What is Happening in the Turkish Jewelry Industry?

In its efforts to enhance knowledge for its readers, Diamond World brings you the following article in association with the IDI.
What is Happening in the Turkish Jewelry Industry?

In recent years, the Turkish jewelry industry has become an exporter of precious metals and jewelry that rivals Italy, the world leader in the field. In the past five years, turkey imported an average of 225 tons of gold each year. The Turkish people have a historical tradition of wearing gold jewelry and the Turkish jewelry industry employs about 250,000 people. This large workforce and an ancient tradition of gold jewelry turn Turkey into a gold jewelry superpower.

The Turkish Gold Industry

Gold imports into Turkey were 196 tons of gold in 2006; 250 tons of gold in 2007 and 163 tons of gold in 2008.

The local demand for gold jewelry in Turkey is among the highest in the world since jewelry is regarded as ornamental for women as well as a worthy investment. Turkey ranks second after India for gold ownership per capita for the purpose of investment. In addition, it is customary to give gold as part of wedding gifts in Turkey.

The Turkish Gold Exchange was founded in 1995 in Istanbul. It has 50 authorized members, including commercial banks, precious metals companies, and more. According to Turkish law, only members of the exchange are allowed to export or trade in gold and precious metals. In 1993 import and export quotas on gold were lifted.

Turkey exports gold jewelry to more than 100 countries; major markets are the US, UAE, Italy, Germany, Russia, Spain and Israel. Turkey's export capacity stands at 200 tons of silver and 400 tons of gold per annum, but experts estimate that the country has not yet realized its full output potential. Gold Exchange Vice President Osman Sarac said in Ankara last month that in normal years, gold imports into Turkey in the first half of the year totaled 100 tons, but figures from 2009 indicate that only 67 tons have been imported so far.

Diamond and Luxury Goods Tax – OTV

An OTV tax of 20% is levied on luxury items including jewelry, and a similar tax is levied on the import of diamonds. In a recent interview, the chairman of the Turkish Jewelers Association, Alaattin Kameroglu, said it is important to act against the tax, especially in a time of global recession: "It is very easy to smuggle diamonds and jewelry into Turkey because x-ray inspections fail to reveal them. The losses from smuggling are high. The state could increase its revenues 400-fold if the tax is repealed," he said.

Kameroglu is not the only one who openly declares that there is a problem with jewelry smuggling into Turkey. The advisor to the Turkish Gold Exchange, Ramazan Santo, said that it is easy to import rough diamonds in illegal ways into Turkey. "You can bring diamonds into Turkey in a matchbox," he said.

The industry uses a variety of methods in order to avoid paying the heavy tax – smuggling, declaring a lower grade of diamonds, not registering certain factories, etc. The official volume of diamond imports into Turkey in 2007 was 107,000 carats, but the real number is estimated at about a million carats.

The official annual export of polished diamonds from Israel to Turkey in 2008 totaled 28,763 carats and in the first five months of 2009 it totaled 9,574 carats (figures courtesy of Israel’s Diamond Controller Shmuel Mordechai).

On August 14, 2007, Turkey joined the Kimberley Process (KP) and undertook not to import conflict diamonds. The country’s incorporation in the KP should help reduce diamond smuggling into the country. Turkey applied for membership in the Kimberley Process in 2003, but requisite legislation and technical arrangements took four years to complete. Hopefully, the repeal of the tax on diamonds and jewelry will take less time.

How is the Industry Coping with the Global Financial Crisis?

The local Turkish jewelry market has slumped, like other luxury markets, due to the global financial crisis. The crisis only exacerbated the slowdown that the industry had already been experiencing. While in 2007, the export of jewelry from Turkey totaled 96.3 tons, in 2008, it came to only 83 tons. During the first quarter of 2009, there was a further decline of 20% in the country's jewelry exports.

There are 25,000 jewelry retailers operating in Turkey; some 2,000 have closed down since the beginning of the crisis. So far, 3000 employees have been made redundant after the implementation of a system of "15 paid days followed by 15 vacation days" in order to avoid mass layoffs.

The import of gold into Turkey has also shrunk and in the first half of 2009 only 67 tons of gold were imported. According to Osman Sarac, one of the reasons for the decline in imports is the fact Turkish consumers are now selling their gold for cash. Sarac expressed the hope that the upcoming wedding season will boost the industry and bring an increase in sales. The recovery of the Turkish diamond industry is dependent on the recovery of the US jewelry market – the world's largest market for gold jewelry.

Istanbul – The Main Trade Center

In Turkey there are about 3,000 manufacturers, 500 wholesalers, and 25,000 retailer stores. Istanbul is considered the main manufacturing area, and other areas include the capital Ankara as well as Izmir and Anatolia.

Most of the gold and jewelry trade in Istanbul takes place in the "gold market" – an enclosed marketplace with hundreds of jewelry stores. The gold market is part of the Grand Bazaar – Istanbul's ancient market.

In 1996, the industry began building a modern complex called Kuyumcukent (city of jewelers) with government support. The purpose of the complex, in which $180 million has been invested, was to concentrate a variety of jewelry manufacturers and retailers under one roof, with the aim of promoting the local jewelry industry. The seven-story building, spread over 128,000 square meters, is to be occupied by jewelers' shops and will serve as a modern and environmentally-friendly infrastructure for industry and trade.

The complex also includes a five-star hotel, a movie theatre, a supermarket, and more. The plan calls for the building to include 971 stores, 448 wholesale stores, and seven manufacturing areas. It will also be capable of treating sewage unique to the gold industry, which is especially harmful for the environment. In addition, it will provide increased security and high-voltage electricity. Despite the fact that complex’s construction was completed in 2006, it has failed to become a significant success and not all the stores are occupied.

The Leaders

Out of the thousands of jewelry manufacturers, there are 50 that are considered large and leading companies. Here follows a description of two large but fairly new companies – "Favori" and "Goldas."

Favori, founded in 1992 in Istanbul, is considered the largest manufacturer, exporter and importer of gold jewelry in Turkey. Its manufacturing capacity reaches 26 tons per year. It owns a 23,000 sq. meter factory located in a five-story building. The family-owned business employs 45 designers, develops 6,000 designs a year, sells its merchandise all over the world, and owns 2,000 stores in Turkey alone.

Goldas was founded in 1993 in Istanbul. The company makes gold jewelry from 8-24 karats and silver jewelry of 925 karats. The Istanbul plant has a manufacturing capacity of 18 million pieces of jewelry a year. The company has more than 60,000 designs and makes 5,000 new designs each year. Goldas is a public company whose shares are traded on the Istanbul stock exchange and in the stock exchanges of Germany, Tokyo, Hong Kong, London, and more. The company is ranked 16 out of Turkey's 500 largest private companies and its sales turnover in 2007 reached $3.58 billion. The company exports gold jewelry to 45 countries around the world and owns stores in Turkey, Russia and China. In addition, its brands are sold in other retail stores.

Courtesy of the Israel Diamond Institute Portal www.israelidiamond.co.il

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