinent is no different

The art of jewellery has long been associated with the Indian subcontinent in its legacy. Discussing the Indian subcontinent in its relation to Pakistan is vital as Pakistan adopts and is influenced by a significant portion of its heritage from the pre-partition era. An important tradition is that of giving jewellery to brides upon marriage, which approximately makes up more than 75% demand of the total jewellery.

The yearning to adorn one with delicate ornaments acted as the root cause for the rise to the Jewellery market in the sub-continent, over three thousand years ago, as is evident from archaeological remnants spread across the Indian Subcontinent.



4People of the Indus valley civilization were one of the first to start jewelry making in this region. The growth was so phenomenal that by 1500 BC the people of the Indus valley civilization were gaining expertise in the making of gold earrings and necklaces, bead necklaces and even metallic bangles. However, before 2100 BC, way before the time when metal had started to be used widely, the major jewelry trade in the Indus valley was the bead trade. The trend of wearing jewelry in the Indus valley was predominantly by the female population of the civilization, similar to the gender-based trend of jewellery used today. They wore many clay or shell bracelets on their wrists, often shaped like a doughnut and painted in black color, what we now know as bangles. Also, women of the Indus valley civilization are known to wear thin bands of gold on their foreheads, earrings, brooches, chokers and gold rings. Crafting small beads was popular amongst the people of the Indus: small beads about one millimeter long were crafted, for the purpose of decorating them in their hair, both men and women.

Because the subcontinent was largely catered at this point, the growth of the jewellery-making trend was comparatively slower here. Many civilizations are known to have actively been involved in the jewellery-making business for adornment purposes.

The real boost to the industry however was seen during the Mughal era. Because the rulers liked to flaunt their status and wealth through ornaments, an increase in craftsmanship and innovation was seen. The trade of goldsmith reached a zenith. A shift away from clay and inexpensive stones to more durable metals, like that of gold and more precious stones was seen. Because the subcontinent was a host to these resources itself, minimum obstruction was faced in the production of jewellery. During the period, the artisan class of goldsmiths showed their skills in making one of the most renowned gold jewelry in history. The most famous among the jewelry types that emerged during the times of the Mughals include, Minakari, Kundan, Polki, and Nauratan, etc., most of them famous and in demand to-date. Indeed, Imran Khan of Tessori Jewellers mentioned to us that many of their jewellery lines were names after famous Mughals, because of the association. A popular example is that of the Anarkali line.

The British who ruled the sub-continent also left a strong influence on the jewellery line. With the setting up of railways and transportation facilities, communication was easier. Foreigners, as well as the women folk of the British soldiers were awe-struck by the local craft man-ship of jewellers. New demands were placed, and the jewellers once again adapted themselves to fit the changing trends and demands of the time. Western influence made it felt in every sphere of life, even the native elite came under its influence. Though traditional jewellery was not forgone completely, and sonars were still producing it, distinctive western forms and patterns also made their presence obvious. Gold bracelets with mounted miniature paintings and necklaces



5consisting of a series of oval plaques united by chains now came into vogue. During this time, the jewelers continued to add to their knowledge and skills, gaining influence from world-over and yet slinging to their heritage at the same time Talismanic jewellery also gained popularity during this time, and enjoys a special position is the Pakistani population to date. Though it dates back to dates back to prehistoric times, such as the scarab ring of the ancient Mesopotamians which was meant to offer the wearer immunity against adversity, many local inhabitants wear it to ward off evils and perform charms. Many stones hold a respectable place in the hearts of the Pakistani people, majority of which is Muslim, as given significance to by Islam. For example, the flesh-colored carnelian is considered lucky. The Holy Prophet (Peace Be upon Him) is said to have worn this stone set in silver. An amulet or a hollow pendant containing the words of a prayer, embossed or intricately worked, in silver or gold, is worn around the neck by Muslims, as a measure of protection. After partition, many sonars with their families also migrated to Pakistan, as people from other professions had. The artisans of migrated families from India with traditional Delhi and Jaipur traditions established small business in Saraafa Bazaar near Kharadar, thus, became the first commercial market of jewellery in this Cluster. It is to date the hub of jewellery designing and making in Karachi, and one of the most popular markets of Pakistan. Though not an immediately popular industry, the jewelers experienced a slow start in Pakistan. The concentration of jewelers was largely limited to Saraafa bazaar. Of the hundreds of shops that exist in Saddar and Tariq road today, only four to five existed about three decades back. It was gradually that the sector became a feasible means of income and attracted more jewelers to set up shops in the business. Through times, however, the business locally has also seen trends. Where previously heavy and weighted jewellery was proffered of intrinsically woven designs, jewellery preferred now is light-weight and simple. In addition, an increasing trend of silver jewellery is seen to gain popularity, parallel with an increase in artificial jewellery, for purposes discussed in later sections of the report. The quote adopted from ‘Pakistani zevrat’ published by the export bureau Pakistan, highlights the significance and importance, and summarizes that jewellery business in Pakistan: ‘Diverse influences have played a vital role in Pakistan's development. Since the cultural awakening of man, this region has come under a variety of influences: religious, social and political. Aryans, Achaemenians, Greeks, Arabs, Turks, Persians and the British have all come and gone, creating a bridge for the interchange and migration of fresh ideas and new forms into the indigenous arts.



6Pakistani jewellery is the true mirror of its past, reflecting the social and historical changes, colored by the people and temper of its times.’



7INDUSTRY STRUCTURE

Jewellery industry in Pakistan is a large and wide spread one, with jewellery hubs present in all major cities; and the demand for jewellery as high in the rural areas of the country as in the urban. The industry comprises foremost, of gold jewellery. Gold jewellery has largely dominated the local markets throughout the country’s history. It is only recently that the country is seeing a rise of artificial and silver jewellery, given the changing trends and the price hike in gold.

The industry is largely UNSTRUCTURED and fragmented. More than 90% of the players exist in the market because the business is family-owned one, many of them fourth generations in the running. Because the business has been passed down to them from their forefathers JEWELLERS have limited knowledge of the opportunities available to them with the evolution of global trade. ALSO, As a result a lot of trade is not documented. Lack of documentation hinders complete development of the sector. In addition, it is important to note that though regulations are present for importers and exporters of the trade, no regulation policy or methods exist to keep in check the regular, day-to-day trader. Implications of this will be discussed in the later parts of the report.

In Karachi Jewellers throughout the city are present in clusters with major players present in Saraafa Bazaar, Saddar, Tariq Road, Liaquatabad, Hyderi and Clifton. Among all these Traders in Saddar and Saraafa Bazaar play a dominant role in the Gems and Jewellery Industry. Each area has its own major players that grasp a larger share than the competitors of the locality. Overall, Tessori is the only jewellery brand in Pakistan and has complete monopoly over designs and quality, and is also the largest exporter of jewellery. Not only does it export jewellery to European states, but also to Hong Kong, with its offices in Hong Kong and Dubai, and head office at Karachi.

The industry Pakistan is the 8th biggest consumer of gold in the world and annually imports 127 tons gold but unfortunately there is no consumer satisfaction and Pakistani jewellery industry suffers from unfair competition by those who under-carat gold and therefore sell at a lower price. Also the high volume of smuggled jewellery but into and out of the country is hampering the industry’s growth.1

Locally produced gold is minimal: according to an article in daily times2, ‘The Reko Diq site (Baluchistan) holds up to 11 billion pounds of copper and 9 million ounces of gold reserves, according to the government.’ However,

1Flourishing Pakistani jewellery industry suffers unfair competition (Sana News)- 13 September, 20092 Daily times: Jan 15, 2010



8because of a lack of value-addition & proper mining facilities, political upheaval in the province and militancy issues, exploitation of the resource has not been possible.

Because of this, gold is largely procured through imports, which have seen a decline in recent years. This is confirmed by the trend of falling gold imports, from table13. This also reflects on increased imports margins of jewellery witnessed by the country during 2006 and 2007, and declined only minimally during 2008. This reflects largely on artificial jewellery that is imported from china and India. Any mention of an increased import of gold represents an increased demand of gold for investment and not jewellery-making purposes. In addition, also note that a major portion of jewellery imported in the country is smuggled into neighboring countries, as stated by jewellers from Golf.

Similarly, exports of jewellery can be accessed from table 24 , also adopted from TDAP statistics. This highlights the fact that jewellery exports have increase their share from 1.00% to 3.60% in total Pakistan exports, showing that while local demand for the industry slumps, international demand exists. Dawn news5 reports this as: ‘export of jewellery in July-June 2008-09 went up to $288 million as compared to $213.3 million in 2007-2008’. This shows a considerable increase in exports, given the fact that the country experienced a marginal cut in the exports of jewellery during the year 2007 and 2008. The decrease is largely attributed to the global recession that inflicted the developed countries, given the fact that Pakistani jewellery is mainly exported U.A.E, USA, UK, and Thailand. Recently assessed Demand for artificial Pakistani jewellery and bangles is especially observed to be high in these markets.

This also supports the primary data gathered, in which we found that where most jewellers stated that there was no local demand, manufacturers commented on high demand being experienced for their products, with little time on hands. The lag is largely reflected in exports of the item.

Pakistan’s jewellery industry is gradually gaining a position of utmost importance to the country. It is also one of the top 40 export commodities, as will be discussed in later sections. According to the managing director of Tessori, the sector alone has the potential to pay off the country’s debt if given the appropriate government attention and resources to operate. In addition, given the rich abundance of jewellery in the Pakistani culture and heritage, the managing director added, jewellery can never go out of fashion. Commenting on gold jewellery, he added that its value can never be eroded, no matter how high the price. He was supported in his views by a local jeweller from Saraafa bazaar who added that the value of gold remains as it was 15 years ago. It is only the ‘pockets’ of people that is unable to reach for the yellow metal now. 3 Table attached in appendix 4 Table attached in appendix 5 Dawn News: 4 August 2009



9In recent times, the government has tried to indulge in various strategies to promote and develop the sector, especially with the support of PGJDC. These initiatives were taken to support the expansion of the industry through technology up gradation, skill development, creation of awareness among traders and increasing market exposure by encouraging participation in Fairs and exhibitions. It is hoped that all these efforts in the long run will help improve the quality and designs of Pakistani jewellery thereby increasing its demand both in the local and international arena.

In short, the industry can be summarized as:

• Highly profitable one in stable global and national scenario • Family oriented: business passed on from one generation to another • Over the time, kaarigari (artisan-ship) has developed into a separate

industry • Lack of value-addition • Coordination seen between different sectors of production: artisans,

manufacturers, polishers, cutters, retailers. • Raw materials can easily be procured through official and unofficial

means • Training facilities re not widely utilized • Industry workers largely illiterate (hardly above intermediate, quotes Mr.

Khamisa of Al-Marjaan jewellers of Murshid bazaar) • Marketing avenues not utilised at all by large • Government assistance provided at minimum: most jewellers lament the

lack of it • The industry is highly capital-intensive and jewellers in dearth of

financial assistance in terms of bank loans and credit because of a lack of scheme-development

• Government has only recently started to take initiatives to develop the industry

• However, a lag between policy making and policy implementation has been observed, as will be chalked out in detail later.

• The industry is saturated at the current point, however, if the economy stabilises in the future, shows signs of strong growth potential and returns.



10ROLE OF PAKISTAN GEMS AND JEWELLERY COMPANY

(PGJDC)

Pakistan has abundant reserves of precious and semi-precious gemstones and a rich history of jewellery manufacturing. However, it has been unable to develop an internationally competitive gems and jewellery industry. Capitalizing on its vast natural resources, low labor costs, skilled craftsmen, and growing national and international demand Pakistan has the potential to become a regional hub for precious stone cutting and jewellery manufacturing. Keeping in view of the above facts, the Pakistan Initiative for Strategic Development and Competitiveness (PISDAC) Project was launched by the United States Agency for International Development (USAID). The project was implemented in partnership with Pakistan’s Small and Medium Enterprise Development Authority (SMEDA). As part of the initiative a group of committed industry stakeholders agreed to form a Strategy Working Group (SWOG) to address how the industry could improve itself through a better strategy. Within 16 months from its inception, the SWOG had developed a strategy shared and agreed to by the private sector and the Government of Pakistan. The SWOG itself has become a recognized private sector platform. In the light of its recommendation Government of Pakistan formed Pakistan Gems & Jewellery Development Company (PGJDC) in June 2006 as a non-profit public/private entity for the development of the Sector. The company became operational in April 2007. The main objectives of PGJDC are to ensure the implementation of the Strategy formulated by SWOG, SMEDA with USAID for general uplift of the industry and increasing the competitiveness of Gems & Jewellery Sector. Some of the major projects on PGJCD include:

• Gems and Jewellery training and manufacturing centre: These centers have been established in Lahore, Karachi and Gilgit and offer diploma courses in jewellery designing and making6. Brochures for a list and promotion courses offered, as can be seen in the appendix, are at large printed in Urdu and distributed in the local markets to make local traders aware of the events. This was an important step for the progress of the sector for it gave way to breaking down the traditional methods of learning skills (ustad- shagird concept). It also allowed new people to enter into the market increasing the level of competition. These training centers also impart knowledge regarding the use of latest techniques for manufacturing and offer courses like Jewellery pattern making

6 Brochures and course list attached in appendix



11in wax and computer-aided designing. This has helped break the monopoly of a few major players in the market. For this purpose new machine such as CAD/CAM, Lapidary machine and XRF machine has been acquired These skill development and technology up gradation interventions have improve the performance of the sector in terms of

o Saving on wastage o Saving time o Saving cost o Improved quality o Internationally competitive export price o Improved designs7

• Marketing in domestic and international market

The local market, manufacturers and retailers are being facilitated in finding new consumer segments, diversifying their product base and capitalizing on higher margin market opportunities. Upgrading design and manufacturing capabilities of the industry will help implement this. In the international market attempts are being made to enhance Pakistan’s visibility by encouraging traders to participate in various international exhibitions and fairs

PGJDC is also organizing the Pakistan International Gems and Jewellery exhibition in August at PC Hotel, Karachi. The event will showcase Gems & Jewellery Pakistan in its finest manner, highlighting traditional culture coupled with contemporary class of the sector. The event will bring out Pakistani gems and jewellery products in the most aesthetic style and will introduce foreign buyers to rich Pakistan market.

• Facilitating trade

Continuous attempts have been made by PJGDC and a recent achievement has been the reduction of value charges on domestic shipments by PIA.8

Pakistan Gems and Jewellery Development Company has been established as Public/Private partnership to develop the value chain from mine to market. The company aims to enhance the exports through facilitation, technology up-gradation, skill development and Marketing/Branding.

7 PGJDC Newsletter Jan- Sept 2009 8 www.pgjdc.org



12DEMAND AND SUPPLY FACTORS

GOLD AS AN INVESTMENT OPTION

Before analyzing the demand for jewellery in Pakistan, it is important to bring to the reader’s attention the fact that demand for gold by buyers in the local context is broadly categorized into two groups:

i) First ones are those who buy jewellery

ii) The second ones are investors who buy gold bars, for purposes of investment and saving.

it is important at the same to clarify that investment and savings takes place though the purchases of solid gold (ginnis, biscuits and bars etc) and not in the form of finished jewellery. Investment in finished gold jewellery is often not feasible, because the buyer may face losses in the form of cost-cuttings for making and wastage. Jewellery in the pure form gives maximum returns to a purchaser is different in operations and workings from the jewellery sector. Jewellery is largely purchased for purposes of fashion and according to festival needs, given the culture of subcontinent.

Demand for gold, if seen to be rising against a falling demand of jewellery, it is largely because people prefer to invest in the commodity in turbulent times to set off the effects of inflation. Our report focuses largely on the jewellery industry, and does not analyze the demand/supply and related issues concerning solid/pure gold.

DEMAND

The unprecedented hike in the prices of gold that has been observed in the markets from late 2007 has declined the consumers’ purchasing power and is keeping them at bay from bullion market, even for purposes of investment. During this time, and afterwards, a growing rise in silver has been observed, for investment in metals. However, more importantly, the Opening of many investment opportunities in the country, simultaneously to an increase in gold prices, has caused a decline in the number of gold investors. Most people now demand jewellery, especially that of gold, only during wedding seasons and related festivals.

The rapid expansion of the artificial jewellery market has also proved to a driving force for a fall in the demand of gold jewellery. The number of shops dealing in imitation jewellery in Pakistan has increased during last three years.



13Now about 5,000 imitation jewellery shops are being run in Pakistan.9Because artificial; jewellery is available at lower prices, and offers a multitude of designs and varieties, it caters more to the economic and the fashion needs of the customers. Article from daily times 10 quotes a customer, Arisha Tariq as ‘I need lots of different sets to wear to match all the different types of clothing I have. Therefore, I prefer to purchase a wide variety of cheap artificial jewellery for different parties and occasion.’

Therefore where the demand for gold jewellery has seen a decline in recent times, a boost in the demand of artificial jewellery and that of pewter and silver has been observed. The general demand for jewellery can be categorized as income elastic. This means that a direct relationship between the quantity demanded and per capita income of the customers exists. This is mainly because jewellery comes under the luxury goods category, thus meaning that as a customer’s purchasing power falls, his demand of jewellery will fall. Industry survey shows that demand for jewellery (of whatever kind!) however, cannot absolutely be eroded from the Pakistani culture, given the heritage and values that are related to it in terms of dowry. this view point was supported by the chairman of APGJMA, Mr. Saeed Mazhar, who stated that ‘demand for Pakistani jewellery is present, both in the local and international markets, which is largely explained by the fact that gold souks are being built and promoted and business closures are hard to put fingers on. New malls and buildings, for example Sufi Tell in Clifton, have a whole floor devoted to the business of gold and jewellery’.

A multitude of factors affect demand for jewellery, most of them prominent and obvious, as have been stated by all jewellers. In this section, an analysis of the factors effecting demand of Pakistani jewellery in the local and international markets is presented, keeping in mind the cultural significance of the item. Although all factors can affect both local and international demand, we have tried to categorize them never the less, based on general industrial trends and market surveys.

9http://www.commodityonline.com/news/Gold-price-rise-boosts-imitation-jewellery-trade-15337-3-1.html

10 Daily Times: Sept 07 , 2008



14FACTORS AFFECTING BOTH LOCAL AND INTERNATIONAL DEMAND

1. Price Of Gold The major factor influencing the overall demand for jewellery is its price. Gold prices are set internationally; therefore local traders do not have much influence on it. a price hike in gold leads to a slump in the jewellery trade, leading to lower demand for gold jewellery, and parallel, leading to an increased demand for artificial and silver jewellery (reasons for the trend are explained in later sectiosn of teh report)

2. Limited Marketing Strategies As a result of a lack of awareness about marketing amongst local traders not many efforts are made to promote our products both locally and internationally. Creation and awareness of brands is limited. Tessori is the only jewellery brand in Pakistan and has a monopoly in design and quality. The concept of branded jewellery will allow a brand to enjoy recognition, and also conform to international standards, in terms of finesse and quality. This will enhance the demand for locally manufactured jewellery, both in Pakistan and abroad.

3. Tourism As explained by Mr. Shamim Sarwana for silver jewellery especially, the demand increases during peak tourist seasons. This allows us to generalise the trend also for artificial jewellery. Tourists visiting Pakistan demand local jewellery artefacts, given their uniqueness, beauty and sophistication. Also, because the artefacts cannot be found on such large scale in foreign markets, which also lack variety when compared to the local market, demand for jewellery, especially silver and artificial increases. Word-of-mouth by tourists of the jewellery in their home-country may have the impact of increasing international demand for Pakistani jewellery in the foreign markets.

FACTORS AFFECTING LOCAL DEMAND

4. Rate Of Inflation And Purchasing Power Of Consumers The current rate of inflation has reached double digits. This means that the purchasing power of consumers has reduced resulting in a lower demand for gold jewellery both for personal use and investment. The value of the rupee in these terms plays a major role, because Pakistani jewellery depends majorly on imports for raw materials. A depreciation of the rupee disables market players from importing these valuable raw materials (according to Harmain Jewellers, only copper is available locally. Silver is largely imported from India, and gold from Dubai. In the production of gold jewellery process, says the same source, 91.5% gold is uses, and the rest is



15copper. Copper is added to strengthen the gold), as they now cost more than before.

5. Law And Order Situation Of The Country The current law and order situation has destroyed the lucrative business of jewellery in Pakistan. The trade suffers at large because of the grave security issues, where the government has been unable to provide protection to traders in, ‘as it is in a state of war against hardened militants and criminals internally’11. The deteriorating conditions have impacted both demand and supply. • Demand: created fear amongst consumers who are hesitant to make

visits to the jewellery shops. As a result the business of gold jewellery is declining day by day

• Supply: many traders are also shifting to silver jewellery or any other.12This reduced the supply of gold jewellery in the local markets, and indirectly, also adversely affects exports. In addition, many jewellers have started to shift their business units abroad (largely Canada according to Mr. Saeed), because of the grave security conditions. This has the potential of dampening future supply.

6. Traditions And The Change In Lifestyles Traditionally in Pakistan, jewellery is an essential ornament worn by all

women irrespective of their status. It is used to symbolise status and wealth. Previously, heavy sets of thick gold weavings were demanded. However, with modernisation a slight change in this mindset has occurred with women thinking more practically and preferences for light and delicate jewellery is slowly replacing the traditional ones. though this does not impact the overall demand of jewellery, it influences largely the types and weights of jewellery that are now more widely sought

7. Seasonal Variations

Demand for jewellery is impacted the largest because of seasonal variations, especially in the local context. The demand for jewellery, irrespective of the kind, has been observed by jewellers to be higher during the Islamic months of Rabbi-ul-awal through Sha’abaan. this is largely because these months are associated with weddings, and experience a higher purchase. Similarly, demand is also seen to be high during festivals and occasions, like Eid. Husain Son Jewellers of Tariq Road identified the months of May, June, July and December as showing higher demand. Similarly, Mr. Shamim Sarwana associated higher demand through the months of mid November to February, and mid-June to September. However, the higher demand in this case was associated with an increase

11Business Recorder, November 14, 2009 12 The Nation: October, 2009



16in tourist activities in the country during the identified months. Similarly demand is relatively low during Muharram. International aspect of seasonal variation: in addition, demand for jewellery also rises during hajj season. Pakistan exports jewellery, chiefly bangles to Saudi Arabia, says Mr. Saeed. This, he stated implied that demand for local-jewellery in the Arab world increased, fuelling production. Arab is famous for selling authenticate and pure jewellery (khaalis sona), which in effect is imported from Pakistan.

FACTORS AFFECTING INTERNATIONAL DEMAND

8. Designs The pivotal differentiating factor in jewellery industry is that of designs. While locally, Pakistani’s prefer something more elaborate, foreigners, Europeans specially prefer something simpler. These may include designs of long strings, scarf necklaces, etc; of which no local trend exists. In order to increase demand and remain competitive Pakistani traders need to keep track of all the latest fashions and develop designs accordingly; both to cater to local and international needs. Says Zehra Kachelo in an interview with export times13, ‘many local designers do not have class or exposure. They just copy Indian styles and designs from magazines. So how are we representing Pakistan? Our designs should be something that we have created). Currently majority of the traders are still producing traditional designs which may be popular in the local market but not in much demand internationally.

9. Quality And Conformity To International Standards Pakistani traders need to implement new techniques in order to make sure that the quality of their products is high. To maintain quality the government will need to implement the law of testing and hallmarking products and promote better refining techniques. This will help gain consumers trust in the quality of the products. Hallmarking will boost international demand as products will now be authenticate and guaranteed. parallel, local demand will also be boosted: customers will not mind paying a little extra if the article they purchase is stamped with guarantee through hallmarking, explain Mr. Saeed. The quality can also be enhanced through the adoption of modern technology as will be explained in later sections.

10. Smuggling Smuggling within the jewellery is widespread spurring concerns regarding

the growth of the entire sector. Smuggling is done through land, air and also by a legal means whereby women are made to wear them while travelling.

13Articleattachedinappendix



17This is likely to hamper the official demand for our products internationally and hamper the growth of the industry in the long run.

SUPPLY

In the current economic scenario, the supply is enough to meet the demand, both local and international, stated Mr. Saeed. Supply, like demand, for jewellery in Pakistan is chiefly determined through demand, as a major determinant. Stated by 85% - 90% jewellers, supply of jewellery is shaped by demand primarily. Higher the demand, greater the supply; given the fact that the industry suffers form no capacity shortages at the moment. Also interesting to know is that gold is non-perishable, and does not depreciate in value if kept unused. It suffers from zero inventory-loss: a jewellery article of gold unused, if pushed out of trend can be melted to produce a new one of the latest trend!

Other related factors largely enhance, and not primarily determine supply. These factors are:

1. Workforce And Skill Development

Pakistan has been blessed with a large workforce (sonars and kaarigars) which posses expertise in the field. Skills and methods of trade (business secret) are inherited and obtained by direct descent. Basic skills required for jewellery making are often passed on from generation to generation. However, to maintain a steady and revenue-earning supply of modern and up-t0-the-mark jewellery in today’s competitive world there is a need to make continuous efforts towards skill development. Such efforts are being made by TUSDEC (Technology Up gradation and skills development Company). They have established computer –aided designing and manufacturing centres in Peshawar and other towns of the country to produce skilled manpower for the gems and jewellery sector.14 PJGDC has also set up training centres in Gilgit, Lahore and Karachi where they offer courses focusing on gem cutting and identification, jewellery manufacturing and designing. Labour should also be trained to use the latest techniques and trends used in gold refining and assaying worldwide (for details, see the attached news letter from PGJDC)

14BusinessRecorder:December,2005



182. Value Addition

Supply of finished jewellery is also dependent on value-addition. Availability of polishing, cutting and refining facilities, commonly known as value addition, also affect supply through the availability of gems and finishing facilities. Stakeholders need to be educated and made to realise the value of exports after value addition with the aim of increasing exports of polished and processed gem stones and gem-studded jewellery. Our exports are unable to fetch the required price because gemstones are sold in their raw form at low prices. Often these gem-stones are purchased back in their finished look, largely from India, to be used in the jewellery craft.

3. Trade Policies Gold imported or fetched back into the country (See section _____), is detained at airports for one week or more, lamented the APGJMA chairman, Mr. Umair. Detainment of the basic raw material in the craftsmanship of jewellery holds the labour useless for about fifteen days a week. This causes a delay in production, and also, a week or more delay in the available exports or supply of jewellery in general. High import duties also discourage local sonars from importing gold from Dubai, thus causing a slowdown in the cycle of jewellery production. This leads to lower supplies, locally as well as internationally in the form of exports.

4. Energy Crisis The devastating power crisis all over the country has significantly harmed the entire industrial sector including that of jewellery. Manufacturers lament and complain of the disruptions caused in the work process, leading to delayed production, as even small machines are run on electricity.

5. Availability Of Raw Materials Availability of raw materials also impacts supply to a great extent. As discussed in ‘value addition’ of the same section, refined gem-stones being of dearth locally is just one example of a raw material that the country lacks. Gold, as a raw material, is also imported, largely from UAE. Hike in international prices, supplemented by a falling exchange rate makes this import un-feasible. Though local jewellers face no dearth of raw materials (gold or gemstones presently), a future market lag may be created because of this.



196. Market Exposure

Government policies aimed at increasing the exposure of local manufacturers in the international market will help them to increase their supply in the international markets. For this cause is supported by UNIDO investment Promotion Unit (IPU) along with Small and Medium Enterprises Development Authority (SMEDA). They have initiated efforts of facilitating co-operation with international markets, like that of Italy. Foreign companies that operate in Pakistan to develop the gems and jewellery sector via USAID, encourage local jewellers to visit foreign lands to understand the demand there, and shape supply accordingly. , foreign companies, like J.E. Austin Inc holds competitions, and through form-filling-procedures, carry out an all-paid trip of local jewellers to USA’s developed market, to aid them in improving the supply.

7. Availability Of Technology Jewellery made with the aid of machinery consumes less time, leaves less wastage and improves the efficiency of the kaarigars (Artisans). This allows jewellery to be supplied quickly in the markets, consuming little time in the manufacturing process. PGJDC has introduced pattern wax-modelling for the first time in Pakistan which has decreased wastage costs by great extent and also, decreased the chances of error that were previously seen, when designs were manually produced.

8. Law And Order Situation As has been previously hinted, the law and order condition has also made manufacturers reluctant to work in Pakistan for the government is not able to provide them with security. Many of wealthy traders are now moving abroad and transferring the entire manufacturing set up. This can have a negative impact on the industry in the long run. Local shopkeepers have also reduced quantity of jewellery in their showcases, in gold items, providing consumers with less on-the-spot merchandise to buy from.

THE CASE OF OLD JEWELLERY Recently after the economic crisis many people have started selling off their old jewellery to make ends meet. The high price of gold has also encouraged people to do so. This has increased the supply of used jewellery in the market which can be easily recycled. In addition, supplement to this information is the fact of falling exchange rates, which cripples most jewellers from importing, thus making room for re-cycled gold completely



20One jeweller interviewed in Saraafa bazaar went as far as to say that 100% old gold is being used as in its raw form for new jewellery production, while others stated that the percentage ranged from 50% to 75% or more. All Pakistan Gems Merchants and Jewellers Association (APGMJA) executive member, Humayun Ahmad said the jewellers produce around 62 percent from recycling the old jewellery, while 60 percent imports of gold was used in making fresh jewellery.15 Old jewellery is largely purchased from customers at a reduction of 05% to 15% of the prevailing market price. Most of the jewellers interviewed brought old jewellery from all customers, some had restrictions: they purchased old jewellery only from their customers i.e. jewellery that had been previously purchased from their shop only. This is verified by receipts and design numbers. The restriction is largely placed, explained Mr.Sami from Saraafa bazaar to ensure that fine quality of gold, which the seller knows and trusts, is recycled and used t produce new jewellery, thus rendering cases of ‘milaawat’ (adding impurity) are minimum and new jewellery sold of valid and authentic carat-type. Sellers can sell old gold jewellery directly to the sonars (jewellery shops), the kaarigars (workshops) o in ‘labs’. Labs ‘purify’ the gold and testify its standings. In addition, labs also melt the jewellery form of the article and make them available to sonars, at a price, in the form of pure gold. The highest return value enjoyed in the case of old jewellery is that of gold. Buying back of silver occurs at a much depreciated value, which lies in the range of 50% to 75%. Also, silver does not perish in its original form in Karachi’s weather; it erodes to turn black, losing its value and beauty. To be put in use again, silver has to go through the refining process all over again. In a similar fashion, no re-sale value as such exists for artificial jewellery, which depreciates over time. A set purchased for Rs. 5000 can fetch back as low an amount as Rs. 500.

15DailyTimes:Feb2010



21PAKISTANS INTERNATIONAL STANDING: A

COMPARISON

Though one of the top ten consumers of gold, Pakistan experiences certain draw backs in its regional and global standing.

When compared with other countries, the country is seen to be using superior quality of gold- 22 carat in its jewellery production, especially that of export, as can be seen from the table below:

However, its standing is still weak, compared to other international markets, especially that of India. Pakistani jewellery industry largely competes with the Indian industry of the same commodity. However, an analysis of the two reveals that the Pakistani industry appears to be in its late-infancy stage, whereas that of India is largely mature.

The country benefits to a great extent from the fact that it has developed- value-addition facilities. In addition, design innovation and creativity also help the country gain a competitive edge over Pakistan. Jewellery industry of the neighboring country has been recognized and supported by the government for



22more than last five years. With the government aiding, supporting and promoting it through various means of financing and funding. India is also ahead of Pakistan because of its superior command over marketing strategies in the sector.

In comparison,. Pakistan’s jewellery sector was recognized only two years ago, and still suffers from a lack of documentation and proper government attention, which cripples its development. Lack of proper value-addition (cutting and polishing) facilities, designing courses, and learning facilities, also hinder the the industry’s growth.

As a result, the import and export statistics of the country vary markedly.

Mr. Saeed jokingly said that the export of a single jeweler from India equaled the total export of Pakistan!

The table presented on the next page gives a snap comparison between the two countries, in terms of their jewellery industries.



23 Pakistan India Jewellery exports $20 million in Sept

2007 16 $ 3,375.32 mn (Nov 2007) 17

Growth rate 39.95 per cent till Nov 2007

Major export destinations U.A.E, USA, UK, and Thailand

USA, Europe, Middle-East

New markets Not identified as such - but planning future expansions in Australia and Canada

Australia, China, Peru, CIS nations

Core exporting ethics Cost, time Quality, Cost, Time Prominent competitors India Italy, Hong Kong,

China, Turkey Focus area Skill-development,

using modern tools and equipment

Professional Designing, Extensive International Market Information, Understanding Customer Preferences

Total world exports 0.04% 13%18 Interesting on note that where Pakistan considers only India as one of its major competitors, the neighbouring country tries to compete with more developed markets. The difference largely exists because [Pakistani jewellery often lacks originality and imitates the Indian ones, whereas the other Indian industry has added a touch of professionalism to the trade. It is taught as a valid skill-learning and designing course in India with individuals opting for majors in it. Also, the fashion industry in India is more developed and mature than that of Pakistan, which has just started off and is still in the infancy stage. This adds to the increased popularity of Indian jewellery, locally as well as internationally.

16 Dawn News: Nov 8, 2007 17 http://www.diamondworld.net/contentview.aspx?item=216618BusinessRecorder:July8,2009



24Dawn article 19 however states that:

‘Jewellery exports have jumped 75 per cent in three quarters of FY10 primarily because of still-high prices of gold, a pickup in demand for gold jewellery in the Middle East and Europe and improved designing. An official of Pakistan Gem and Jewellery Development Company told Dawn that this year’s jewellery export would touch $500-million-mark for the first time. Extensive jewellery designing and manufacturing training courses conducted across Pakistan and holding of gems and jewellery exhibitions have helped in boosting exports.’

This hints that Pakistan can hope for an increase in its jewellery items in the coming years, though to reach up to the Indian mark, strong efforts in terms of quality and branding techniques will be needed.

19DawnNews:May3,2010



25PRICE

The Jewellery sector is largely dependent on raw materials that are imported, as has been discussed. These raw materials, which not only include gold, but also include copper, silver brass, majoos and Indian metal are dependent on the international forces that effect and determine their prices.

Therefore, in effect when prices are set locally for gold jewellery especially, international price settings and exchange rates have to be considered widely. Also important to note that where a trend of price increase has been seen in gold jewellery, a similar price trend has also been observed for silver and artificial jewellery.

In this section, an analysis of pricing will be presented. The section will largely look over the factors that determine the price in the industry, and will also probe into factors that influence the pricing of the jewellery products. In doing so, an assessment of the overall impact of rising price trends and fluctuations is made, which effects demand and customer behaviors.

DETERMINATION OF PRICES IN THE INDUSTRY

GOLD JEWELLERY

When talk of the jewellery industry is taken up, the foremost jewellery type talked about is that of gold. Gold jewellery holds cultural value and is associated with Pakistani heritage. However, it is interesting to note that Pakistan does not produce its own gold. As has been discussed in the last section, a major portion of gold in imported from Dubai, U.A.E.

Given the fact that gold has to be imported, a lot of factors need to be considered when determining the price of gold jewellery. Basic factors that determine the price of jewellery are those that have to be charged and expensed out regardless of the economic well-being of the country or other situational factors. These factors include:

a) International gold prices: Imran Khan, managing director of Tessori explained to us that because Pakistan’s gold jewellery thrives on imports, international gold prices are an important factor of price determination. Expanding on the subject, he stated that many gold markets operate the world (Singapore Gold Trade, Malaysia Gold Trade, New York Gold Trade etc): however, Pakistan’s trade in the commodity largely follows the New York gold trade markets for price signalling and setting. This guiding of prices by international markets largely determines the local gold rates. In addition to the basic price of the yellow metal, local factors are also considered in price setting.



26b) Cost of production: the jewellery sector laments on the absence of

government support and aid, and lack of subsidies, as have been provided to other sectors. In addition, given that no schemes have thus far been introduced to allow jewellers to take loans or credit from the banks, the cost of operations is quite high for the jewellers. An estimated minimum of around 50% of total earning alone is expensed out to the work shop owners. These workshop owners, after keeping profits for themselves, distribute the earnings to the makers. In addition to maker cost, the jewellers also have to deal with over head expenses on a monthly basis in the form of utility bills, which also take up a substantially large portion of a jeweller’s earnings (the increased cost per unit in electricity prices for example!). These costs of production, by means of simple economics, are passed onto the customers, in the form of increased pricing. The costs of production incurred therefore influence strongly the price of jewellery

c) Weights and Designs: these are important determinants of jewellery: especially that of gold. Each gold article in a jewellery shop is priced differently: and largely tagged with the weights. When buying jewellery, ne must have noticed the tags as reflecting the design number and the weight of the article: and not the price. This is largely because the price of gold changes every day, if not broadly than narrowly within margins. These weights allow shop keepers to accurately price an article as per the gold prices that day. Designs play a vital role in determining the prices for obvious reasons: a jewellery article more intrinsically woven will demand a more handsome sum of money than an article which is simpler. This also reflects on the fact that a jewellery article made by a kaarigar (maker) is of more value, thus priced higher than that made through technological machines.

d) Simple economic laws: reiterated by around 95% of the jewellers, gold

prices are determined through simple economic laws of demand and supply, like any other commodity. However, a noticeable difference mentioned was that unlike other commodities, gold is non-perishable and retains, often adds to its value. As such, it has always been thought to reap greater return values than bank deposits or share dividends. Largely driven by market volatilities and fluctuations, when people demand gold more as a means of investment, its prices tend to go up. This is because of limited supply. Prices have also seen to be increased during the ‘shaadi biyah’ (wedding) season, given the increased demand. Hence, simple economic principles of demand and supply also drive the price of gold jewellery.



27e) Wastage costs: these costs are expensed out to the customers and vary

generally between 10% to 15%. Jewellers expense an approximate of 3% to 4% wastage to kaarigars (Artisans), according to chairman, APGJME. (for more information on wastage see appendix)20

SILVER AND GILLET (GERMAN SILVER) JEWELLERY

This follows largely the same determinants as that of gold. A large quantity f silver being imported, the price of silver (chaandni) is largely driven by international prices. These drivers for price are then influenced by the type of silver imported: higher the quality, higher the price. Factors b, c and d apply in the same manner to silver as they do to gold

ARTIFICIAL JEWELLERY

Prices of artificial jewellery are also dependent on a number of factors. A normal artificial set can be made of silver, 18 carat gold or of brass, copper, 2 per-cent silver, semi-precious and artificial stones. One heavy bridal set usually costs Rs. 20,000 to 35,000, on average. However, a recent increase in the prices of artificial jewellery was accountable to a number of factors, which 21largely include the following:

a) Varieties in artificial jewellery: those sets that are heavy are cheaper, while those that are lighter in weight are expensive.

b) Import factor: artificial jewellery sets that are imported are more expensive than the locally produced one. This is largely because import of artificial jewellery takes place from China and India. Therefore, transportation and freight costs are added to the basic cost structure. Interesting to note is that imports from the Chinese markets are cheaper because of lower transportation costs: lower than those incurred in imports from India. This is largely because import from India is not direct but is done via Dubai.

c) Price of gold: variations in prices of gold directly affect the prices of

artificial jewellery. This is because a majority of artificial jewellery articles are gold-plated. Though other elements (silver, alpaca, copper, brass, bronze, titanium and precious metal clay) are available for coating too,

20Whatiswastage?Attachedinappendix21Thesefactorshavelargelybeendiscernedthroughsecondarydatafromthearticle,‘artificialjewelleryseesboomasgoldpricesoars’,publishedinTheNews,Thursday,November26,2009:theauthorisSamiaSaleem



28gold is the most suitable one, and therefore is the most widely used one. For example, the article referenced stated that previously, coating on one gram used to cost Rs. 4, but with the hike in gold prices, the coating costs have increased to Rs. 9 per gram and later sky rocketed to Rs. 12 per gram. This increases the total cost of the jewellery article or set, and ‘the difference has to be collected from the customer’: hence the increase in pricing

d) Devaluation of the currency: the rupee is deprecating day by day; the currency of Bangladesh is more valuable than ours said a local jeweller dismally.

PRICE FLUCTUATIONS

Apart from these basic price determinants, other factors also influence the price of jewellery regularly, causing it to inflate or deflate accordingly. These factors are largely responsible for causing fluctuations in gold prices, and other jewellery articles, often by large margins. Presently, as confirmed by most jewellers interviewed, the market undergoes a fluctuation of 5% to 10%. Factors that give way to price fluctuation, mainly, are:

a) Crude oil prices (specifically for gold jewellery): the reader must be wondering how crude oil prices actually influence gold prices! We thought the same thing when Mr. Khan of Tessori jewellers mentioned the same. Quoting him on the matter, he stated that ‘oil prices and Euro act as hedges22 to the gold market prices’. This fact was reiterated by Malva Jewellers from Sarafa Bazaar and also by ____________ jewellers from Murshid Bazaar. Secondary research highlights that a direct relationship between the two does not exist. However because oil is used in the process of excavating and refining the gold therefore, if oil prices go up, so does gold prices and vice versa.

b) Exchange rates: because gold is largely imported (which constitutes as being the basic raw material for gold jewellery, and used for gold-plating in artificial jewellery), the price fluctuates greatly because of exchange rates. As most imports are from UAE, a fall in exchange rates makes the imports more expensive, adding to costs of production and procurement of gold. Simultaneously, import of other material, which includes silver, Indian metal (petal) and manjoos (used for artificial jewellery) and so on, also becomes more expensive, leading to a price hike in the local markets.

22Infinance,ahedgeisapositionestablishedinonemarketinanattempttooffsetexposuretopricefluctuationsinsomeoppositepositioninanothermarketwiththegoalofminimizingone'sexposuretounwantedrisk.



29

c) Dollarization: the recently experienced falling of the exchange rate gave way to a fast depreciation of the Pak Rupee, against the USA dollar, making dollars more expensive. This dollarization has also made import of raw materials and import of jewellery-related machines more difficult. In addition, because gold is largely traded in US dollars, the dollarization effect has lead to huge leaps in the local gold prices.

d) Gold reserves held by China: another factor that influences the price fluctuations in the sector if the Chinese reserves. As per Business Recorder23, China is the world’s ‘biggest producer of the precious metal’. Also, ‘China is the world’s second-largest consumer of gold, after India, with demand exceeding 14bn dollars in 2009, or 11% of the global demand. If China continues to grow in near the current rate in economic and wealth terms, gold consumption in China will continue to expand and has the potential to double during the next decade. Investment and jewellery are the main sectors of the Chinese gold market, with demand for gold bars, rings and necklaces reaching 423 tones in 2009, outstripping domestic production of 314 tones’. This highlights the growing value of the yellow metal in the Chinese market. China holds 4% of known global reserves for gold. An accumulation of the precious metal by China will not only hamper supply by the country (as China will retain its gold!), but will restrict supply to other countries as well. This will largely be because Chinese gold market will be purchasing gold from international markets, creating a shortage of supply with an exceeding demand. Through simple economic laws discussed this will create a price hike. The stable Yuan also supports the increased demand for jewellery in the Chinese economy. In addition, rumors regarding the same also recently caused an increase in fluctuations in the prices of the commodity in context, stated Mr. Nadeem Basit from PGJDC. Rumors cause speculation which lead to a false demand for gold, causing prices to raise more than required. A business recorder article24 states that ‘surge of $11.5 an ounce in the international market gold price is said to have stirred the local market prices. Local traders see speculative buying of gold on the world market, after world investors found the US dollar is weakening against other developed economies, which provided them with opportunity to sink capital in the precious metal trade’

e) Internal economic conditions: major influencers of price of jewellery, of which ever sector, not to forget, is the internally prevailing economic well-being. Periods of high inflation lead to higher prices of jewellery articles in the sector, and periods of recession have the vice e versa effect.

23TheNation:March30,201024BusinessRecorder,September09,2009



30f) Duty on international products: a hike in the duty increases cost of

production, causing an increase in price that is forwarded to the customer as an increased price of the commodity and vice versa

g) Fears of further global economy deterioration: quoting a business recorder article25, ‘ the current rise in the gold price to $ 1008 per ounce is partly due to growing fears of further deterioration of global economy, which saw sale of equity, specially liquidation of oil assets’ An important point to keep in mind at this point is that locally, a hike in jewellery prices especially that of gold, which automatically lead to an increase in price of silver and artificial jewellery is the increased number of militancy operations and terrorism in the country. Though this has hampered demand to a great extent, it has also fired the local prices up given the insecurity that prevails. The insecurity has led the richer invest in gold as a safe means of ‘locking’ up their money, leading to an increased price.

PRICE TRENDS

In the past five years, as confirmed by all jewellers interviewed and an assessment of news articles, price trends for jewellery generally show an upward trend i.e. prices have generally seen to be increasing. Quoting harming jewellers, ‘prices have soared from Rs. 770 per gram in 2006 to Rs. 3110 per gram in 2010’

‘Fears of rising inflationary pressures, crisis in credit markets and the dollar’s collapse earlier this year pushed gold prices to a record $1,030.80 an ounce in March’, stated an article in daily times on friday, november 21, 2008. The rising trend in gold jewellery has been seen since late 2007, till date.

This price trend has not been seen in articles of gold, but has also been observed in silver and artificial jewellery sectors, which given a change in the factors described in the last section, have registered a marked increase in prices.

IMPLICATIONS OF THE INCREASED PRICE TREND

The foremost implication of the increased price trend in the gold jewellery seen is that of a simultaneously falling demand. Sales of gold jewellery have tumbled at large. The soaring unaffordable prices of the yellow metal has made a lay man cripple and devoid of capability of purchasing the metal. This has simultaneously given a boost to the artificial and silver jewellery sectors. Artificial jewellery however is more in demand because of the varieties it offers:

25BusinessRecorder,September09,2009



31a match for each dress at cheaper prices can be purchased. Silver jewellery is comparatively low on the rise because of the fact that it blackens quickly in the humid weather of Karachi. however many gold jewelers consider silver as a major threat, given the ‘elegant and sophisticated’ designs it has to offer, in addition to the fact that designer jewellery is now largely promoted in the silver jewellery sector (see interview with jewellery designer Zehra in appendix)

Interesting to note, as has been explained in the earlier part of the report, is the fact that jewellery is part of heritage and culture in Pakistan. No wedding. Especially, is complete without jewellery. Dowry for girls often also demands jewellery as the most important element. Earlier, given the intrinsic value of gold, gold jewellery was optimal for dowry. However, with the recent price hikes, the trend of wedding and dowry jewellery has found its focus on the artificial jewellery sector. Quoted by a jeweller from Saraafa bazaar, only the rich can afford to buy and buys gold jewellery now, even for wedding purposes. The middle lower and lower classes prefer cheap artificial sets, which is within their economic reach.

Another implication that the soaring price has, even on gold-buyers is that buyers are shifting their purchases to yet lower-carats: people who used to purchase 22 carat gold are now demanding 18 carat, people who purchased 18 carat gold are now demanding 16 carat and so on. This has largely been observed as a result of price hikes in the yellow metal.

In addition, Pakistan has also seen a fall in export because of the surging gold prices. As Sadia Qamar says in the nation26, ‘fluctuating oil prices, world economic recession and internal record high inflation have all been prevalent indicators in striking the gems and gold market in Pakistan. The stark changes have spill the beans in the market place, with the data showing Rs. 254 million exports of gems and gold in July-December 2008 against the exports of 277 million in the corresponding period in 2007. Earlier, the gems and gold industry was not too costly a market to deal in jewellery but the trends in jewellery have sidelined the buyers’.

Parallel, with an increase in international gold price, gold imports have become expensive. This has led to a decrease in official import channels, and given way to unofficial channels via smuggling the precious metal into the country. Details on export and import can be found in section ________.

Also important to note is that jewellery items largely fall into the luxury good category: inflation in price has therefore led to a lower demand of the relatively income-elastic commodity.

26 The Nation, Feb. 07, 2009



32COMPETITION

The sector is largely widespread and unorganized in nature. Karachi’s cluster of Jewellery may be regarded as advanced and organized as compared to other areas in Pakistan because of greater market access, consumption and availability of raw material (ease of availability discussed before!). Currently there are more than 5000 units of Jewellery employing more than five lacs people. Saraafa Bazaar, Saddar, and Tariq road were previously established jewellery markets: however, with time more clusters have sprung up which now include areas of Liaqatabad, Hydra, and Golf and Clifton. This new array of clusters have added to the competition as customer bases now become diluted and prefer to shop in their own localities. These new clusters have also led to a loss of previously established brand names like: Motswana, Tessori, Ruby Jewellers etc. Customers see little product differentiation and thus are less motivated to travel across the city for an article they can get from their own localities. Where this has increased competition, the increasing clusters have also led to the creation of local regional markets, with few players enjoying more leverage in each market than the others. For example, in Tariq road, Motiwala and Chotani jewelers, in sadder ruby jewelers and Tessori and in Saraafa bazaar Malva jewelers and so on enjoy greater brand leverage and a stronger and more loyal customer base, based on factors of trust, customer-service and superior designs. This allows us to conclude that competition in the jewellery sector is based on more than the monetary units. In addition, it also allows us to conclude that the current structure of Jewellery Industry in Pakistan can be labeled as MONOPOLISTIC COMPETITION. This is because there are numerous players in the market competing with one another for products that are differentiated in term of branding and designs.

BASIS OF COMPETITION

Competition in the jewellery sector (gold, artificial, silver) depends minimally on price. This is primarily because, as has been discussed, price is determined at large through external factors, with international forces being the driving forces in determining the prices for the basic raw materials of gold and silver. Given so, the market prices of articles vary only by a narrow range. Profits are therefore earned on non-price factors. These factors include:

a) Brand name: the brand name of a jewellery shop acts as one of the most vital element of competition. Not only does it allow a shop to enjoy leverage in the customer base, it also allows the shop to attract yet a more potential customer base. In addition, a brand name is a sign of trust (in quality terms) for articles purchased. However, it is pivotal to our research to keep in mind that jewellery shops in Pakistan do not utilize branding on large scale. Few shops capitalize on the marketing



33strategy to increase their popularity, as will be discussed in depth in later sections of the report.

b) Designs: designs that a customer seeks also become an important

element of competition in the industry. For tessori, each design it produces is different from the other, thus catering to a woman’s basic desire to have a unique look through jewellery that no one else has. For tessori, this uniqueness of designs often leads it to enjoy a greater market share. Therefore, it can be concluded that designs offer an element of differentiation for the jewellers, which they can capitalize on to give them a competitive edge.

c) Trust: a customer’s trust in a brand/jewellery shop will inevitably lead to a greater reliance on the respective jeweller for purchases. Trust is largely built through the providing of authenticate jewellery: a customer is to be provided with 22 carat of gold if he demands so, and not of 18 carat. A lot of jewellery shops have been accused of doing so, which leads to a loss of trust. Jewellers that enjoy customer’s trust automatically build a stronger image and a stronger brand name. this may take up to years to happen

d) Customer loyalty: trust will lead to customer loyalty in its next stage. This will allow a jewellery shop to expand to capture newer markets. Loyal customers will boast of their purchases and praise the jewellers for the quality and design, in their peer circles and families. This word-of-mouth marketing will bring ‘hundred customers through one customer’s27 to one shop. The more loyal a customer is to a shop, the more will his dependence for purchases be on the shop, this giving the jeweller a completive edge in terms of present and potential customer bases.

e) Location: though not as important as was before (because all central localities of the city, and country on the larger picture! now enjoy a variety of jewellery suppliers), the location of a jewellery shop allows it to enjoy a greater customer share. For shops that are located in isolation, the customer share is generally lower- for shops that are located in the central jewellery hub the share will be larger. According to Kamran, of Lyra28, competition is often good for a business, because it ‘attracts customers’. Explaining his own case, he said that when he used to operate alone on the ground floor, he enjoyed a lower customer base. When competitors like group 1 jewellers set their shops near him, it attracted more people as a ‘place which offers jewellery’. In addition, he stated, it’s easier to ‘capture’ competition’s customers through this. By

27 Imran Khan, Managing Director Tessori 28 Ground Floor, Dolmen Mall, Tariq Road



34offering more variety and perfection than competition, and being in the sight of customers’, it is easier to increase the potential and sales.

f) Customer-service: last But not the least, customer service often allows jewellers to ‘convert’ a customer, and win him over. Customer service largely includes not ignoring a customer, no matter how small his purchase might be. A customer bringing a minimal of Rs. 5000 in the shop today has the potential of brining Rs. 50,000 or more tomorrow. In addition to this, politeness, savvy salesman ship and free give always on purchases also allow a jeweller to improve his customer service. For buyers who buy in large quantity, personalized marketing like sending of cards before festive occasions also makes the customer feel ‘special and remembered’ through simple marketing principles, this inclination of the customer to the brand will allow it to retain its present customer and as mentioned before, also attract potential customer.

In this regard, it can be said that customers of jewellery are largely fickle and the purchases spontaneous: unless a shop enjoys a very large momentum of built trust and loyalty, it is likely to lose its customers to competition if it fails to deliver promises of superior design and fine quality.



35MICRO-ECONOMIC FACTORS

Labor

The industry is a highly labor-intensive one in Pakistan and depends at large on the skill-man ship of labor. Surveys of the market highlighted that labor was broadly categorized into kaarigars (Artisans) and Salesman Kaarigars (Artisans): To understand labor in the industry, one must be well equipped with the history of trade, says Mr. Nadeem Basit of PGJDC. The trade largely started off as that of ‘ustaad-shaagird’ system, whereby students came to learn skills and experience through practical exposure to work of a particular artisan. In doing so, they were supposed to demonstrate loyalty in safeguarding the artisan’s designs from competition. Over time, however, kaarigars saved up enough money to purchase workshops (kaarkhanas) and hire other employee artisans to work for them, thus evolving into a whole new industry. Each kaarigars has his own catalog of designs, distributed to all jewellers, from which a customer may choose an article to be made. Labor today is largely in the form these of illiterate, but skilled artisans. Skilled here is primarily abilities gained and sharpened through on-field exposure and experience, and not through professional training. According to most jewellers interviewed, costs expensed out to the labor lied in the range of 50% to 75%. Mr. Saeed further elaborated the process as: ‘each kaarigars is paid according to a per tola scale. Generally a kaarigars can earn up to Rs. 300 to 400 per tola. Therefore, if jewellery set weighs 10 tola with which he has had to work, it will bring him approximately Rs. 4000. To offer more compatibility to kaarigars with the changing times, and offer them a competitive edge, PGJDC introduced a training centre at main Saddar location. However, jewellers complain that the training is largely for the already-educated, demanding a minimum of inter-mediate. In this way it is rarely helping the mainstream kaarigars: indeed the first few batches from the center consisted of no ‘laymen-common artisans. It was only after the protest by APGJMA, that the concession was made, and common kaarigars started benefitting from the institute. However, the designing taught there is largely matrix-based, and often demands heavy computer knowledge. To fill this gap, ARY jewellers plan to open shortly, a more commercial-based training centre. This will focus more on tool-based courses that the industry commonly uses: the courses will be more worker-related. Designs made available to the artisans are generally local, only some jewellers use foreign designs. These designs are made available at large from catalogs (kaarigars-created), magazines, internet and customer-own. Customer-own related to when a customer may bring his own designs to be created. In this



36case, designs are first made on silver by artisans, to reduce error chances, and wastage costs, and then the finalized design made of gold. Labor in the form of artisans varies only minimally in gold, silver and artificial jewellery; the major differences being that artisans for gold have lingered for a greater time in the industry than the other two. Salesman: most of the jewellery shops visited were family owned; therefore the owner himself was a salesman. However, newer generation is taught skill the same way as artisans: through work exposure of salesmanship. In cases of shops that have expanded and employ salesman, the criteria largely includes previous work experience. A probation period of one-two weeks is given, during which the salesman is assessed on his work. In many a cases, shop-owners themselves provide the training to ‘fresh’ salesman in the business, and reap the benefit of loyalty at large. Unlike artisans, who possess no education or a minimum one, salesmen are largely inter-mediate graduates. However, the over all literacy rates in the industry is very low, accounting for poorer understanding of the market needs and changing trends. Generations carry out the business of their forefathers, not having much knowledge of it themselves, until some time is spent on shops, says Erum Jewellers on Tariq Road. Some jewellers, like Tessori have their own designers hired. These are professionally trained and educated personnel in the field, the managing director himself being a graduate in diamond designing. In addition, brands like Tessori that account for a large share of Pakistan exports and cater to local and international needs all the same, hire labor (both artisans and salesman) that is highly skilled. This labor is further refined through courses in foreign lands of Sri-lanka and India. In recent times, however, hundreds of thousands of gold artisans have become jobless as there are not many buyers of their arts, even during the marriage seasons, reports business recorder29. It can be inferred that silver and artificial artisans have come to be in larger demand, because of changing buying patterns. This also explains why many gold artisans are now opting for silver and artificial jewellery, copying designs of gold into the other two. Silver largely imitates gold jewellery, as it is easy to gold-plate. Electro plating, rare but planning to be executed shortly in the market by APGJMA, ensures that the gold-coating on silver never erodes, guaranteeing non-monitory value to the article purchased throughout one’s life. 29 Business Recorder: November 14, 2009.



37Technology

The industry has the potential for expansion and achieving the export target, if it is provided with latest technology, training and supportive infrastructure.30

At present, the industry makes use of traditional jewellery: though the work is not manual, the processes are now obsolete and historic in nature. Most kaarigars use casting and similar bangle-making machines, imported from Italy and Germany. Locally available machines can be obtained from Gujranwala and other cities of Punjab that specialize in the business. Often, expensive machine abroad is locally identified and created on jewelers’ demands, at a much cheaper price, with no compromise on quality.

Highly efficient machines for making simpler ornaments, like laser-bangle machinery is still missing from our industry at large. Two major reasons account for this lack: firstly, the financial cost of obtaining and installing such a machine is high, despite the fact that the government has initiated duty free-import of jewellery related items, as will be explained in government policies. Secondly, the low literacy levels, and reluctance to experiment with non-traditional jewellery by many a jewellers also obstruct the enthusiasm for these machines.

What is slowly gaining momentum in the market, though not widespread and still rare, is computer aided jewellery designing that uses CAD/CAM software to develop 3D designs on the computer before the completion of the final jewellery article. CAD/CAM machines use licensed Matrix software. Models prepared on the computer through this are them mirrored into wax pieces, created from RP machine. Products prepared through this are better refined, better presented and ready for exports. These facilities are to date installed with know-how knowledge at GJTMC (training centre of PGJDC at Saddar) in Lahore and Karachi. On a wider scale, hardly any kaarigars possess the machinery for daily use, given the expensive cost of purchase and installation. In addition, skills required to run and maintain the machinery are also lacking in the common industry, which will have to be developed for the use of such sophisticated equipment in jewellery production. Though hand-made jewellery extracts a higher price, technologically aided jewellery production saves immense costs on wastage, and improves the finesse of presentation of the articles

Another important initiative to take place shortly in the technology regarded area is that of publicly available state-of-art XRF machine, to be used for purposes of assaying and hallmarking. This will test the jewellery articles for purity content, without damaging the article itself, and will also hallmark it to authenticate guarantee. At the moment, seminars are being conducted to increase the awareness in the sector. Further awarene4ss campaigns for

30TheNews:April28,2009.



38hallmarking will include seminars, promotional materials, television and radio advertisements, TV interviews and talk shows. 31

At present, only Tessori jewellers own a jewellery-testing machine (imported from USA, for approximately $ 100,000). Business recorder states this as, ‘for the first time in Pakistan, Tessori introduced the state of art computerized gold test screening that ensures karat fineness of all kinds of jewellery in span of few seconds, without any loss or damage to the ornament’32. A copy of such a testing has been obtained from the jewellers and can be seen in appendix 33. This testing is done at a minimal cost of Rs. 200 to Rs. 250. However, requesting a certificate like that attached will be of a nominally higher price.

Therefore, to maintain an international market demand, and gain trust of local buyers as well, technology must be rapidly introduced in the industry, to give our jewellers a competitive edge. Technology also aids jewellers in maintaining quality, and brining jewellery production processes up to the international standards, thereby increasing foreign demand of the commodity.

Capital

Part from labor and machinery, as have been discussed, the capital that is largely required to operate a jewellery business is the ownership of the shop (rental structures can often prove expensive, especially during times when the economy is slow and business generates little profits), maintenance of operating over head costs and wages and employment of security as per the preference of the owner.

Most jewellers get the business in inheritance, reducing their initial starting-up costs. However, for a new entrant to enter the business, he would have to arrange for a location/shop and then gather finances to purchase raw materials and jewellery for show-casing. Shop-presentation and over head costs add on to the intensive capital-needs. Though raw material is easily available, costs of procurement vary according to international process. In addition, over-head costs are expensed out as a minimum 25% and maximum 50% of a jeweler’s total earnings.

Most of the shops are self-owned, but because of low security provided by government, are insecure. Almost no shop is insured, because of the high premium accounts. This means that security employed by the jewellers is also self-maintained, adding to the costs.

31 Gems And Jewellery News Letter, Janury-September 2009 32 Business Recorder: Dec 27, 2006. 33 Appendix: Certificate Of Customer Sania



39Resources

Not many other resources are needed in a jewellery business. Basic raw materials are either locally available or imported, as has been mentioned in the previous sections of the report. Only copper is locally produced. Gems and related stones needed for production are locally available, albeit their value-addition lacks. Important resources for the business, then, can also be highlighted as value addition: the art of cutting and polishing and refining gem-stones, used in jewellery.



40MACRO ECONOMIC FACTORS AFFECTING JEWELRY

SECTOR OF PAKISTAN

Global Economic Recession

Although the international recession has had little effect on Pakistan’s economy, the international shift in economies has still affected people and businesses in Pakistan. Hike in the duty on international products, depreciation of the rupee, general slowdown in economic activity and domestic issues have led to the overall weakening of domestic and international demand.

Firstly, about the affects of recession on the international demand; it was quoted in an article written by Ms Saadia Qamar last year that the data shows exports of gems and gold amounting to Rs 254 million in July-December 2008 against the exports of Rs 277 million in the corresponding period in 200734. Because jewellery is widely a luxury item, the weakening economies of the developed countries prevented them from indulging lavishly in it as before, adversely affecting our exports.

However, in the two years performance report 2008/10 published by the Information Ministry recently it was said that during the period under review, the Jewelry exports rose from $213.4 million to $288.4 million, registering an increase of 35 per cent overall. 35

Secondly, if we talk about the affects of recession on the local demand of jewelry it was said by Mr. Haroon Rashid Chand, President of All Pakistan Supreme Council of Jewellers Association said that ‘Pakistani bullion market has turned cold as an average person’s purchasing power has fallen and hence consumers preferred to stay away from the markets. Earlier, the gems and gold industry was not costly a market to deal in but with the recent trends of recession in the jewelry market the buyers have been sidelined.’36 This, as has been previously mentioned, increases demand for silver and artificial jewellery.

34The Nation: Feb 200935PerformanceReport2008/1036Goldfindsnewwayintoforeignmarkets‐TheNews(May2009)



41Inflation

According to the primary research conducted, it was found that the demand for gold jewelry has locally declined in the past five years. One of the major reasons of this is inflation. With a decrease in the purchasing power experienced, Mr. Saeed is seen to quote in a Dawn news article37 that He said inflationary trend in food prices is not allowing many families to buy gold sets with a free hand for their daughters’ weddings. He said many families have been trying hard to manage low weight sets with heavy work of semi-precious stones while many people are bringing old jewellery for renovation’. All jewellers interviewed were upset of the fact that there has been a decline of about 50% to 70% in their business.

A representative from Zahid Jewellers of Saraafa bazaar mentioned that prices of gold will keep on showing an increasing trend; the reason being that the prices of gold in the international markets was also rising at the given time. Mr. Nadeem Basit however stated that a nominal decline in the exports of gold jewelry is especially to be experienced because this export was carried out to take benefit from the price differential between Dubai and the domestic gold market, which is no longer there due to the trend of internal inflation and rising prices in Pakistan. Security Issues

CEO of Pakistan gems and jewelry Development Company, Fawad khan, was asked if the security issues in the tribal areas affected the gems and jewelry industry in any way. Khan said that he didn’t seem to think so. He maintained that the acts of terrorism and other security issues did cause hindrance in the business but had not damaged the industry in any significant manner.38 Mr. Tahirul Qasmi, accounts and administrative officer of the gems exchange in Peshawar, was quoted in an article written by Riaz Khan Daudzai recently saying that, gems and jewelry was among those sectors that flourished even during years of militancy and insurgency in the NWFP and adjoining tribal areas. Qasimi gave credit for the same to the Pakistan Gems and Jewelry Development Company. 39 However primary research and mainstream news article contradict these findings, where security issues are one of the major problems being experienced by the industry today. For example, it was found that on April 3,

37 Dawn News, August 4 2009. 38 Gems Industry Neglected Despite Trade Potential-The News (Jan 2009) 39 Gen, Jewellery Exports May Cross Rs 250m Mark- The News (Feb 2010)



422010 the jewelers at Karachi Saraafa Bazaar, called a day’s long strike in order to protest against the recent robberies that had happened in the city, since such events were adversely affecting their business. The jewellers demand a ‘fool-proof security’ from the government to ease their operations and restore consumer trust, who fear the purchase of gold items on account of the increasing insecurity. The jewellers further stated that hunger-strikes will be demonstrated if the sector is neglected for any more time than has already elapsed, and resulted in suffering losses for the industry and jewellers at large. In contradiction with the earlier stated information, many jewellers reported a loss of trade, which has adversely affected the business. They pointed at the almost deserted shops in the market at four-thirty in the evening to prove their points. ‘We’re sitting here since morning and not a single sale has been made. This is the routine that has been going on since the past many weeks’, emphasized the representative from Sami Jewellers, in Saraafa bazaar. Political Uncertainty

The growing instability of the government and the feeling on uncertainty, where fear of life and wealth always lingers on the population, people aim to invest in more secure commodities. Solid gold in the pure form of biscuits and coins is one such commodity. Investment and purchase of jewellery is even lower, and many sellers have shifted or are in the process of shifting their units abroad to safeguard their interests. In a similar fashion, where many buyers are also migrating to foreign land, they feel cash-in hands will more valuable to their needs than this liquid asset. In addition, the changes in import/export duties and taxes jewellers are subjected to vary considerably with time, not being relatively stable. This also adversely affects the industry, as will be explained in section __________________ Local V/S International Rates Of Jewelry:

One of the reasons why Pakistan used to get benefitted from export of gold jewelry was that there used to be a big price difference between the gold jewelry made locally and that made in the Dubai market. Unfortunately this difference remains no more for reasons explained. This is especially where Pakistan looses out in the international market, affecting the global demand for our gold jewellery. The high international price trends of gold have discouraged consumers from buying gold jewellery, and shift to silver and artificial, however, a price hike in artificial and silver jewellery ahs also been observed. Despite this, Pakistan is gaining popularity now for its artificial jewellery in foreign markets. Swedish



43ambassador, Ulrika Sundberg in an article published in the news40 has reported to have said that amongst many other products, Pakistan is known for its artificial jewellery in the European markets. However, a proper introduction of the commodities is yet to be developed and initiated by Pakistan. This highlights that though a rapid growth in gold prices have led to the gold jewellery exports to suffer, artificial jewellery and silver jewellery from Pakistan is gaining increasing momentum in the international market. Indeed, Mr. Shamim Sarwana said that his jewellery was widely distributed and much desired in European countries, and exported to the same along with to USA and Australia. In this case, however, the jewellery is not exported under the brand name of Sarwana, but is sold to retailers there who purchase it accordingly. A lack of marketing facilities is demonstrated here. Marketing also being one of the macro economic factors for the industry is under-developed and poorly made use of. Trade fairs are one outlet for the industry to mark its name in the international world, which have recently gained popularity amongst the jewellers, who now strive to capitalize the events. However, lack of funds to hold self-financed exhibitions in the foreign lands to introduce Pakistani jewellery there has held the country back on its exports especially. Te concept of branded jewellery is vital to be introduced in the international markets. ‘We have a mission to give Pakistan its due share of recognition in the international jewellery trade. There is urgent need for jewellers and manufacturers to realize the need of the hour to create demand for Pakistani jewellery in the global market’, reports Kamran Khan of Tessori in an interview with Business Recorder41

40TheNews(April21,2010)41 Business Recorder, December 27, 2006



44

GOVERNMENT POLICIES:

Lack of documentation in the trading of jewellery sector has led to the industry being neglected despite having tremendous potential for foreign trade, especially with US markets, reports Faryal Najeeb in the news.42 In addition he states that ‘the non-traditional sector was worth US$210 million with over a million people directly associated with it, and yet the figures do not present the true picture as most of the transactions go unrecorded.

The lack of proper documentation facilities have by far led to tremendous losses to country’s GCP in terms of lost tax revenue in the national exchequer. The lack of documentation also hinders the government and related authorities from gauging the true picture of imports and exports, and thus prevents it from chalking out strategies and developing initiatives to help the industry.

It is vital that the reader knows at this point that gold is considered to be foreign currency in Pakistan, therefore no gold is supposed to leave the country. Being so, jewellery exports are generally made of value-addition and skill-man ship. From the total export revenue, the basic gold price must be recovered, as per law, within seven months. Being so, exporters and importers largely comprises of the same group of people: who export gold jewellery, and then recover the basic gold back in the country

The section will largely highlight the government policies regarding the sector: regulations regarding the import and export, and the imposition of taxes, and providence of subsidies. It will also briefly explore the recent government initiatives taken to promote the industry.

Export

Policies and requirements:

To export jewellery, the following pre-requisitions must be met by a jeweller:

• Membership of at least any one recognized association of gems and jewellery, Pakistan.

• The exporter should also register himself with Trade Development Authority of Pakistan (TDAP) and fulfil all of their requirements.

• Submission of original and copy of a NTN (National Tax Number) certificate.

• Copy and original of Certificate of Membership of Chamber of Commerce and Industry

42TheNews:Jan13,2009.



45• Maintenance a Jewellery Pass Book authenticated by TDAP for placing

entries of all export and import transactions. Then following is the procedure for export

Apart from these legal pre-requisitions, the exporters were previously required to pay additional customs duty on exporting jewellery items and gemstones, which brought down more problems for the exporters.

Also an interesting find was that exports in their raw forms, especially 24 carat gold is not allowed by the government. Stones and gems similarly, could not be exported in their rough form previously: only after they were polished and processed was the export allowed. However, regarding the gems and stones, allowance has been made to export them in their rough form.

Import

Policies and requirements:

• Import of gold and gemstones under all schemes shall be exempt from normal import tariffs. The import of other raw materials, tools, machinery and equipment under import of gold and gemstones against export of jewelry or import entitlement shall be allowed free of customs duties and advance income tax. In case an exporter uses duty-paid raw materials procured from the market, duty drawback shall be admissible according to the standard duty drawback system in force. Sales Tax on export of Gold Jewelry and Gemstones is zero-rated. An exporter can claim refund of Sales Tax paid on raw material inputs. Advance Tax at the rate of .75% shall be charged on export of Gold Jewelry and Gemstones along with 0.25% Export development surcharge

• Import of gold, directly by the exporter or supplied by foreign buyers, shall be in minimum quantity of five hundred grams (adopted from PGJDC)

Through surveys conducted, it was found that no legal import of finished jewellery products is allowed in the country. This is to maintain the competitive edge that the local traders hold in the Pakistani markets. However, finished products from a broad are broadly available with the jewellers. Malva jewellers openly and blatantly confess that the import of finished goods is unofficial. This import is largely made possible from Dubai, Singapore and India.

Also adding to the flourishing smuggling trade in the country, Mr. Saeed elaborated, is the fact that previously, imports were levied with a duty of 50 cents on per tola of gold. Since last three years, however, importers have faced a levy of 1% Advance income duty on their shipments. This is reported in Dawn news43 as, ‘The government has levied one per cent withholding tax and 50 43DawnNews,4Aug2009



46cent per tola duty’. Further, Dawn article 44 states that ‘Gold imports used to cost only Rs32 per tola, including import duty and income tax ahead of announcement of the budget 2006-07. After the imposition of one per cent wealth tax, the cumulative impact of duty and taxes had surged to over Rs200 per tola.’ Making import of gold more difficult leads to a thriving underground economy, that smuggles not only gold and raw materials out of the country, but also finished products of the same. This greatly discourages the official imports, and indirectly the exports of the country.

Taxes

Before analyzing the taxation policies in the sector, a common complaint must be discussed received in the process of completing the report. Most jewellers are dissatisfied with the methods of taxation. They believe that the government should not tax the gold used, but should tax them on the earnings other wise. A lack of a proper model for calculation and imposing taxes on jewellers is felt widely in the industry, in addition to a lack of implementation policies regarding taxation.

Primary research highlighted that Jewellers are subjected to the following tax figures:

Income tax 3.5% (which includes 1% city government tax.) GST 16% (for registered jewellers) Office Tax 3% (as per Husain Son Jewellers) Value added Tax From 1st July it will be imposed and would be 17% (as per

a representative at of Harmain Jewelers).

* A discrepancy in primary data was found at this point, because Mr. Basit Nadeem reported that the sales tax for registered jewellers was 16%. Husain sons jewellers confirmed this by stating the sales taxes they were subjected were approximately 15%. At the same time, jewellers many jewellers disclosed the sales tax levied stated that it was 5%.

An interesting observation during primary research was the fact that most jewellers avoided the question of taxes which made them groan. Though most of the jewellers said more than 50% taxes accounted for their costs without thinking, some stated that they cannot disclose the figure. One jeweller explained that a jeweller can be paying zero taxes, or as low as 1% to 2%, Depending on the information he wishes to disclose to higher authorities. This personal holding over the information to be disclosed and to be exposed is one of the major draw backs that a government faces due to a lack of proper documentation, which allows many jewellers to operate on a free-from-tax basis. Also, many jewellers were reluctant to provide information, or sign n

44DawnNews:Nov8,2007.



47verification forms for fear the information provided may be passé don to the FBR and so on. This reluctance on a majority of jewellers allows us to conclude that many jewellers pay below-the-belt taxes, and many do not. It also hints towards any illegal activity that a jeweller may be carrying out.

Chairman of APGJMA stated that the association had only 300 registered members (per year membership fee equals Rs. 2000). Of this, 150 were listed as exporters while only 15 were active exporters. Registration with APGJMA is a pre-requisite to operating business and trading in the industry, said the chair man. However because the association is directly linked with the ministry of commerce, giving the government direct exposure to the jeweler’s earnings, profits and asset base, registration is apparently low. Jewellers in this case seek memberships in unrecognized associations that operate to help them in their routine tasks, and manage their conflicts.

Government Subsidies and initiatives

The government to date has not provided the industry with any subsidy of financial scheme to ease the pressures of operating costs. The industry cries over the government neglect of the fruit-bearing industrial section. Jewellers rate the aid from government as ‘very bad’ in the surveys, and some going as far as to ay that no aid exists or reaches the sector. Jewellers largely cry over the lack of security and protection that the government presents them with.

Secondary research however, reflects on the initiatives that the government has taken to enhance the sector’s production. These include:

• Entrustment Scheme: The Entrustment Scheme provides for export of gold jewellery and articles, against gold supplied as partial advance payment, by the foreign buyer, to the extent of the quantity of gold including wastage used in the manufacturing of the exported items. (www.pgjdc.org)

• Self-Consignment Scheme: Export of gold jewellery and gemstones taken out by authorized representative of an exporter on self-consignment basis.(www.pgjdc.org)

• According to the trade policy 2008-09, to encourage investment in gems and jewellery government has abolished sales tax and custom duty on imports gold, silver, platinum, palladium and precious stones. This would also counter smuggling of gems and jewellery45

• In a news article published in business recorder on December 27, 200646, Akhtar Khan of Tessori jeweller stated that the government has directed the state bank of Pakistan to formulate a policy to extend loan facilities to the jewellers so that gold exports could be accelerated. Almost

45BusinessRecorder,Sept18,200846BusinessRecorder,Dec27,2006



48three years since, to date, no formulation of such a policy has come into existence.

• TDAP has initiated the up-gradation and expansion of the industry through considering the proposal of setting up of gems and Jewellery Park in Karachi, by the name of Dazzle Park. 16 acres of land has been earmarked by the civil aviation authority at Karachi for the proposed Dazzle Park. Controversy on the above however exists. Mr. Saeed of APGJMA explained in an interview with him, that the proposal for the same had been sent twice to TDAP in the last 15 years, and has thus far only been under consideration. The delay is attributed to factors such as that of unfeasibility etc. no visible outcome has yet been seen, a depressed Mr. Saeed informed us.

• An agreement was signed between the governments of Pakistan and Italy, Business Recorder reports47 , ‘for availability of soft credit line of Euro 7.75 million for Pakistani SMEs.

• Participation is facilitated for participation in various trade fairs by the government and government bodies. One such facilitation was seen in the Vicenza Fair, one of the most popular shows for gem and jewellery traders and machine suppliers. PARTICIPATION in gem trade fairs allows local traders an avenue into international markets: allows them to compete internationally and gain a larger share in the trade pie.

• Establishment of common facility centres for training and manufacturing have been established in Lahore and Karachi by PGJDC.

Despite the initiatives identified in newspapers, claimed to be taken by the local government, the local jewellers and association chairman complain of little aid given to the mainstream jewellers, and the limited facilities that are available for them.

Regulation in Sector

The sector operates under limited, in most cases no regulation or vigilance. Given an industry status two years back, the sector still suffers from a lack of documentation. Despite policies existing in regard with routine trade-operations, no policy implementation can be seen. Export/import policies and regulations exist, but that is as far as regulation stands: no regulation exists to be implemented and keep in check the operations of routine, day-to-day traders and their activities.

Problems faced by the jewellers in their routine transactions are solved by ad looked after by the associations of which they are members. Problems that jewellers normally face involve conflicts with pother jewellers, problems with kaarigars and the supply chain, problems with the availability of raw materials and so on. Jewellers reported that associations provide them with a 100% help, 47BusinessRecorder:April24,2008



49without delay, and all rated the association’s role, and importance as being ‘very good’ in the surveys. Associations, however, it must be noted, largely exist in commercial areas. Jewellers operating in posh localities, in places like the forum and park towers face a dearth of associations. APGJMA, the only recognized association for jewellers in Pakistan claims to solve even the problems and complains by customers against jewellers. It has its branches in all major cities of Pakistan, with its head office being in Saddar.



50FRAMEWORKS

Porter’s Diamond Model

Factor Conditions

• The industry is both labour and capital intensive. • Capital often constitutes of a strong financial support for operating

activities • Labour is largely illiterate, and abundant. It is skilled through on-the-job

experience and available at cheap rates • The industry does not use modern technology in mainstream production.

Modern technological outlets are limited, and demand literacy levels to be understood and learned, of which the local market is deficient.

• Though machinery is used for the production of ornaments, it is largely out-dated, consists mainly of casting and chain-making machines.

• Machinery is largely imported from Italy. It is otherwise made available from Gujranwala, or other Punjab cities.

• Raw materials are imported largely from Dubai, which has become a hub for gold and jewellery-related items globally. Copper and gem stones are largely available, of good quality locally. Silver may or may not be imported, as it I also available locally.

• The industry does not have proper infrastructure facilities, which must be developed if the industry is to continue its trade of exports at a competitive advantage. Industrial zones should be provided to reduce costs and encourage mass production. The country lacks mass-production-sites, like those present in India, largely because of security constraints.



51The industry should become more attentive, with kaarigari, cutting, polishing, refining and retailing an organized chain.

• The knowledge of artisans is learned through direct decent, and is praise-worthy. They are skilled in their field of expertise. However, an up-date of the global jewellery trends will better equip them for producing jewellery designs that sell, and increase their know-how of the field.

Demand Conditions Largely income-elastic as the product is considered to be a luxury good, even with the towering cultural importance.

Local demand (fuelled by) • Gold price • Market strategies • Tourist activities • Inflation and related purchasing powers of the consumers • Law and order situation in the country • Traditions and life-style trends • Season-based demand (largely according to Islamic months)

International demand (fuelled by) • Designs • Quality and conformity to international standards • Smuggling • Providing jewellery in line with international trends!

International demand Pakistan possesses of gem-stones used in the jewellery making process. However, it lacks value-addition. The basic competitive advantage it holds over other countries in jewellery production is the availability of cheap, skilled labor as artisans. The country also seeing a bloom in individuals aspiring to become branded jewellery designers, recognized world over. Sarwana, Zehra Kachelo, and Maria Athar are just a few names from the large pool. Related and Supporting Industries

• Kaargari: now a separate industry of its own, kaarigari/artisan-ship is one of the major industries related to that of jewellers. It supports and ensures a a steady supply of jewellery articles in the shops. It also supports the jewellery industry in meeting local and international demand through providing trendy designs, especially those created by the customers themselves



52• Cutting, processing and polishing: though a dearth is faced of the

industry, commonly known as that of ‘value-addition’ in the country, the industry supports the mainstream jewellery industry by supplying processed and finished stones and gems to be used in jewellery

• Fashion industry: one of the major influencers of demand through changing life-style trends, fashion leads the women into purchasing the jewellery in showcases and displays. Women of Pakistan often ask for Indian-style jewellery after having seen them repeatedly in Indian soap operas or in Indian fashion magazines. Latest clothes also demand with them a trendy jewellery that compliments the dress and its colour. This for example supported the trend and need of silver and artificial jewellery

• Transport industry: by providing inland transport from north to the south with precious raw materials, the transport industry also acts as one of the supporting industries for jewellery.

Firm Strategy, Structure and Rivalry

Firm strategy • Goal setting: largely seen as to increase and maximize sales. This will

often include a comparison with previous year’s performance, and a sales target will be pre-set to so that costs of running business and routine activities may be covered.

• Process to achieve the goal: through promotion in various fashion magazines. Also, on-spot-promotion, where jewellery shops’ presentation acts as a major source of attracting customers. The more well-kept, well-decorated and well-maintained a shop will be, higher will it’s chances of attracting customer be. In the same way, better the items and articles of jewellery to be sold on display, better the shares in sale. In this regard, location discussed in earlier sections of the report, plays an important role as a means for a jewellery shop to achieve its goal.

Industry structure • Unorganized : suffers from a lack of documentation • Largely run by private companies: most jewellers inherit the business

from forefathers.

Competition • A monopolistic competition, where many sellers in the market try to sell

a similar and not homogeneous product on the basis of design and brand differentiation.



53

Government

• Low regulations for the industry: exporters and importers have chalked out regulations to follow and implement, whereas routine jewellers trade as per their will

• Lack of documentation in the industry. This leads to a failure of implementation of

• A proper tax structure, which is lacking. Jewellers may pay or not pay taxes because many of them operate as unregistered trade-players

• No visible subsides or credit/finance schemes offered by the government • Has minimum effect on supply of raw materials currently: imposition of

import duties restrict supply. 15 years back, no gold imports were allowed officially. All gold brought in the county for use in the jewellery sector was smuggled. ARY jewellers purchased the first license for gold import in the country from the government48. Today global price hikes, import duties, and internal inflation have deflated the demand for gold as raw materials. Many jewellers make use of old jewellery sold in the markets as raw materials, other prefer cheaper ways of smuggling

• The government policies have seen to have no impact on competition.

48AttachmentregardingARYjewellersinappendix



54 Porter’s five Forces Model

Bargaining Power Of Suppliers

• Comparatively lower than the buyers • Market dominated by many players, each dealing products similar but

not homogeneous in nature • Substitutes for commodity are being created, within the same category.

Artificial jewellery as a substitute for gold jewellery for example. The whole commodity group, however, has no substitute.

• Low costs of switching suppliers • Fragmented customers: fragmentation on the basis of economic class

and locality Bargaining Power Of Customers

• Higher than that of buyers • Volumes of purchases vary and range from high to low • A large number of suppliers to cater to a large number of fickle

customers



55• Suppliers have high operating costs in terms of over heads, taxes and

self-employed security, in addition to that of production and inflation • The product is undifferentiated at large: the only differentiation that

occurs is on the basis of designs and brand name of the supplier. In case of designs, the customers largely tend to compromise for the ones that fit their price ranges

• Switching to substitute products is simple and not related to high costs • Customers are price sensitive: demand has seen to fall because of high

gold prices and factors previously described • Jewellery is a largely a luxury good, and income-elastic

In analyzing g the bargaining power of buyers and seller, we learned that jewellers generally made a profit of 15% from their total earnings, after expensing out all cost. When probed for reasons why a buyer often sells a jewellery article, giving in to customer’s bargaining, we learned that there were many reasons for it:

• Buyers have economical daily expenses to meet, which is only possible through sales. Concession is therefore shown in these cases, where daily operational costs and other expenses have to be met.

• To ‘gain’ the customer. By letting the customer keep Rs. 500 today, you are securing a sale of more than Rs. 5000 for future, said a Metro Jeweller representative. This is one of the driving forces of high customer loyalty

• Imran Khan from Tessori, however, said that in the society we live, women are never really satisfied until they bargain, and win a bargain over. That is why, often more than the marginal profit prices are told, which are then brought down nominally to marginal profit rates set by a shop

• The jeweller is already making a high profit on making: by expensing wastage of 4% to kaarigars, and charging wastage of 15% from customers, a jeweller has secured for him self high profit bands. He often lets the bargaining be cushioned against these pre-set bands, not letting the customer win him over the set standards.

Threat Of New Entrants

• The threat of new entrants is low • High initial investment and fixed costs needed to operate business • Existing players enjoy experience as an advantage to their business. Mr.

Khamsi of Al-Marjan jewellers gloated while stating the fact that those in the business, especially those who inherit it, enjoy an upper-hand based on experience and know-how of the trade, while new entrants would suffer till they get the same knowledge

• Customers are loyal to brands that have built trust and provided customers with authentic jewellery. However the percentage of such a



56customer population is relatively low when compared to the entire buyer-population. Most customers search for economical jewellery that has good designing and value to carry.

• Even though the industry faces low government regulation and an easy access to raw materials, coupled with the availability of distribution channels. Threat of new entrants is low because of security constraints of the country, as well as the high opening and operating costs that a buyer is faced with. Threat Of Substitutes Threat of substitutes within the commodity group is high. For example, artificial and silver jewellery can replace gold jewellery if gold prices see a hike, and artificial take an upper hand in replacing silver too. However, external threat of substitute to the jewellery commodity group is low, or non existent as nothing replaces jewellery. Rivalry

• Rivalry in the industry is high • Many players exist, of the same size • Players have similar strategies of advertising and showcasing • Players exist in clusters • Though a lack of differentiation exists in the products, which is largely

differentiated on the uniqueness of designs, customers can easily switch from one supplier to another given their economic standing, unless strong loyalty ties are maintained with the supplier

• Currently, market growth is minimum, and marked as ‘bad’ or ‘very bad’ by most jewellers: sale is possible only at the expense of another jeweller.



57PEST ANALYSIS:

Political Factors

• Current law and order situation of the country is not favorable especially in the tribal areas of NWFP. This affects the performance of the gems and jewelry sector since it has created many security problem.

• Non existence of hallmarking results in Pakistan’s increasing loss of export, self independence and less acceptability of Pakistani products both in the local and global markets

• This sector has a huge untapped potential that is being wasted because of the negligence of the government as there is an absence of a specific gem-related mining policy, dearth of creativity, lack of global market knowledge and export methodology are heavily hurting the entire sector.

• The practice of smuggling gold to other bullion markets has existed for long time and there is not much being done about it, despite the knowledge of the lost official revenue.

• Lack of documented trading • No price regulation policies by government, because prices largely driven

by international forces • The political instability also lead people to reduce demand for the luxury

item and invest in more ‘solid’ • Though gold refining uses lead, which is poisoning in itself, no health or

environment related policy has yet been established. • Establishment of the Pakistan gems and jewellery development company

through public/private ownership as an initiative to organize the lucrative industry. This has led to an increase in the country’s exports, according to an article published in The News.

• According to the laws of the State Bank export of jewelry to India is not allowed at all

JEWELLERYIDUSTRYPAKISTAN



58 Economical Factors

• With the rising prices of gold jewellery buyers have started purchasing less of it.

• Recession has affected the jewellery sector in terms of its demand. With less purchasing power people buy less jewellery, given its income elasticity.

• Import of gold and silver is subject to State Bank's authorization • Higher living costs have also led people to sell their old jewellery, to

capitalize on the increasing market trend Socio Cultural Factors

• Jewellery forms one of the most valued heritage symbols for women of Pakistan, and subcontinent largely. It holds high cultural significance, especially in terms of dowry for women in the subcontinent.

• Jewellery is mainly a luxury item that is purchased mostly by women of all age-groups in Pakistan.

• Because of a decline in the purchasing power, people no longer purchase gold jewellery in the same amount that they used to at a point.

• Where before women used to wear gold jewellery in heavy amounts to flaunt their marital status after marriage, today’s women prefer trendy and light jewellery.

• Because this fashion need is often unfulfilled in gold jewellery, supplemented by the fact that gold prices are not sky rocketing and the security constraints in the country dense, a shift towards silver jewellery has been seen.

• Development of the country’s own fashion industry has also accounted for a shift in trends to lighter jewellery

• Silver jewellery often gold-plated, allows women to purchase varying designs at cheaper costs. The same is the case with artificial jewellery. Gold jewellery is now only purchased during the wedding season, and that too has seen a shift towards lower carats. This is largely for purposes of dowry, and gifts

• Increased exposure of Pakistani women to global trends has also led to an increased demand of jewellery articles

• Higher exposure to Indian fashion has also led to an increased demand for Indian-style jewellery



59 Technological factors

• Local jewellers use casting machines for making bangles, chains and nose rings, etc.

• Machines are imported mainly from Italy (finest jewellery market of the world, as stated by Mr. Saeed). Also imported from Germany, USA and France. Import of these machines if of high costs. Transportation takes from 4 days to one week.

• Locally machines available from Gujranwala, Lahore and other cities of Punjab. These machines re also of high quality, and relative cheaper. The old methods and techniques used in the industry create a lot of wastage of precious stones and metal, for example a lot of precious stones go to waste due to old excavation methodology

• Pakistan is to adopt hallmarking production in the sector very soon. • Jewellery that is produced through CAD/CAM, using software matrixes

are of superior quality and presentation, and more in demand for export • Use of technology saves costs, time and wastage. It increases efficiency

and productivity of the sector. • Introduction and mainstream use of technology will reduce costs of

production by large numbers for the industry. In addition, it will also help Pakistan meet international standards, and build economies of scale in production for international markets.



60 SWOT ANALYSIS OF JEWELLERY INDUSTRY STRENGTHS

• Availability of skilled artisans for the making of handmade jewellery • Gems, an important raw materials are easily available locally • High competition in the industry tries to fuel efficiency and improve

productivity • Promotion of gold consumption. (gold considered as foreign currency,

higher the consumption, higher the FOREX of the country!) • Global popularity for bangle production • Recognition of the sector in international markets.

WEAKNESSES

• Traders are reluctant to adapt new techniques and methods of production

• Availability and use of modern technology is limited. • High rate of illiteracy • Limited innovation • Unorganised structure of the industry • Lack of documentation • Use of register-based inventory system • Lack of member-registration in recognized associations • Limited marketing techniques applied • High operating costs • Low or no conformity to international standards • Absence of wide-scale use of hallmarking • Lack of value-addition facilities: this leads locl jewellers to purchase

Pakistani exported rough stones from india at higher costs because india has a developed value addition industry, renowned for its processing and polishing traits.

OPPORTUNITIES

• Training centres established by PGJDC • Encouragement given to traders to participate in exhibitions and fairs to

increase their visibility. • Hall marking initiative • Exploring new markets internationally • Presence of a lot of untapped resources



61THREATS

• Provincial Disputes that hinder exploration of resources • Smuggling • High inflation • Political instability • Poor law and order situation • Rise in international gold and oil prices • Limited availability of credit and financial schemes • Power crisis • Lag between policy making and implementation • Lengthy and cumbersome procedures of import and export (including the

additional duties imposed!) • High competition from India, and emerging countries like Bangladesh

and Srilanka.



62RECOMMENDATIONS

• The government should take steps to complete import-of-gold transactions

in one day, so that raw gold does not wait in cargo idle. This will help the industry improve its productivity, and help it meet export orders on time without delay.

• A separate room for checking of gold imports- away from the general import section- so that security risks are relatively reduced for the industry.

• The government should have follow-up steps taken after designing and

establishing a policy to check if it is being implemented o not. Post-implementation steps of assessing the changes brought by policy implementation should also be developed so that the industry can flourish and gain momentum locally and internationally

• Gold-refining facilities use lead in the process which is poisoning: these

facilities should be subjected with health standards and at the same time, should be away from the commercial area to safeguard the heath of inhabitants.

• Provide security measures for local jewellers who are trading to ease their

operations

• Government support through bank loan and credit facilities will also aid the sector in advancing and acquiring expensive technology to aid production, otherwise not possible

• Simplify export procedures to meet time-bound orders, otherwise, India, our

major competitor will lick most of our customers away, given the relaxed import/export policies they are subjected to in order to boost the industry

• Quicken the production process of an industrial and free-export-zone,

proposed by the name of Dazzle Park. This will provide the following benefits:

- Fresh air provision - Access to natural light - Shock and fool proof electrical wiring - Lower the costs - Allow a sharing of infra structure, which will enable the industry to achieve

economies of scale, by reducing costs and increasing productivity. - Will be similar to mass-production sites



63• Improve the marketing strategies implemented in the sector through

introducing the concept of branded Pakistani jewellery to improve its world-wide-recognition and demand

• Computer-based inventory system should replace the register-based inventory system widely followed in the mainstream market. This will allow jewellers to keep better track of costs and the items for sale. In case of a security threat, a readily available loss of costs and expenses will allow a quick recovery of the same.

• Speeding up the process of hallmarking and assaying will help the industry improve its quality standards, and conform to international standards, thereby adding to the international demand and a simu8latenoes increase in local exports.

• Increase participation in world-exhibitions and a providence of other avenues to open the gateway to the global market, so that production of a variety of designs and trends is introduced

• Government support through bank loan and credit facilities will also aid the sector in advancing and acquiring expensive technology to aid production, otherwise not possible

• Introduction of professional and proper training centre and educational institutions that offer jewellery designing and use of related technology as a recognized course.

• Development of value-addition facilities internally will help the industry lower its costs, which accumulate because local traders tend to buy Pakistani exported/smuggled jewels at a higher cost after they have been processed and polished from India.

• Promotion of e-trade as a means of exploring and expanding into foreign markets



64

CONCLUSION

Pakistan Gems and Jewellery Industry is currently facing a slump due to the tremendous rise in the international prices of Gold and poor internal economic and political situation of the country. According to many traders in the industry the demand for Gold Jewellery has declined by about 50-70%. On the other hand the demand for silver and artificial jewellery has increased. However, this demand increase and an increase in gold prices led to a subsequent increase in their prices, which has been has been a limiting factor the growth of the entire sector.

The fact that a major portion of the industry is still not documented and the existence of widespread ‘unofficial trade’ in order to escape taxes have been major contributors to the inefficiency prevalent with the industry. Shocking to know was the fact that unrecognized associations played a role in aiding and supporting the unofficial trade/smuggling

However despite the weaknesses the industry has a lot of potential. Pakistanis come from a culture and traditional background where jewellery especially that of gold is highly demanded, especially for purposes of dowry and to flaunt marital and wealth status. Thus this accounts for the popular a high importance of it during the wedding season and festive events. Pakistan I also blessed with a large number of skilled artisans who have acquired skills generations, and are now expert in this ‘family business’

A careful assessment of the industry has allowed us to conclude a lot can be done by the government and related bodies to aid traders in capitalizing the opportunities they are presented with and doing away with their weaknesses.

Establishment of PGJDC is a praise-worthy step taken by the government through public/private ownership that has given a chance to boost the industrial productivity. Recent efforts made by PGJDC are outstanding, which seek to develop the sector and regulate it as soon as possible. The setting up of training centers, acquirement of up-to-date technology and also encouragement given to traders to increase their market visibility by participating in international exhibitions are only some of the steps that the company as so far initiated. It still has many proposals and ideas bagged up to improve the sector.

In the coming years, through these initiatives and steps that are in place to develop and regulate the industry, we expect that the industry in the next fifteen years will be able to compete effectively, not only with India, but also with other developed markets. In addition, we also expect the industry to develop as a major export-commodity, contributing a significantly large figure in the country’s GDP than the minute figure it is presently.



65

group 05- analysis of jewellery industry

Documents