Financing jewellery exports

Chronic neglect of the gold jewellery export sector by Pakistan has resulted in lack of full exploitation of this highly promising, though virgin, territory. Against this background, the decision by commercial and nationalised banks to extend loans for jewellery exports is a timely initiative that needs to be pursued with vigour and determination.
According to sources quoted in a Recorder Report, the Commerce Ministry's SRO 16 and the non-availability of finances have been the two main snags that have stymied full growth of the jewellery sector. The available data presents a dismal picture.
Pakistan's share in the global jewellery trade of $27,900 million remains a pathetic $24.5 million against India's $2,175 million. However, the government's decision in principle to advance bank loans to jewellery exporters may help rectify some of this imbalance at the regional level. Only the repayment modalities now remain to be worked out by the representatives of the banking sector and jewellery manufacturers.
In another promising move, the Commerce Ministry has amended SRO 16 in the light of proposals formulated by jewellery exporters who were asked to hammer out a suitable package, to be presented to the banks for grant of loans. Meanwhile, there is a need to set up a state-of-the-art jewellery manufacturing plant if Pakistan is to gain a competitive edge.
Timely provision of working capital amounting to $100 million and export guarantees to the gold traders are the other inputs needed to revitalise the sector.
However, there has been a divergence of perception between the banking sector and the representatives of the jewellery trade on the ratio of the required working capital.
While the former have supported a 70:30 ratio, the latter have advocated a ratio of 90:10. The two sides should try to resolve the issue at the earliest in the interest of speedy initiation of work in this sector. Another issue that remains to be speedily resolved is the imposition of GST.
What has imparted urgency for Pakistan to carve out a respectable niche in this multi-billion rupee global trade is that, according to projections, the demand for gold and diamond jewellery in the Gulf region is likely to surge this year to unprecedented heights.
Soaring disposable incomes and a flamboyant lifestyle are clearly going to create a huge market for expensive jewellery. And the surplus income accruing from the booming crude oil prices is going to sharpen the demand. Pakistan can meet the augmented demand if it plans its strategy carefully, and then leaves no lacunae in execution.
According to another projection, the diamond for jewellery in the Gulf region, currently valued around $1.9 billion, could rise by 12-14 percent in 2006. Incidentally, Pakistani craftsmanship is of a very high order, which can help us achieve a competitive edge in the regional and global market despite our investment handicaps.
At present there are three major licensed gold importers in Pakistan, and our gold trade remains almost entirely dependent on imported gold, primarily from Dubai. There is a need to diversify gold import if we are to meet the increased demand in future.
Comparisons are always odious, but India has made large inroads into the global jewellery market, and is claimed to be the largest consumer of gold in the world. It set a new world record for the fourth consecutive year in 1997 as its total gold demand had soared by 11 percent, from 736 tonnes in 1997 to 815 tonnes in 1998.
Market analysts believe that India has gained this edge by pursuing uniform pricing parameters, while we have pursued an erratic course. Fixing of gold prices by India and some Middle Eastern countries was an astute move to stabilise their markets. This has imparted a powerful fillip to their jewellery sectors. It is time for trade liberalisation in Pakistan, aided by the easing of needless bureaucratic bottlenecks.
Aside from cutting down paperwork, procedural simplification will be an added incentive to exporters and importers to pursue their vocation with greater ease. For instance, as there are only three licensed importers of gold in the country, a majority of the jewellers have to buy bullion through a limited number of brokers at commission, the inhibiting impact of which can well be imaged.
Secondly, the lengthy process under entrustment scheme in which a foreign buyer can send gold in advance to the local jeweller should also be streamlined. The government's move to provide working capital to gold traders should be followed up by other such incentives.