Like a drop of oceanic water contains the whole chemical composition of ocean, so the group of companies Grace features all characteristics of the Russian diamond complex. Grace Group is also engaged in geological prospecting in the Urals; it has experience of diamond mining in Africa; participates in international rough diamond trade; manufactures polished diamonds at the Russian factories; conducts wholesale trade in polished diamonds; produces diamond jewelry; has a chain of stores in Moscow and the provinces. The chairman of the Grace Group board of directors, Alexander Boguslavsky, gave an exclusive interview to our correspondent Vladimir Teslenko.

Q.: What events occurred recently in the Russian diamond industry would you mark?
 
A.: The Kimberley Process released complete statistical data for the entire global diamond industry last year. In 2007, Russia’s diamond industry for the first ever time in its long history of the valuable mineral extraction topped the list of diamond producers by a total weight, having produced 38.2 million carats. In the global "table of ranks", Russia steadily occupies the second position, after Botswana, by value of produced rough diamonds (2,63 billion dollars).
These figures show that the industry is progressing in the right direction, and Russia is increasingly strengthening its positions as one of the global leaders of diamond business.
In 2008, the process of ALROSA federalization, the major diamond mining company of Russia, was completed.

Q.: How has the financial crisis affected sales of Russian diamond rough?

A.: Of course, diamond business is a part of the world economy. And it, like many other sectors, has got involved into the financial crisis cycle. In such challenging conditions, the informed managerial decisions at the government level are required. Now, judging by the reports of the leading experts and press, negotiations are being carried about the formation of the diamond stock in the Diamond Chamber of Russia. The state, buying rough diamonds from the manufacturers, on the one hand, helps them to overcome the crisis, and on the other hand, invests in high-liquidity assets, which will bring an extra income into the budget.

Q.: A wide response was drawn by the country leaders’ initiatives directed at alleviation of taxes on business under the crisis conditions…

A.: In my opinion, it is for the first ever time the state has so promptly developed a complex of measures for strengthening the economy in the most problematic period of economic chaos in the global financial markets. The initiatives of Vladimir Putin, RF Prime Minister, on stimulating the business, reducing the tax burden, controlling the expenditure of budgetary funds, improving the bank system cause optimism in the market participants, and instill confidence that the country will cope with the consequences of the crisis burst out abroad.

Q.: What difficulties is the jewelry business undergoing in connection with the recent events on equity markets?

A.: There is a slowdown in all segments. Generally speaking, a downtrend in the growth of jewelry retail sales outlined in Russia already in 2007. Let me remind you that after the default of 1998 and some pause, the rates of sales growth in the 2000s reached 20-30 percent that essentially exceeded the Gross National Product growth ratio. Naturally, that could not proceed for long. The first shot across the bow was in March of 2008: everyone marked low sales, though, in view of the International Women's Day, this month traditionally showed peak rates of sales. Because of the inertial character, jewelry production volumes in the Russia remained at the level of 2007. However, starting September, when financial instability in the Western markets showed up and quotations in the Russian share markets went downwards, a sustainable decrease in sales in the retail jewelry field began. During September and October, jewelry sales across Russia decreased 5 percent in money terms that, taking into account inflation, correspond to a 15-percent decrease in comparable prices, if compared with 2007. Moscow was first to react in October: there are a lot of service businesses in this city (insurance companies, banks, advertising agencies, etc.) and medium-level managers – our main buyers – either lose their work or suffer psychological stress because of a probability to lose work; as a result, they are far from wishing to buy jewelry. On the contrary, in the province where most enterprises of non-financial sector are located, no sales decrease is marked, and some regions even observed a small growth.

Q.: How are the things going at the large jewelry manufacturing plants, for example, Adamas, МEJP, MJP, Kostroma Yuvelirprom, Russkiye Samotsvety, Ural Jewellers? Do they expect bankruptcies?

The plants experience difficulties with current liquidity and a backlog of orders; however, nobody is talking bankruptcy. Bank problems partially affected the plants, as the majority of them had substantial credit lines. Many can compare today's difficulties with a hard year after the default of 1998. At that time it was even worse, but, nevertheless, they managed to preserve both capacities and experts.

Q.: What is the forecast for the end of 2008 and for 2009?

A.: Russian buyers are distinguished by composure and optimism; therefore, in 2008, jewelry sales volume in Russia is expected to be at the level of 2007, which is about 5 billion dollars. Next year is going to see a 20-25-percent decrease in sales. Meanwhile, if we together with the state control authorities manage to stop a low-quality import and smuggling, the share of the Russian manufacturers in the market will start growing.

Q.: How is the Jewelers Guild of Russia operating in this difficult time?

A.: The Guild’s management actively operates and solves general problems of the sector. The principle result is V.V. Putin's initiative at the congress of the United Russia political party on a tax deduction on business as a whole. Since the state has also supported some banks, the separate jewelry producing enterprises have obtained quite good credits in the Savings Bank. Major efforts has been made with the Committee for precious metals and jewels to implement the anti-recessionary measures, that was mentioned at the meeting of Dmitry Medvedev, Russian President, and Yevgeny Primakov, the Commercial and Industrial Chamber president.
On the whole, the jewelry industry is quite controllable under the conditions of the cyclic recession. Probably, the market volume will return to the level of 2005, and starting 2011 we can expect a new cycle of development.