Armenia today gets about 10% of its exports value from refined diamonds. This share has reduced drastically from the 2003 peak of 40%. A recent diamond agreement with ALROSA, world’s leading diamond producer by volume, could change this position and add sparkle to the country’s diamond industry yet again.
Under the agreement, Armenian importers are exempted from paying the 6.5% duty on purchase of unlimited quantity of roughs from Russia. Armenian government has dropped its 20% VAT on imported diamonds. These economic sanctions are expected to help boost the industry’s margins.
The risk in the deal is increased dependence on Russia. If Armenia joins the proposed Eurasian Union, diamond refiners will have to pay an 18% duty on roughs from countries outside the union. So even if these countries sell diamonds for a lower price, the effective rate for refiners in Armenia would turn out to be high and effectively force them to buy only from ALROSA.
Another challenge that Armenia will face is competition from established diamond processing hubs and huge markets for polished diamonds like India and China. Market demand plays a big role in the location of processing centers since transportation and insurance are major cost factors in the final price of diamonds. Indian and Chinese players are also more technologically advanced.
Armen Yeganian, head of Ministry of Economy’s industrial-policy department said that the Armenian government is in negotiations with Moscow to remove a ban that prohibits Armenia to re-export small rough diamonds that are uneconomical to refine. These diamonds are part of purchased batches and if not sold reduce the profitability of the whole batch.
There is no travel restriction placed on Armenian business owners to Russia and they are free to browse or shop for diamonds as per their needs. Kamo Dallakian, the director of Agates Company, a 10-person, Armenian-owned operation, reported that they were granted the opportunity of a large selection and his company has exported its first batch of polished stones from purchased Russian roughs.