Armenia’s Diamond Industry On Rise As Investmen’s Flow In

YEREVAN (RFE/RL)–The notion of a boss closely watching his employees has direct application in the diamond refining company Lori–near Nor Hajin–a town 20 kilometers north of the capital Yerevan. From an improvised watchtower built into the upper middle part of the factory–Lori managers can see what their workers below are up to.

The reason for that is plain. Tiny stones they cut are the most precious and coveted in the world. And their production represents one of the few functioning branches of Armenia’s industry that saw a drastic decline following the break-up of the Soviet Union.

More than one fifth of Armenia’s net exports last year were refined diamonds. Industry officials anticipate that the 1998 export level of $47 million will be considerably higher this year and may reach $120 million next year. Foreign investment is transforming the sector into one of the fastest growing in Armenia–with more than two dozen small and medium-sized enterprises already in business.

The tiny district of Nor Hajin–which had one of the two main diamond factories in the ex-USSR–was at the core of the unfolding upswing–providing a work force and expertise for other businesses that have sprung up all over the country. Cut off from supplies from diamond-rich Russia in the early 1990s–the industry oriented itself to Western capital and connections. This seems to have saved it from collapse.

The Lori company is the showcase of that success. It was founded six years ago by Haik Arslanian–a Belgian diamond dealer of Armenian descent–starting off with just 25 employees. Refining about 50,000 carats a year–Lori now has over 300 workers and plans to hire another 100 in a new expansion push. Arslanian also supplies a number of smaller factories with uncut diamonds from his mines in South Africa. He is the reason why Belgium is Armenia’s number one trading partner in Europe.

For landlocked Armenia lacking access to cheap commercial routes–refining and exporting diamonds is highly suitable. Dealers say the skilled work force renders domestic industry competitive in the international market. The technological process involved does not require sophisticated machinery and consists of three production operations. On a large disc whirling around a vertical axis–diamonds are first cut–rounded and then given a final shape.

"Diamonds are easy to produce but difficult to sell," says Gegham Hovannisian–a Lori manager–in a remark tat characterizes the global diamond business–tightly controlled by cartels and monopolies. Arslanian’s business is unique in that he runs a full circle of operations–from mining to selling the stones. Refining is the only area where Armenia can be of interest for foreign investors.

Gagik Mkrtchian–a senior official in the ministry of trade and industry specializing in jewelry–says Armenia attracts investmen’s in this field because of an "established institutional system for diamond refining."This is a very special and unique business. Long-lasting connections and trust play an enormous role in it," he says.

Salaries of Armenian diamond-cutters are substantially lower than in the West but higher than in Asia. Dealers agree that the high quality of their output is what entices investors. Britain’s Ferfano corporation last year paid $5.5 million to buy the state-run Diamond Company of Armenia (DCA) in Yerevan and is expanding business. Judging by the scale of construction work going on its heavily guarded territory–DCA may soon overtake Lori.

In Nor Hajin–the former flagship Shoghakn enterprise is kept busy by orders from the Israeli firm Sergey Diamonds. But it is operating at 20 percent of its capacity–having about 200 employees – ten times less than in Soviet times. Ironically–the factory that has kept diamond processing alive in Armenia–has suffered most from recent years’ profound transformation.

However–recent developmen’s have raised hopes that Shoghakn could regain its past glory. One of the world’s top diamond dealers–Israel’s Lev Leviev Diamonds (LLD) has offered to buy the state-run factory for $3 million and–more important–create 1100 new jobs.

For the town of 15,000 residents struck by a huge unemployment this would mean a solution to most problems. Yet the situation is complicated by a hostile counter-bid for Shoghakn by Belgium’s Arslanian. The enraged Shoghakn director–Sarkis Sarkisian–claims Arslanian does not want to see the Israeli giant luring away his best craftsmen. Sarkisian accuses him of plotting to scuttle the would-be deal with LLD.

The industry ministry’s Mkrtchian denies any pressure on the government saying that it will make a "right decision" soon. Expressing his personal view–Mkrtchian says LLD’s conditions are "much more preferable." He explains that with annual diamond sales not exceeding $50 million–Arslanian is no match to the Israelis who sell $1.2 billion worth of stones per annum. In Armenia alone–LLD envisages a $150 million turnover–other sources said.

Mkrtchian adds that a planned resumption of ties with Russian diamond companies would open a new avenue of the sector’s development in Armenia. But he warns against excessive expectations about the industry’s impact on the Armenian economy. Even in Israel–which is a key diamond-refining center of the world–there are no more than 25,000 people working for the sector–Mkrtchian says. In his words–the Armenian government’s goal is to have a 3,500-strong diamond work force in the near future.

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