Strategic Plan

for Pakistan’s
Gems and Jewelry Industry
 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

Contents

Acronyms

1. Executive Summary.........................................................................................................4
2. Profile and Assessment of Industry Competitiveness..................................................... 6
3. Vision and Strategic Objectives for the Industry.............................................................10
4. Description of Strategic Initiatives...................................................................................13
4.1 Raise Value Chain Productivity..............................................................................13
4.2 Improve Industry Marketing and Branding.............................................................18
4.3 Strengthen Policies for Increased Competitiveness…………………………………20
4.4 Invest in Workforce Development and Innovation Capacity………………………..23
4.5 Strengthen Industry Organization and Supporting Infrastructure…………………..25
5. Prioritization and Sequencing of Initiatives………………………………………………….26
6. Expected Impact and Conclusion…………………………………………………………….28

Appendix

1. Overall Summary of Industry Competitiveness: Porter Diamond……………………………. 31

2. Industry Profile and Market Segmentation………………………………………………………33
3. Industry Statistics…………………………………………………………………………………..41
4. Social Value and Role in Poverty Reduction……………………………………………………43
5. Market Economics…………………………………………………………………………………44
6. Competitive Position of Domestic and Regional Competitors………………………………...46

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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

Acronyms
AIGS: Asian Institute of Gemological Sciences
APGMJA: All Pakistan Gem Merchants and Jewelers Association
CAD: Computer Aided Design
CAM: Computer Aided Manufacturing
CFTMC: Common Facility Training Centers
FANA: Federally Administered Northern Areas
FATA: Federally Administered Tribal Areas
GGIP: Gem and Gemological Institute of Pakistan
GIA: Gemological Institute of America
GJEPC: Gems and Jewelry Export Promotion Council, India
GOP: Government of Pakistan
HEC: Higher Education Commission
MOST: Ministry of Science and Technology
NWFP: North West Frontier Province
PCSIR: Pakistan Council Scientific and Industrial Research
PINSTECH: Pakistan Institute of Nuclear Science and Technology
PISDAC: Pakistan Initiative for Strategic Development and Competitiveness
PSFD: Pakistan School of Fashion Design
SLGJA: Sri Lanka Gems and Jewelry Association
SRO: Statutory Regulatory Order
SMEDA: Small and Medium Enterprise Authority
SWOG: Strategic Working Group
TGJTA: Thai Gems and Jewelry Traders Association
TUSDEC: Technology Up-gradation and Skill Development Company
WGC: World Gold Council

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 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

1. Executive Summary
Despite its abundant reserves of precious and semi-precious gemstones and rich history of
jewelry manufacturing, Pakistan has been unable develop an internationally competitive gems
and jewelry industry. Capitalizing on its vast natural resources, low labor costs, and skilled
craftsmen and growing national and international demand, Pakistan has the potential to position
itself as a regional hub for precious stone cutting and jewelry manufacturing. Developing this
potential will have a significant impact on Pakistan’s economy in terms of increase in
employment and entrepreneurship, income generation, export revenues, and poverty
alleviation. Consisting of mainly small and medium entities, growth of this sector will also have
positive externalities for social indicators such as health and education.

It is in this context that the Pakistan Initiative for Strategic Development and Competitiveness
Project was launched by the United States Agency for International Development. The project
is implemented by J.E. Austin, a U.S. management consulting company working in partnership
with Pakistan’s Small and Medium Enterprise Development Authority. As part of the initiative, a
group of committed industry stakeholders from gems trading and mining, jewelry
manufacturing, jewelry retail and wholesale, training institutions, technical service providers,
raw material suppliers and other allied industries agreed to form a Strategy Working Group
(SWOG) to address how the industry could reposition itself through a better strategy. Within 16
months from its inception, the SWOG has developed a strategy shared and agreed to by the
private sector and the Government of Pakistan. The SWOG itself has become a recognized
private sector led platform on which all the key players in the value chain including the public
sector have come together.

In general, Pakistan’s gems and jewelry industry suffers from limited investment in research,
product development and training, low levels of technology, traditional mining techniques,
underdeveloped lapidary facilities and skills, high raw material costs, poor international
marketing and branding, underdeveloped designing capabilities, limited linkages with domestic
and international support infrastructure, limited identification and certification, and lack of
hallmarking. The Strategy focuses on upgrading the entire value chain through the following
initiatives:

Raise Value Chain Productivity

Establish Common Facility Training and Manufacturing Centers (CFTMC) to upgrade
existing technology and processes in mining, gems processing and jewelry manufacturing;

Establish gem identification and certification laboratories to ensure better understanding of
gemstones and their properties;

Establish Gem exchange centers to facilitate linkages between buyers and sellers;

Conduct geological survey to identify new deposits and quantify the existing ones.

Improve Industry Marketing and Branding

Introduce Assaying and Hallmarking to ensure quality of gold jewelry for the local as well as
the international market;

Conduct market survey to ascertain the size of the local market and to identify customer
trends and preferences;

Establish Pakistan as a world class gold jewelry supplier through a country campaign to
position the industry in the international market and establish recognition at trade shows.

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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

Strengthen Policies for Increased Competitiveness

Initiate procurement of Gold through banks to facilitate availability of gold for manufacturers
for local market consumption as well as exports;

Allow Export/Import of Jewelry made from alternate metals to enable the local industry to
diversify its product base;

Reduce import duty on processed gemstones, and abolish sales and income tax on import
of rough and finished precious and semi precious gemstones to improve competitiveness of
the local industry;

Automate Documentation and Clearance Procedures to simplify compliance;

Reduce Exemption Limit for Cash Margin Requirement to encourage small and medium
exporters;

Abolish Infrastructural Cess on import of gold in Sindh to ensure a level-playing field for the
entire industry.

Invest in Workforce Development and Innovation Capacity

Establish CFTMCs to upgrade the industry’s skill level (as mentioned above);

Establish new training centers/provide short-term courses in collaboration with international
institutions to provide world-class training opportunities;

Build the capacity of existing R&D and academic institutions to strengthen support
infrastructure.

Strengthen Industry Organization and Supporting Infrastructure

Establish a permanent sector management company to ensure continued up-dation and
implementation of the sector strategy;

Negotiate domestic and international cargo charges with PIA and other airlines to facilitate
movement of valuable goods at competitive rates and bring international couriers such as
Brinks, Securicor etc. to Pakistan.

The strategy is expected to have significant impact on value addition, productivity, income
levels and exports. It is intended to reposition the gems and jewelry industry from a cost-based
sector to a high value-added, competitive brand in the global market. The main driver of growth
will be the value added in gems processing and jewelry manufacturing. It is forecasted that by
2010, 60 percent of total gems extracted will be cut and polished and exported compared to 25
percent at present, wastage in jewelry manufacturing will reduce from 10 percent to 1.5 – 2
percent and production time will reduce from 15 days to 5 days. Jewelry designing will be
upgraded to respond to international trends. As a result of the strategy’s implementation, the
SWOG expects exports to rise from the current level of USD 28 million to USD 200 million in
2010.

The main body of this document outlines the strategy and specific initiatives in more detail,
supported by an industry profile and key supporting data. A more detailed industry analysis is
appended to this document for reference.

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 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

2. Profile and Assessment of Industry Competitiveness

Pakistan’s gems and jewelry sector consumed 170 tons of gold in 20041. The annual
local demand for gold jewelry is estimated at USD 1.2 billion2. Demand is predominately
driven by 22 karat wedding jewelry. Accumulation of gold jewelry is also perceived as a long-
term investment. The total number of persons employed in the sector is estimated at 800,0003.
Total exports for the Gems and Jewelry sector were USD 28 million4 in 2004, representing 0.2
percent of Pakistan’s total exports for the year5.

Despite its abundant reserves of precious and

semi-precious gemstones, Pakistan has been Pakistan Gems and Jewelry Sector at
unable to significantly penetrate the a glance
international market for gemstones. Gem
reserves are at present found in Northern Areas
170 tons of gold consumed in 2004

Annual demand $ 1.2 billion
and NWFP, with significant potential in

Total exports in 2004 were $28m
Balochistan, however there is currently limited
75% of exports = rough stones
knowledge of the specific quantity of deposits.
19 precious and semi-precious
Mining technology and processes are gemstones are found in Pakistan
rudimentary and unscientific resulting in
800,000 employed
significant wastage at the extraction stage. Non-
Fragmented, cottage industry
scientific blasting, compared to modern mining
practices, damages the gemstone crystals and
mineral specimen thus drastically reducing their
value.

Due to lack of adequate processing facilities and skills, limited understanding of

gemology and lack of standardization and certification, approximately 75 percent of
Pakistan’s exports consist of un-worked stones6, representing a significant loss in value
added. Gemstone cutting and polishing is done on a very limited scale and that too with
outdated and underdeveloped techniques. There are only two commercial certification labs in
the country, which are not internationally recognized. Lack of recognized lab infrastructure often
leads to underselling of precious stones as well as lack of buyer confidence. Commerce is
mainly conducted on a person to person basis with no established pricing structures. This
imposes a significant transaction cost on the buyers and sellers.

Jewelry manufacturing is a fragmented cottage industry with a rich tradition of

craftsmanship; however limited design capabilities, lack of modern manufacturing
technology and techniques, and poor international and branding have prevented the
industry from realizing its full potential. There are limited vocational training opportunities,
no investment in research and product development and weak linkages between training
institutes and the industry. Furthermore, due to lack of assaying and hallmarking, there is no

1
According to World Gold Council estimates, total consumption of gold in Pakistan was 81 tons in 1997 and 120
tons in 2001, reflecting 12 percent growth per annum. Based on this growth rate, the estimate for 2004 is 170 tons.
According to some SWOG estimates, consumption of gold in 2004 was 200 tons.
2
This is a conservative estimate based on a methodology developed by the SWOG. It takes into account retail
turnover during the year. Some industry sources estimate total demand at USD 2 billion.
3
Industry Sources.
4
This statistic is taken from the UNSTATS website. According to the Export Promotion Bureau gems and jewelry
exports between July 2004 and May 2005 were USD 19.8 million, (jewelry: 15.6 m; gems: 3.3 m) down by 25% from
the previous year. According to the All Pakistan Commercial Exporters Association, gems exports in 2004 were
USD 10 million. According to industry sources, gems exports are higher due to informal gemstones trade.
5
According to the United Nations Statistics Division, Pakistan’s total exports for 2004 were USD 13.3 billion.
6
SWOG estimates.
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 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

institutional mechanism for providing product guarantee in the local and international market.
There are more than thirty major cities and nearly three hundred smaller cities/mandi7 towns
where jewelry manufacturing and trading clusters cater to domestic demand. In addition, there
are at least 45,000 villages where jewelers operate as single-shop, manufacturing and selling
units to meet the demand of the rural population. With a rich tradition of jewelry manufacturing,
Pakistan’s skilled/semi-skilled labor force is available at relatively lower rates, which offers a
comparative advantage to the country.

The industry’s present manufacturing capabilities cannot cater to the technology-driven

14 to 18kt international market and the changing trends of local consumers. Currently,
jewelry manufacturing in Pakistan is done on 21kt and 22 kt gold with traditional tools and
techniques. An expanding middle class, increase in consumer finance, and evolving fashion
trends due to international influences are changing local demand patterns. However, due to
limited design and manufacturing capabilities, the local industry is currently unable to cater to
these new market segments. This has led to increased penetration of international
manufacturers into the domestic market. Formal jewelry imports into Pakistan grew from USD
21,000 in 1995 to 110,000 in 2004, representing an increase of 424% over the period, and an
average of 42% per annum8. According to SWOG members, formal imports represent a small
fraction of actual imports because a majority of the jewelry is imported through informal
channels. Main sources of finished jewelry are Dubai, Thailand, Hong Kong, China and India.
This trend may lead to market erosion for the local industry if it fails to upgrade and diversify
itself.

Lack of an encouraging policy framework has also imposed significant constrains on the
gems and jewelry sector. Historically, the sector has received very little attention from the
government. Although the government has recently introduced some positive policy reforms
due to the efforts of the SWOG, additional improvements are needed in order to make the
sector more competitive.

There is significant disparity between Pakistan’s gems and jewelry industry and other
more successful industries. The following gap analysis conducted by the SWOG quantifies
these gaps compared to regional competitors such as India and Thailand and one of the best
industries in jewelry manufacturing and gem cutting, Hong Kong9. The table also summarizes
the critical limitations constraining Pakistan’s industry.

Table 2.1: Gap Analysis

India Thailand Hong Kong Pakistan
Quality/Workmanship 2.5 1.5 1 4
R&D 4 (improving) 2 1 5
Creative Design 2 2 1 3
Gem cutting techniques/cuts 2 1 2.5 3.5
Efficient mass production 2 1 1 4
Business Environment 3 2 1 3.5
Certification and Consumer 3 3 2 4
confidence
Marketing and Branding 2 1 1 4
Note: 1 = Best; 3 = Good; 5 = Worst

7
Market.
8
www.unstats.un.org
9
The gap analysis was developed by SWOG members based on their perception and experiences. It demonstrates
where the industry sees itself compared to its competitors.
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 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

Despite the current constraints, the gems and jewelry sector has tremendous potential
to contribute to the national economy and develop into a competitive, high value added
sector. Expanding national and international markets, Pakistan’s vast natural resources and
relatively low labor costs offer enormous opportunities for growth. The domestic market is
currently estimated at a substantial USD 1.2 billion10. On the other hand, a growing and
evolving domestic market can offer tremendous opportunities for the industry to diversify and
expand sales if it is able to upgrade its production and marketing capabilities.

A growing international market for gems and jewelry indicates that there is significant
potential for Pakistan’s exports. Year on year growth for gold jewelry in the first three
quarters of 2005 rose by 12 percent in tons and 20 percent in USD terms. Growth in global
gold jewelry consumption in USD terms and in tonnage is given in figure 2.1. In value terms,
global gold jewelry consumption grew by 18 percent from 2003 to 2004 and by 20 percent over
January – October 2004 and 2005. Global gold jewelry consumption in tons rose by 6 percent
over 2003-2004 and by 12 percent over January – October 2004 and 2005. India is the world’s
largest gold jewelry market by volume accounting for around 520 tons of consumption demand
in 2004. In terms of consumption demand, the USA is the world’s second largest gold jewelry
market by volume (around 350 tons) and the largest by retail value (around $16 billion)11.
Demand for natural gemstones is also growing, partly due to the emergence of mass
merchandisers entering the fine jewelry market.

Figure 2.1: Global Gold Jewelry Figure 2.2: Global Gold Jewelry
Consumption (USD) Consumption (Tons)

40,000 3,000
34,374 2,613
2,477
35,000
28,937 2,500
30,000 28,088 2,027
2,000
USD Million

25,000
Tons

20,000 1,500
15,000 1,000
10,000
500
5,000
0 0
2003 2004 Jan - Oct 2005 2003 2004 Jan - Oct 2005

Source: www.unstats.un.org
Figure 2.3: Gems and Jewelry Exports,
2004
Despite the growing international market,
Pakistan’s gems and jewelry exports have 16,000
13,587
been negligible. The fundamental reason for 14,000
this is lack of adequate lapidary facilities and 12,000
USD Million

techniques for gems and modern 10,000

8,000
manufacturing capabilities for jewelry. Jewelry 6,000
manufactured in Pakistan is mainly designed 4,000 1,971
3,243

and targeted for the local 21-22kt market and 2,000 240 28
not the contemporary 14-18kt western 0
India Thailand Sri China Pakistan
market. Furthermore, Pakistan lacks volume Lanka
production capacity.

Source: www.unstats.un.org

10
Due to lack of reliable market data, the need for a formal market survey has been highlighted in the strategy.
11
World Gold Council: www.gold.org
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 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

Pakistan’s vast natural resources and potential to emerge as a source of high value
gems and jewelry underlines the need for a competitive sector strategy that would
increase the economic and social value of the industry. With the wide geographic spread of
the industry across all provinces and rural and urban areas, development of the sector will have
significant impact on value addition and income generation. Consisting of mainly small and
medium entities, growth of this sector will also have positive externalities for social indicators
such as health and education.

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 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

3. Vision and Strategy for the Gems and Jewelry Industry

The Gems and Jewelry industry is working together across regions and activities to establish
itself as a high value added, internationally competitive, world-class hub for precious stone
cutting and jewelry manufacturing. The industry is pursuing this vision by up-grading mining and
gems and jewelry production processes through improved technology and skills, developing the
workforce to improve productivity across the supply chain, promoting R&D and diversifying the
product base to realign supply with local and international market needs, establishing and
implementing quality standards and ensuring an enabling policy environment.

The vision is focused on achieving three long-term objectives through five tracks of strategic
initiatives.

Strategic Initiatives Industry Objectives

 Raise value chain productivity Productivity growth: To ensure productivity

growth through skill development, technology
 Improve industry marketing and up-gradation, R&D and innovation
branding
Export Growth: To increase the level of
 Strengthen policies for increased exports though improved quality and
competitiveness marketing

 Invest in workforce development and Income Generation: To increase income

innovation Capacity earning opportunities by upgrading skill
levels, investment opportunities and sales
 Strengthen industry organization and
supporting institutions

The Strategy focuses on upgrading the entire value chain through the following initiatives:

Raise Value Chain Productivity

The first step in catalyzing growth in the gems and jewelry sector would be to improve the
competitiveness and productivity of the entire value chain including identification and
quantification of deposits, up-gradation of mining, gem processing and jewelry manufacturing
and establishment of formal trading infrastructure. The initiatives identified to increase value
chain productivity are:

Establish Common Facility Training and Manufacturing Centers (CFTMC) to upgrade

existing technology and processes in mining, gems processing and jewelry manufacturing;

Establish gem identification and certification laboratories to ensure better understanding of
gemstones and their properties;

Establish Gem exchange centers to facilitate linkages between buyers and sellers;

Conduct geological survey to identify new deposits and quantify the existing ones.

Improve Industry Marketing and Branding

Investments in productivity enhancement must be supported by concerted marketing efforts in

order to increase domestic and international sales. These efforts include quality assurance,
branding, strengthening the logistics chain and improving industry and market information. In
order to market its products more effectively, the industry plans to:
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 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

Introduce Assaying and Hallmarking to ensure quality of gold for the local as well as the
international market;

Conduct market survey to ascertain the size of the local market and to identify customer
trends and preferences;

Establish Pakistan as a world class jewelry supplier through a country campaign to position
the industry in the international market and establish recognition at trade shows.

Strengthen Policies for Increased Competitiveness

An enabling policy environment is critical for the success of an industry. Although the
government has recently introduced some positive policy initiatives due to the efforts of the
SWOG, additional reforms are needed in order to make the sector more competitive. The
following recommendations have been identified by the SWOG:

Initiate procurement of Gold through banks to facilitate availability of gold for manufacturers
for local market consumption as well as exports;

Allow Export/Import of Jewelry made from alternate metals to enable the local industry to
diversify its product base;

Reduce import duty on processed gemstones, and abolish sales and income tax on import
of rough and finished precious and semi precious gemstones to improve competitiveness of
the local industry;

Automate Documentation and Clearance Procedures to simplify compliance;

Reduce Exemption Limit for Cash Margin Requirement to encourage small and medium
exporters;

Abolish Infrastructural Cess on import of gold in Sindh to ensure a level-playing field for the
entire industry.

Invest in Workforce Development and Innovation Capacity

Long-term productivity and competitiveness can only be achieved through workforce

development and continuous innovation in the form of new products and processes. Investment
in human resources and research and development is therefore critical for developing an
industry’s productive and innovative capacity. The strategy calls for developing the gems and
jewelry workforce through establishing vocational training institutes, and upgrading existing
academic and research institutions to respond more effectively to the needs of the industry.
This involves creating critical linkages within the local value chain as well as with international
institutions. Key initiatives include:

Establish CFTMCs to upgrade the industry’s skill level (as mentioned above);

Establish new training centers/provide short-term courses in collaboration with international
institutions to provide world-class training opportunities;

Build the capacity of existing R&D and academic institutions to strengthen support
infrastructure.

Strengthen Industry Organization and Supporting Infrastructure

Due to lack of inclusive trade organizations, the gems and jewelry sector has identified the
need for an institutional platform to implement the strategy, provide marketing, research and
technical support to the sector, and continue the private-public sector dialogue to ensure policy
reforms.

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 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

The sector has also identified the need to strengthen logistical support for movement of
valuable goods and set up supporting institutions to ensure and certify quality of gemstones.
Core initiatives to strengthen industry organization and supporting infrastructure include:

Establish a permanent sector management company to ensure continued up-dation and

implementation of sector strategy;

Negotiate domestic and international cargo charges with PIA and other airlines to facilitate
movement of valuable goods at competitive rates and bring international couriers such as
Brinks, Securicor etc. to Pakistan.

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 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

4. Description of Strategic Initiatives

The vision and strategy outlined above will only be achieved through the collaboration and
systematic implementation of the leaders of the gems and jewelry industry. Each initiative
introduced above is outlined in more detail in this section.

4.1 Raise Value Chain Productivity

Establish Common Facility Training and Manufacturing Centers
The objective of the Common Facility Training and Manufacturing center is to provide common
training and manufacturing facilities for each of the three primary activities within the industry:
mining, gems processing and jewelry manufacturing.

Mining

With its abundant resources in precious and semi-precious gemstones, Pakistan can have a
significant competitive advantage in the gem and jewelry market. However, mining technology
and processes are rudimentary and unscientific resulting in significant wastage at the extraction
stage. Indiscriminate blasting damages the gemstone crystals and mineral specimen thus
drastically reducing their value. In majority of the mines basic machinery and equipment like
compressors and drill sets are not available. A large number of mines are currently inactive due
to lack of equipment.

The SWOG has highlighted a need for establishing Common Training and Facility Centers to
upgrade mining practices in Pakistan. The CFTMC will perform two major functions:

Training in mining techniques to reduce wastage and extract better quality gems;

Provision of machines for use of local miners. The CFTMC will have a common pool of
machines which will be leased out to miners on a need basis.

The overall objective of the CFTMC is to modernize mining practices, reduce wastage, improve
the quality of extracted gems, and thereby increasing the income of miners. Training will
improve the skills of those already in the mining industry and train new entrants, leading to an
increase in the overall productivity of workers and hence better quality output. Provision of
machines will have an immediate impact in terms of rehabilitation of inactive mines and
improved production of ones already functioning. The SWOG has highlighted the need for
mining CFTMCs in Balochistan, NWFP, Northern Areas and Tribal Areas.

Gem Processing

Due to lack of adequate processing infrastructure and skills, approximately 75 percent of

Pakistan’s exports are in unworked stones, representing a significant loss in value added (total
value of exports in 2003 was USD 3.7 million). Gems cutting and processing in Pakistan suffers
from obsolete technology, limited skills, and lack of precision.

Presently, there are more than 30,00012 people involved with the industry and there are around
50013 units involved in cutting and polishing of gemstones. Most of the gemstone processors

12
An Overview of the Gemstone Sector of Pakistan, Small and Medium Enterprise Development Authority (not
dated).
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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

are clustered in Karachi and Peshawar (Namak Mandi14), with smaller clusters in Lahore,
Quetta and Islamabad. Little value is gained by processing stones as cutting exists on a very
limited scale in small one to three person workshops.15 The prevailing technique is cutting for
yield to maximize weight, not value. The industry lacks expertise in precision and calibrated
cutting and is not up to date with the latest treatments. The skill level of the craftsmen engaged
in gems processing depends entirely on their experience and on what they have learned from
their families, mainly migrants from Jaipur, India. These local craftsmen are unaware of latest
technologies and international quality standards. Most of the stones are recut, once they reach
international markets. While the value addition which can be accrued through processing of
these stones (cutting and polishing) starts from 10 times and goes up to as high as 100 times.
This reduces the potential price a dealer is willing to pay to the Pakistani seller. Lapidary
training is being offered at the Gems and Gemological Institute of Pakistan at Peshawar.
Experienced dealers have voiced concerns over the institute’s limited resources and training
capacity.

The objective of the Gemstones CFTMC is to provide state of the art training in cutting,
polishing and treating gemstones as well as common processing facilities in order to enhance
the value of gemstones sold into the local and international markets. The CFTMC will train a
new generation of lapidarists in the latest processes thereby upgrading their skills and earning
potential. Training of cutters will be focused on international standards of calibration and new
enhancement techniques. The CFTMC will also provide a common processing facility that can
be used by gemstone dealers and exporters. The SWOG has highlighted the need for lapidary
training and common processing facilities in Quetta, Karachi, Peshawar, Northern Areas and
Tribal Areas.

The CFTMC would offer long-term training and short-term certificate courses. Long-term
courses would be for people who want to learn in-depth the different sort of cuts, faceting and
polishing. Short-term courses would be for experienced artisans to learn the latest techniques
of cutting and polishing. The CFTMC would also offer tailored courses and workshops in
response to specific industry, firm or group demand.

As a result of better processing facilities and skills, buyers will be able to place larger orders as
calibrated stones are preferred internationally. A common model lapidary facility will encourage
the emergence of other private modern workshops leading to an overall up-gradation in the
quality of stones and consequently have a direct impact on Pakistan’s export earnings.
Significant value addition can be accrued by precision cutting and good polishing, which can be
captured by gems exporters rather than foreign buyers. By enhancing the income levels of
those directly involved in mining and trading, it will have spin-off effects for the entire region.

Better technology and processes throughout the value chain can increase the price of stones
by ten times, and in some cases even more. The following projection demonstrates the
potential of the gemstone sector if this value addition is captured:

13
ibid.
14
market.
15
An Overview of the Gemstone Sector of Pakistan, Small and Medium Enterprise Development Authority (not
dated).
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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

Current Gemstone Export Value Expected Value Addition in

Five Years
Formal: US$ 3.6m (25 percent) US $ 100 million @ 10 times
Informal: US$ 6.4m (75 percent) value addition16
Total : US$ 10m
Source: UNSTATS, SWOG estimates

Jewelry Manufacturing

Jewelry manufacturing in Pakistan is done on 21kt and 22 kt gold, predominantly with traditional
tools and techniques. Although Pakistan’s craftsmen are considerably skilled in 22kt
manufacturing of stone studded gold jewelry, they lack access to modern technology and
techniques. In absence of proper training facilities, the age old ustaad-shagird (master-
apprentice) method of teaching is most popular. A few leading shops have their own little
training workshops where they teach students, who are later employed by the same shop
owners, but these training sessions are more on job training rather than formal teaching. In
such workshops, development is constrained due to lack of resources that a private owner can
spend to update himself and his workers on latest trends and techniques. The current working
conditions do not conform to international safety standards. There is lack of adequate
mechanism for exhaust of toxic vapors produced by the chemicals used in manufacturing. The
industry uses cadmium based solder which has been proven to be harmful to health.

The industry’s current manufacturing capabilities cannot cater to the technology-driven 14 to

18kt market in the US and Europe or other contemporary design oriented markets. Hence,
Pakistan’s current export potential is limited by its inability to produce high technology jewelry at
scale. Few exporters producing chain and bangles in large quantities invest in modern
production techniques and provide competitive pricing and good quality finishing. Even
domestically, the jewelry market is increasingly being driven by the latest international fashion
trends and new market segments. This requires the industry to upgrade its manufacturing
capacity in line with international demand as well as changing domestic preferences.17

The SWOG has highlighted the need for setting up CFTMCs for Jewelry in the major hubs 18of
jewelry manufacturing19. The CFTMCs will provide manufacturing training as well as a common
manufacturing facility equipped with modern technology. Training will be provided in the latest
techniques and processes. It will be focused on upgrading the skills for traditional jewelry
manufacturing, 22kt contemporary jewelry and high-technology 14 and 18 kt jewelry. The
common manufacturing facility is meant for the use of the industry, including current
manufacturers who want to move into high-technology manufacturing as well as potential
entrants into the industry.

A common training and manufacturing center will equip the industry with the latest techniques
and processes. It will provide artisans with the skills needed to upgrade current manufacturing
processes as well as train them to use modern technology for production of 14 and 18kt
jewelry. The CFTMC will train workers to use alternatives to cadmium based solders as well as
how to incorporate safety and health measures in their work practices. The common
manufacturing facility will provide an opportunity for existing manufacturers to diversify their
product offerings. It will also provide incubation support for new entrepreneurs, who would not
have the capital to invest in manufacturing infrastructure, thereby encouraging SME growth and

16
These forecasts are based on SWOG estimates assuming that the entire value chain, from mining to processing,
is upgraded.
17
A survey is planned to capture consumer preferences. This survey will be repeated on a periodic basis.
18
Karachi and Lahore.
19
CFTMCs will be open to individuals from all over Pakistan.
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employment generation. It is expected that training in the latest production techniques will allow
manufacturers to become internationally competitive and eventually lead to an increase in
exports. The overall impact would be to upgrade the industry’s skill level and facilitate its
transition into high technology production. The CFTMC will also serve as a catalyst to
encourage private businesses to invest in modern manufacturing facilities.

Note: Jewelry CFTMC and Gems CFTMC may be combined under the same facility with focus
on one or the other depending on need of the region. For example, the CFTMC in Lahore will
focus on jewelry training and manufacturing, whereas those in Quetta, Peshawar and Northern
Areas will focus on lapidary training and manufacturing. Karachi, being a major hub for jewelry
manufacturing as well as gems trading will have a complete CFTMC for both jewelry and gems.
The SWOG plans to work towards ensuring establishment of five CFTMCs over a five year
period. These will be in Karachi, Lahore, Quetta, Peshawar and Northern Areas. It is estimated
that approximately 800 people will be trained in the CFTMC in Karachi, 600 in Lahore, 400 in
Peshawar, 200 in Quetta and 20 in FATA each year. The CFTMCs would offer short-term
courses for existing experienced craftsman, long-term training courses for new entrants and
customized training to individual firms.

Establish Gem identification and Certification Labs

Due to lack of adequate gem identification facilities, there is limited understanding of
gemstones and their properties often leading to underselling of precious stones as well as lack
of buyer confidence. To improve upon the quality of the industry, introduction of standards in
the form certification of gems is essential. Currently, there are four gem identification labs in
Pakistan: GGIP located in Peshawar, NWFP, two in Karachi and one in Islamabad. GGIP and
the one in Islamabad do not issue certificates. According to industry sources these labs have
limited identification capacity.

The strategy calls for setting up gem identification and certification labs to provide international
scientific standards of gem testing and identification. The labs will perform the following
functions:

Identification of new colored gemstones and provide examination reports;

Testing and certification;

Grading reports for diamonds (possibly to be implemented at a later stage as the need is
created).

The SWOG has also highlighted the need for gems identification and certification labs in
Karachi, Peshawar, Quetta, and Northern Areas.

Gem identification and certification labs will stimulate local sales and exports as well as improve
profit margins as a greater number of people will have confidence in product quality. Stone
studded Pakistani jewelry will get better prices internationally. The industry as a whole will
benefit and move to a higher level of efficiency as parties will have access to impartial
professional information about the nature and value of their sales transactions. The standards
within the trade will improve as more and more gemstones are correctly identified and
described. Quality assurance will reduce transaction costs along the value chain and allow
manufacturers and retailers to improve their profits by using certification and grading
information to develop consumers’ perception about color stones as a worthwhile investment.
This will upgrade Pakistan’s reputation in the international market as a source of quality gems.
The establishment of a laboratory will demonstrate national intent to improve quality standards.
It will also provide an institutional mechanism for consumer protection as the consumer will be
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able to independently verify his/her purchases. The gemologists employed in the laboratory will
further stimulate gemological awareness within the trade which will help in increasing the
knowledge of the entire sector.

Establish Gem Exchange Centers

There is currently an absence of any formal trading infrastructure due to which miners and
dealers resort to temporary locations to conduct their transactions. There are several informal
trading centers in Pakistan. Namak Mandi in Peshawar is one the main trading hubs in the
country. The second market place is Quetta in Balochistan.

Formal gem exchange centers are needed in various locations in Pakistan (Quetta, Peshawar,
and Karachi). These exchanges will be open to retailers as well as wholesalers.

The objectives of establishing exchanges are as follows:

Facilitate access to market;

Provide competitive sourcing to buyers;

Provide visibility to suppliers without marketing expenditures;

Improve cooperation between suppliers;

Enhance profitability by lowering transaction costs of suppliers;

Discourage informal trade.

Note: It has been recommended that gems CFTMCs, gem labs and gem exchange centers be
established under common infrastructure where possible. This integrated approach of providing
all the services under one roof will reduce costs and increase cooperation amongst the different
participants of the value chain.

Conduct Geological Survey

At present, there is no scientific quantification of existing and potential deposits in Balochistan.
The geological survey for gem deposits in NWFP and Northern Areas was conducted
approximately 20 years ago. Furthermore, the recent earthquake may have altered the
geological composition of these regions. The Gems and Jewelry SWOG has identified the need
to conduct a geological survey of all three areas as one of its main strategic initiatives to
quantify existing deposits and identify potential mining locations. This is a crucial requirement if
Pakistan is to develop and sustain competitiveness in the long-run. Determining the size and
nature of a deposit is a pre-requisite for effective allocation of resources:

If the deposit is small and high-grade than demand will encourage a small industry with low
to medium machinery and premium margin strategy;

Where the deposits are large, low-value yet in great demand, investment should focus on
efficient, automated, engineering driven mining and processing since time-to-market and
cost will determine market success;

Innovation, a key component of branding and sustainable development, will be generated
as the discovery and branding of new types of stones provides opportunities to strengthen
Pakistan’s positioning as a unique source, and help to improve margins along the value
chain. Tanzanite is a prime example of how sourcing and distribution benefited from
controlling supply to position this stone as a premium branded offering.

The strategy implementing body will lobby with the Pakistan Geological Survey and possibly
external resources to conduct the survey. Once GSP decides to undertake the survey, the

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implementing body will work closely with GSP to define specifically what is required from the
survey. It has been identified that each mine’s deposit potential needs to be verified along with
information on how much has been depleted. The implementing body will also work with GSP
to assist them in project funding and technical support.

The Geological Survey will lead to greater exploration and exploitation of Pakistan’s gemstone
resources by assisting the mining industry in identifying potential investment opportunities. It
will also assist in attracting more investment in mining leading to an increase in employment
opportunities and up-gradation of mining technology and processes.

4.2 Improve Industry Marketing and Branding

Establish Assaying and Hallmarking

Hallmarking refers to marking a piece of jewelry to certify the purity of the metal. Pakistan
currently lacks an institutional mechanism for certification of karatage for jewelry, consequently
jewelry sold in the local market is at the risk of being under-karated. In addition the retailer who
sells jewelry which meets the required standards of fineness of gold is at a risk of unfair
competition by competitors who under-carat and can therefore sell at a lower price. In Asia
Hallmarking is currently practiced in Singapore, Sri Lanka, Hong Kong, Malaysia, India,
Uzbekistan and Dubai20. In order to improve the quality of the product sold for domestic and
export consumption, the SWOG has identified the introduction of Assaying and Hallmarking as
one of the main strategic initiatives.

It has been decided that a voluntary system of Hallmarking restricted to gold would be the first
step and should be initiated by constituting a Controlling Body whose role would be to set the
standards, rules and regulations under which a Hallmarking Scheme would operate. The Body
would then appoint/approve individual Assaying and Hallmarking centers and would have the
responsibility for operating the scheme and regulating the centers. Standards of gold fineness
will need to be established. Another important step is to lobby for an Act of Parliament to give
legal status to the Hallmarking and Controlling Body and to institute a Hallmarking Act.

Publicity is a particularly important aspect of establishing Hallmarking. Publicity will create

awareness amongst consumers who will demand hallmarked jewelry from retailers. Pivotal in
this respect are the jewelers whose support for Hallmarking is essential. It is the jewelers who
will have to ensure that their jewelry contains the necessary minimum quantity of gold. The
jeweler will have to pay to register their mark and become licensed and pay for each jewelry
item to be hallmarked. Each item will be marked with a series of marks including the Gems and
Jewelry Pakistan21 mark representing the entire industry. This is part of the overall branding
strategy. It will also be the jeweler’s responsibility to educate the customer and ensure that
customers understand the significance of Hallmarking and begin to look for Hallmarked jewelry.
In this respect, a campaign highlighting the advantages of Hallmarking for both jewelers as well
as consumers will be instrumental to the success of the project.

A typical center would conduct both Assaying (the analysis of an individual sample of gold
article from a customer) and Hallmarking (the Assaying and Hallmarking of batches of finished
items submitted by licensed/registered jewelers). The SWOG has highlighted the need for

20
Others include Austria, Belgium, Cyprus, Denmark, Estonia, Finland, Germany, Greece, Italy, Latvia,
Luxembourg, Malta, Netherlands, Norway, Slovenia, Sweden, Switzerland, and United Kingdom.
21
As part of the branding strategy, a national brand name, Gems & Jewelry Pakistan, has been launched.
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establishing Assaying and Hallmarking centers in Karachi and Lahore22.

It is believed that Hallmarking will build consumer confidence and convince the international
market that Pakistan is committed to providing quality products. It will protect consumers
against under-karatage, and by guaranteeing purity, increase the level of domestic sales and
exports.

Conduct Market Survey

There is currently a severe lack of reliable information on the gems and jewelry industry. Due to
the fragmented nature of the sector and inactive trade organizations, market and industry data
has never been collected and compiled in a systematic manner. Lack of knowledge about the
market constrains the development of marketing strategies of the local industry The SWOG has
identified a need to conduct a scientific market survey to assess the size of the domestic
market as well as to identify consumer trends and preferences.

A market research organization will be engaged to conduct the survey. The SWOG will interact
closely with the organization to define the variables. These may include:

Size of market and its growth potential;

End Consumer Types;

Consumer trends in terms of values, preferences, habits and attitudes;

Product Quality Standards –design, manufacture, raw materials, etc;

Imports/Exports;

Present manufacturers, wholesalers and retailers;

Selling/buying patterns and seasons, service expectations.

The survey will be repeated periodically to ensure up-dation of information.

Market information will help the industry identify market opportunities and diversify their
products accordingly. With rapidly changing consumer trends, it is crucial that market
information is taken into account when planning firm strategies. The survey will also provide
basic market information to the SWOG to facilitate further strategy development.

Develop Branding Strategy

The market in Pakistan is driven by 22 kt wedding jewelry irrespective of social class and
income level. Studded with colored stones, Pakistani designs are distinctly different from Indian
offerings and desired by Pakistani and Indian expatriate markets alike. As the market is mainly
driven by wedding jewelry and is based on established retail relationships, local manufacturers
and retailers invest very little on branding and marketing. Due to predominance of traditional
tastes, there is little experimentation with new designs. This is also limited by lack of
understanding of trends in consumer preferences, underdeveloped designing capabilities and
low technology manufacturing. A niche export market for Pakistani designs has been developed
by exporting traditional jewelry to retailers selling to Pakistani and Indian Nationals in Canada,
USA and Britain who still favor traditional jewelry. Compared to regional competitors, Pakistan’s
gems and jewelry exports have been negligible23. There has been little effort to effectively
promote Pakistan’s jewelry in the international market. Underdeveloped exports are also due to
lack of high volume, high technology manufacturing and lack of alignment with international

22
Mr. Peter Raw, Hallmarking expert, in his recent visit to Pakistan recommended setting up Assaying centers prior
to establishment of Hallmarking centers.
23
See table 3.3.1 on page 42.
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design and quality requirements. Product development/design selection needs to be based on

a segmented analysis of export customers’ needs.

The branding strategy will strive to upgrade the industry’s marketing and branding efforts for the
domestic as well as international market. For the local market, manufacturers and retailers will
be facilitated in finding new consumer segments, diversifying their product base and capitalizing
on higher margin market opportunities. This will be implemented by upgrading design and
manufacturing capabilities of the industry. Local institutions will be assisted in curriculum
development. CFTMCs will facilitate skill development and up-gradation of technology, enabling
the industry to move into more sophisticated production and diversifying their existing product
base.

In order to enter the international market, Pakistan needs to establish itself as a source of high
value gemstones and quality finished jewelry. This requires a distinct voice and a strong
national campaign. The strategy called for a national branding initiative under the umbrella of
Gems and Jewelry Pakistan. The brand was launched at the Gem and Jewelry Fair held in
Bangkok on September 14 to September 19, 2005. This was the first time that Pakistan
exhibited as a well organized integrated group with a branded presentation. The show resulted
in the following:

Sales orders in excess of USD 4 million (representing more than 10 percent of Pakistan’s
total jewelry sales in 2004);

Linkages with leading training institutes: GIA and AIGS as well as prominent manufacturing
companies;

Initial repositioning of Pakistan’s Gems and Jewelry industry in the international market.

Consistent participation in international trade shows has been highlighted as an important

requirement for sustaining Pakistan’s visibility in the international market. The SWOG also
plans to conduct two domestic shows annually under the umbrella of Gems and Jewelry
Pakistan. In addition, a Pakistan Gems and Jewelry introductory brochure and website have
been developed.

Increased marketing efforts will lead to development of new market segments leading to an
increase in domestic sales as well as export earnings. Considering that participation in the
Thailand show resulted in sales of over USD 4 million, the potential for Pakistan to penetrate
the international market with improved branding and marketing efforts is tremendous.
Continuous re-enforcement of Gems and Jewelry Pakistan as a brand will transform Pakistan’s
position in the international market. Even domestically, consumer perceptions will change as
fashion becomes the new driver of demand. The customer-vendor relationship will develop
away from a largely traditional, low-margin exchange of goods to an increasingly diverse and
differentiated purchasing relationship. Opportunities will emerge for specialized designer
manufacturing outlets, giving entrepreneurial impetus to the growing number of ambitious
graduates, independent artists, which will emerge from newly implemented training programs.
New retail opportunities will create additional employment and promote the development of
innovation in design and services.

4.3 Strengthen Policies for Increased Competitiveness

In order to ensure an enabling policy environment, a number of reforms have been
recommended by the SWOG. To date the following have been approved:

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Time required to export jewelry made from imported gold has been increased from 90 to
180 days. Similarly, time required to remit proceeds from export of jewelry has been
doubled from 120 to 240 days;

The Custom Valuation Committee that controlled clearance of gems and jewelry
consignments before export has been abolished;

A scheme is being developed in consultation with the State Bank, Pakistan Bankers
Association, commercial banks and jewelry exporters to enable exporters to import gold by
utilizing financing from private banks under a collateral arrangement;

Import of machinery, with zero rated customs duty and sales tax for the entire trade;

The Gems and Jewelry sector has been granted industry status;

PSFD has been awarded a charter by the Federal Government to award degrees to
students, recognized by HEC.

A number of additional reforms have been proposed to further amend the gems and jewelry
policy framework. The SWOG’s role will be to lobby with the government to undertake the
following:

Procurement of Gold through Banks

Currently there are only three bullion importers in Pakistan: ARY, Pardesi and Tessori. ARY
and Tessori have offices only in Karachi, hence gold purchased from them has to be moved to
other areas personally by the jewelers which is a source of both risk and inconvenience for
manufacturers and adds to the cost of production.

An exporter under Import and Export of Gold, Gold Jewelry and Gemstones Order 2001, is
allowed to import gold equal to gold contents used in the jewelry being exported without duty. It
is suggested that manufacturers of jewelry, for both the local market as well as export
purposes, be allowed procurement of gold from banks. This is currently in practice in India and
China. Banks such as the Bank of India, Standard Chartered, Nova Scotia, Allahbad Bank and
many others are licensed to import gold by the government.

Availability of gold through banks will ensure stable and risk-free supply of gold as they have a
national network of branches. It will be easier for the government to determine the exact
quantity of gold being imported. It will also help jewelers to hedge against price risk and
increase business opportunities for banks.

Export/Import of Jewelry made from alternate metals

International trends are increasingly moving towards alternate metals such as silver, steel and
platinum. Import and Export of Gold, Gold Jewelry and Gemstones Order 2001, is silent about
jewelry articles made from material other than gold. Hence there is no export of jewelry made
from these metals from Pakistan.24

It is suggested that appropriate amendments in the above mentioned order be made to include
procedures for export/import of jewelry made of alternate metals. This will provide incentives for
local manufacturers to diversify their product offerings for both the local as well as the
international market.

Increased use of alternate metals and diversification of the product base in line with
international trends will increase the level of domestic sales and exports. Since alternate

24
35% of the jewelry exported from Thailand is in silver.
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metals are often cheaper than gold, export earnings can be increased with less investment.
Lower raw material cost will also allow smaller entrepreneurs to enter the market.

Reduction in taxes for import of finished precious and semi precious

gemstones
Subject to conditions under SRO 567(1)/2005, the Federal Government has allowed import of
diamonds and rough gemstones at 0 percent import duty. According to this SRO, a designated
authority (one who has permission from the Ministry of Commerce) can import these items free
of import duty. Import of finished precious and semi-precious stones is allowed at 5 percent
import duty. However, sales tax of 15 percent and income tax of 6 percent are imposed on
import of both rough and finished gemstones. Special concessions are allowed for exporters of
jewelry and gemstones; they are allowed to import up to 70 percent of the f.o.b value of
gemstones used in embedded or studded gold jewelry or loose gemstones actually exported at
0 percent duty and other taxes.

It is proposed by the industry that sales and income tax on import of rough and finished stones
be declared zero-rated. It is also proposed that the 5 percent duty on finished stones be
reduced.

Tax-free import of finished stones will result in greater availability of precious and semi-precious
gemstones for the local manufacturing industry at competitive prices, making the industry more
competitive locally as well as internationally. It will also encourage legal import of gemstones
leading to revenue generation and accurate documentation of trade. Availability of cheaper
finished stones will raise the quality standards of the industry, and consequently improve the
level of gemstone processing in the country.

Automated Documentation and Clearance Procedures

Presently, exporters and importers are required to fill out a number of detailed documents with
the Exports Promotion Bureau and the Customs Department. These formalities delay the
transfer of goods and consequently affect trade performance. Rapidly changing international
demand patterns require exporters to be prompt and flexible; lengthy documentation
requirements restrict their ability to respond efficiently. In addition, trade data is delayed and
often misrepresentative. In order to encourage exports, regional competitors such as India and
Sri Lanka have simplified their documentation and approval procedures.

The SWOG proposes that this traditional way of documentation may be converted into an
automated system along with limited documentation requirements as mentioned in S.R.O.
131(KE)/96, dated the 22nd November, 1996.

The proposed reform will allow faster access to the international market, thereby allowing the
industry to become more responsive to changing market trends. Efficient and speedy clearance
of imported goods will increase the productivity of the local industry. Automated procedures will
also result in greater efficiency in information management and documentation.

Reduction in Exemption Limit for Cash Margin Requirement

According to the existing Entrustment Scheme stated in the Export and Import Procedure for
Gold, Gold Jewelry and Gemstones Order 2001, a 1 percent cash margin is required to be
submitted with to the bank for value of Gold received from the foreign buyer as advance export
proceed. To encourage exports, exporters with average exports of Rs. 50 million or above in
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February 2006

the preceding three years are exempted from this requirement. The current rule discourages
small and medium sized exporters from entering the market. There are very few exporters who
are able to meet the criteria hence the beneficiaries of this rule are limited.

The SWOG proposes that the Entrustment Scheme be amended to reduce the exemption limit
for submission of cash margin.

The amendment will encourage small and medium sized exporters leading to an increase in
exports and foreign exchange earnings.

Abolishment of Infrastructural Cess on transit of goods in Sindh

The Sindh government has imposed an infrastructural cess of .125 percent on gold entering the
province. This tax is imposed on gold imported for local consumption as well as gold imported
under the Entitlement Scheme for export purposes. Arrears for the past five years have also
been charged to jewelry exporters, which has imposed a considerable burden on them.
Considering that no such tax is levied in any other province and that a majority of jewelry
exports are from Karachi, the tax serves as a significant disincentive for Karachi-based
exporters of jewelry. Furthermore, gold that is imported against exports is a remittance, and not
for local consumption. Export figures of 2004-5 and 2003-4 reveal a significant decline in the
official export of gold jewelry from Pakistan. From July 2003 to May 2004, the Export Promotion
Bureau reported jewelry exports of USD 25.8 million, where as for July 2004 to May 2005, they
were reported at USD 19.9 million. According to industry representatives, this decline is mainly
due to the infrastructural cess.

In the interest of ensuring consistent policies throughout the country and to create a level
playing field for all industry stakeholders, the SWOG recommends that the infrastructural cess
on gold that is imported as entitlement against exports be abolished. Since a majority of the
revenue is generated from import of gold meant for local sales, the loss in revenue from this
amendment would not be significant.

The proposed reform will make the exporter more competitive and have a direct impact on the
level of exports from Karachi. It will also re-enforce the provincial Government’s commitment to
ensuring consistent, business friendly economic policies.

4.4 Invest in Workforce Development and Innovation Capacity

Develop linkages with international training institutes
Pakistan offers limited gemology training opportunities. There is currently one Gem cutting and
Gemological Institute in Pakistan located in Peshawar. According to industry sources it has a
limited budget and a weak faculty. Consequently, it imparts very basic gemological training.
Lack of understanding of gemstones and their properties limits Pakistan’s ability to enter the
international market.

Establishing linkages with international gemological institutes has been highlighted as an

important initiative to upgrade the current level of gemological training and jewelry
manufacturing in Pakistan. The Asian Institute of Gemological Sciences has shown interest in
setting up an affiliate gemology training facility in Pakistan. They will offer their accredited
Gemologist Diploma. Students will also be able to take individual courses such as Diamond
Grading and Pricing, Colored Stone Grading and Pricing, Synthetic and Treated Gem
Identification, Gem Identification, etc. The Gemological Institute of America (Thailand Campus)
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February 2006

has agreed to offer the Distance Learning Graduate Gemologist Diploma in Pakistan. In
addition they have offered to administer courses in the following areas:

1. Gem Identification (5 days);

2. Diamond Grading (5 days);
3. Colored Stone Grading (3 days).

The above courses will provide training for 20 students each. The number of courses
administered in a year will be determined by the initial response.

Affiliation with world class international institutes will not only upgrade the skill level in the
country but also elevate Pakistan’s reputation in the international gems and jewelry market.
New treatments and synthetics are being developed regularly. Competent gemological training
will transfer this knowledge and expertise to the local industry. Trainees will gain access to
international networks which will expand professional and business opportunities for them. Skill
up-gradation will raise the productivity of the local gems and jewelry industry, stimulate
entrepreneurship, generate employment as well as increase the quantity and value of exports.

Build the capacity of existing R&D and training institutes

Pakistan has had limited exposure to modern jewelry designing and manufacturing. Indigenous
jewelry designers are normally trained by retail shop owners who are conservative in taste,
therefore the designer’s task is never a truly creative one. The designs produced are often
copied from foreign catalogues with slight modifications by the buyer.

The Beaconhouse National University has recently launched a degree in Jewelry Design. With
the assistance of the SWOG, the Pakistan School of Fashion Design successfully held a one
month course in jewellery design and manufacturing for 25 students in the summer of 2005.
Two female students were selected from this course to participate in a six-month training
programme at GIA Thailand. PSFD is planning to introduce a degree program in jewelry
designing and manufacturing. Upgrading the capacity of these institutes to impart design and
manufacturing training has been identified as one of the main initiatives by the Gems and
Jewelry SWOG.

There are currently no linkages between R&D institutes, technical support institutes and the
industry. This inhibits technical up-gradation and innovation.

The initiative will be implemented through the following efforts:

Facilitating linkages between the industry and training institutes in order to align training
programs with the industry’s needs;

Facilitating access to international experts to assist in curriculum and faculty development;

Incorporation of Jewelry Computer Aided Design (CAD) and Computer Aided Manufacturing
(LUMS has shown willingness to develop CAD/CAM) into the syllabi of BNU and PSDF;

The capacity of existing R&D and technical support institutions (PCSIR, TUSDEC and
PINTECH) will be built in accordance with industry needs. Linkages will be established
between these institutes and the industry.

As the capacity of local universities and training institutes develops, they will produce a new
breed of designers and artisans. This will help the industry diversify its product base and enter
new market segments, both domestic and international. It will also stimulate entrepreneurship
and consequently lead to employment generation.

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4.5 Strengthen Industry Organization and Supporting Infrastructure

Establish a permanent Industry Organization to implement the Industry
Strategy
Although the process of strategy formulation to improve industrial competitiveness is taking
place under the Strategy Working Group, a formal mechanism is needed to implement the
strategy. In the absence of functional trade associations, the need for a co-coordinating
platform is all the more important in order to develop a means for continuous up-gradation.

The SWOG has highlighted the need for creating a Sector Management Company to implement
the strategy. The company will carry the name of the SWOG’s logo and hallmark: Gems and
Jewelry Pakistan. It will perform the following functions:

Co-ordinate to implement the initiatives laid out in the strategy;

Develop new initiatives;

Support research and development;

Propose policy reforms and lobby with the government to ensure implementation;

Provide technical and marketing support to the industry;

Collect and disseminate industry data;

Co-ordinate intra-industry and international linkages.

The Sector Management Company will provide the industry with an institutional platform to
carry out strategy formulation and implementation. It will enable the industry to continue its
dialogue with the public sector, strengthen linkages within the value chain, and help the industry
as well as individual companies to develop and implement growth strategies. A tentative
business model for the company is attached as a reference document.

Improve Logistical Support

Currently PIA and Swiss Air are the only airlines providing international freight service for export
of valuable goods. PIA’s charges are significantly higher than Swiss Air. PIA charges 25
percent of route fare from exporters since the consignment is carried by an escort. Other
airlines use poly-fiber safes hence their costs are much lower. As a result, it is uneconomical
for exporters to send their goods through PIA. The Swiss Air facility, however, is only available
from Karachi. PIA also increased their domestic freight charges from .5 percent of the value of
merchandise to 3 percent in February 2004. This has forced most firms to switch to alternate
means of transportation.

The SWOG proposes a revision in PIA’s freight charges for both national and international
routes. The SWOG has suggested that charges be made more competitive compared to other
airlines in line with IATA rules. The SWOG has already submitted the specifications of the poly-
fiber safe used by other airlines so that PIA can consider this as an alternative. It is also
requested that PIA should reduce their local freight charges from 3 percent of value to the
original 0.5 percent. Negotiations are underway with FedEx to initiate valuable cargo services.

Reduction in freight charges and courier cargo services will encourage movement of goods
thereby leading to an increase in the overall level of exports. According to SWOG estimates,
reduction in freight charges will significantly increase domestic business from the industry for
PIA. It will also facilitate domestic movement of goods resulting in better linkages within the
value chain.

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5. Prioritization and Sequencing of Initiatives

In order to ensure successful implementation of the strategy and in view of limited resources,
the SWOG has identified the following initiatives for immediate implementation. Preparatory
work on some of these initiatives is underway.

Pilot Projects:

1. CFTMCs: Negotiations are underway with TUSDEC25 to set up CFTMC(s). Initially CFTMCs
will be established in Lahore, Quetta, Peshawar, Karachi and Northern Areas. Lahore will
be focused on jewelry manufacturing, Peshawar and Quetta on gem processing and
lapidary training, Northern Areas on mining, gem processing and lapidary training, and
Karachi will have both elements.

2. Gem Identification and Certification Labs: MOST26 has shown willingness to establish model
gem labs in two areas selecting from Karachi, Peshawar, Quetta, Northern Areas and
Lahore to assist the private sector. The Geological survey of Pakistan may also support the
initiative. A concept paper has been prepared and submitted to PNAC27 which is acting as
the focal point on behalf of MOST28 for projects related to testing labs for standardization
and quality control.

3. Hallmarking: PCSIR is establishing model Hallmarking and Assaying facilities in Lahore.

Private-sector stakeholder(s) working to establish assaying center(s) in Karachi. Peter Raw,
an international Assaying/Hallmarking expert visited Pakistan in Feb'2006 to assist Gems
and Jewelry SWOG in introducing Hallmarking and Assaying in Pakistan. As per his
proposal, the SWOG will be working on writing a draft Hallmarking Act, constituting a
controlling body for hallmarking (Pakistan Hallmarking Council) and assisting industry in
setting up one or more Assaying centers (which ultimately may become Hallmarking
agencies in Pakistan). A steering group has been formed from among SWOG members that
will coordinate the above actions.

4. Branding and Marketing: Negotiations will be initiated with management institutions to

prepare a framework for market survey. The SWOG has identified a number trade shows
(IIJS Show in India for 2006 and 2007, Thailand for 2006 and 2007, Bahrain for 2006 and
2007, and Hong Kong for 200729) and has initiated planning for participation at these trade
shows.

5. Design and Gemology Institutes: Negotiations are underway for AIGS to set up an affiliate
Gemology Training Institute in Pakistan and for GIA to give short-term courses... AIGS
representatives have visited Pakistan to undertake need and market assessment. A
memorandum of understanding has been agreed in principle between the SWOG and
AIGS.

6. Regulatory Reforms: Proposal for second generation reforms to be submitted to the

Government.

25
Technology Up-gradation and Skill Development Company.
26
Ministry of Science and Technology.
27
Pakistan National Accreditation Council.
28
Ministry of Science and Technology.
29
It has been decided that Pakistan would participate in the Hong Kong Show in 2007 based on the premise that it
will give the industry time to upgrade its product base in line with international standards.
26
 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

7. Logistical Support: Negotiations are underway with PIA and other domestic airlines to
provide valuable cargo services at competitive prices and with FedEx to initiate valuable
courier service

8. Workforce Needs Assessment: A detailed workforce needs assessment will be conducted

by industry experts.

Along with preparatory work on the above pilot projects, critical linkages are being developed
between academic and research institutions and the industry to upgrade the capacity of these
supporting institutions to respond to industry needs more effectively. Linkages are also being
developed between local academic institutes and international organizations and technical
support to assist with curriculum and faculty development.

As work progresses on the priority initiatives, the SWOG will then be in a position to address
the remaining projects as well as identify additional initiatives. In the medium term, the SWOG
plans to work towards the following:

Establish CFTMC in FATA;

Conduct a geological survey.

The above list of initiatives is by no means exhaustive. It is expected that as the sector
proceeds with the implementation of its strategy, new challenges and opportunities will be
identified.

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 Pakistan Gems and Jewelry Strategic Working Group
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6. Expected Impact and Conclusion

The strategy is expected to have significant impact on value addition, productivity, income
levels and exports. It is intended to reposition the gems and jewelry industry from a cost-based
sector to a high value-added, competitive brand in the global market.

The overall impact of the strategy can be summarized as follows:

Up-gradation of technology and processes;

Up-gradation of skills;

Higher productivity of the workforce leading to higher paying jobs;

Employment generation due to new investments in gem processing and jewelry
manufacturing;

Availability of high-value, finished gemstones for the domestic and international market

Diversification of the product base;

Increase in domestic sales and exports;

Presence of an institutional public-private partnership for continuous industry up-gradation
(Sector Management Company);

Strengthened linkages within the value chain as well as between the industry and training
institutions and research and development organizations (local and international);

Economic development and poverty alleviation in less developed regions such as
Balochistan, NWFP, FATA and FANA through improved mining and gem processing, higher
employment and higher export earnings.

Expected Impact on the Value Chain

The main driver of growth will be the value added in gems and jewelry manufacturing. It is
forecasted that exports of finished gemstones will increase, wastage will reduce and more local
gemstones will be used in jewelry and exported with greater value added. Similarly, in jewelry,
formal trade will increase, production time and wastage will decrease and value addition will
increase. The following table demonstrates the impact on the value chain on gems and jewelry
over the next five years. The projections assume that the priority initiatives will be carried out
leading to a higher level of skills, improved technology and processes, higher quality products
and better branding/marketing.

Table 6.1: Expected Impact on the Gems and Jewelry Value Chain

Current - 2005 Projected - 2010

Gems: Gems:

Old Mining Methods
New Mining methods/Imports

Rough exports: 75% of total mined
Rough exports: 40% of total mined

Processed: 25%
Processed: 60%

Wastage: 60% of processed
Wastage: 30% of processed

Exported: 36% of processed
Exported: 50% of processed

Used in jewelry manufacturing: 4% of processed
Used in jewelry manufacturing: 20%

Value addition: 2-5 times of processed

Value addition: 5-10 times
Jewelry: Jewelry:

Formal Import: 30%
Formal Import: 65%

Informal Import: 50%
Informal Import: 10%

Recycled Gold Used: 20%
Recycled Gold Used: 25%

Production Time: 15days
Production Time: 5days

Overall Losses: 10%
Overall Losses: 1.5-2%

Value Addition: 10-20%
Value Addition: 20-30%
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 Pakistan Gems and Jewelry Strategic Working Group
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Value addition in gems will come from a higher percentage of gems being processed in
Pakistan and exported as finished products and used in local jewelry manufacturing. Value
addition in jewelry manufacturing will result from better designs, improved productivity, reduced
wastage and better retailing and marketing.

The following two diagrams demonstrate the current and projected value chain analysis for
gems:

Figure 6.1: Current Gems Value Chain Analysis

75%
Rough Export/Informal Trade

Processed Stone Exported

36% of processed stones

Mining
Stone Studded Jewelry
Exported
5% V.A: 15%

Lapidary
V.A:200-500%
25%
4% of processed stones

Used in
Jewelry
95% Stone Studded Jewelry
Locally Used
V.A: 20%

Waste
60%

Figure 6.2: Projected Gems Value Chain Analysis for 2010

40%
Rough Export/Inform al Trade

P rocessed S tone Exported

50% of processed stones

Im proved
M ining
S tone S tud ded Jew elry
E xported
30% V .A: 50%

Lapidary
V.A:500-1000 %
60% 20% of processed stones

Used in
Jew elry
70 % S tone S tud ded Jew elry
Locally Used
V .A: 30%

W aste
30%

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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

With the implementation of the strategy, it is expected that the jewelry production process will
become more mechanized and efficient. New high technology will be introduced in designing,
molding/casting and finishing.

Table 6.2: Comparative Jewelry Production Analysis

Current-2005 Projected-2010
Production Process: Production Process:

Traditional Design
Computer Assisted Design (CAD)

Pattern Design
Pattern Design (CAM)

Sheet Drawing
Sheet Drawing

Casting/Handcrafting
Casting (Modern large casting units

High Quality Cast Products need lesser to be established in CFTMCs)
polish; low Production cost
High Quality Cast Products need

Finishing lesser polish; low Production cost

Polishing
Finishing

Studding (Gems)
Polishing

Final Product
Studding (Gems)

Final Product

Expected Impact on the Economy

The CFTMCs will raise the level and number of skilled artisans. The SWOG also estimates that
total exports of the sector will increase to 200 million in 2010 and 600 million in 2015.

Table 6.3: Expected Impact on Skill level and Exports

2004 2010 2015

No. of artisans/miners/gem cutters/ 100,000 103,115 110,615

professionals

Total trained 6,230 15,000

From the existing workforce 3,115 7,500

New Entrants 3,115 7,500

Gems and Jewelry Exports (USD million) 28 200 600

Assumption: This is based on the assumption that five CFTMCs will be operational by 2010 and 50% of the total
trained workers will be from amongst the existing artisans, while the remaining will be new entrants. The total
artisan/miners/gem cutters/professionals increase by the number of new entrants.

30
 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

Appendix
1. Overall Summary of Industry Competitiveness:
Porter Diamond
To understand the current state of the competitiveness of Pakistan’s gems and jewelry industry,
this study uses the Competitiveness Diamond, often referred to as the Porter Diamond. The
economic theory of the Competitiveness Diamond has been validated by numerous analytical
and case studies and is now used by industries and governments worldwide to assess industry
competitiveness and to develop strategies for improving competitiveness. It is structured
around four pillars:

1. Factor (input) conditions: skilled labor, infrastructure, assets and resources;

2. Demand conditions: size and type of accessible demand;
3. Related / supporting Industries: presence of supplier and supporting industries;
4. Context for firm strategy and rivalry: conditions for conducting business.

The Porter Diamond framework demonstrates that the current weaknesses in Pakistan’s factor
conditions and related and supporting industries are weighing down productivity. Although
strong local and international demand offer tremendous opportunities for growth, low levels of
technology and skills, limited innovation, and poor marketing and branding inhibit the industry
from developing.

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Context for Firm

Strategy and
Rivalry

+ Local rivalry drives competition

+ Good relations with labor
+ Improving public-private dialogue
+ Beginning stage of cooperation among the
industry
- Low sophistication in company strategies, most
product and price offerings are gold + fixed
labor fee
- Companies are following the same strategies
with little differentiation
- Price based competition
- Oligopoly on imported gold
- Protected market: high duty on imported
Factor (Input) finished jewelry and processed gems
- Reactive strategies rather than proactive Demand
Conditions
- Limited marketing and distribution strategies for Conditions
international markets

+ Exposure to sophisticated
+ Availability of large variety of consumers
colored stones + Strong Local demand
+ Low cost labor + International trends focused on
+ Unique skill of fabrication for ethnic jewelry and colored stones
region - Limited knowledge of
+ Artisan Jewelry international customer trends and
- Low quality gem cutting preferences
- Basic design - Limited product innovation to
- Limited technology Related and
Supporting adapt to changing urban
- Limited skills in modern preferences
technology and processes Industries
- Much of the demand still driven
by wedding jewelry
- Most consumers focused on cost
and view jewelry as an investment
+ Linkages between academia and
industry developing
- Low quality suppliers
- Inefficient financing schemes
- Lack of training institutions
- Training mainly generation to
generation
- Weak business services

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2. Industry Profile and Market Segmentation

2.1. Jewelry
Overview

Pakistan’s jewelry sector is predominantly retail driven due to a huge local market. Karachi and
Lahore are the main hubs for jewelry manufacturing. Pakistani designs are distinctive and
highly differentiated from the Indian offerings and desired in western Pakistani and Indian
expatriate markets alike.

Dubai is the main exporter of bullion to Pakistan. Sources of gold consist of authorized imports,
unofficial imports, unrecorded personal imports, unofficial jewelry imports and recycled gold.

The domestic market is driven by demand for 22kt traditional jewelry. The primary reason for
purchase of jewelry in Pakistan is marriage, as gold is perceived as a form of investment. It is
accumulated for this purpose over several years. However, with increasing awareness and
education, demand is evolving in line with international fashion trends.

The range of jewelry items produced by the jeweler is very wide. The most popular items of
Pakistan’s jewelry are Bangles, Earrings, Rings, Pendants, nose pins, necklaces, and teekas30.

The Jewelry industry is highly fragmented, with very few players having complete in-house
production facilities. Most of the players outsource manufacturing to small vendors. The use of
high-technology machinery is missing throughout the value chain. A few exporters producing
chains and bangles in large quantities have invested in modern production techniques. They
are exporting successfully to markets in Dubai and UAE where some of them have established
their own offices. These manufacturers hallmark their goods in order to comply with UAE
regulations.

A niche export market has been developed by exporting traditional jewelry to retailers for
Pakistani and Indian origin buyers in Canada, USA and Britain. Quality assurance is given by
stamping the goods with the 21kt mark in addition to KDM. The latter denotes that the piece
has been soldered with Cadmium solder where Cadmium evaporates and therefore does not
contaminate the purity of the gold31.

Each of the major cities of Pakistan has a “Sarafa Bazaar”32, consisting of hundreds of small
showrooms, bullion dealers and casting shops.

Presently, there are limited training opportunities for the jewelry sector. The age old ustaad-
shagird (master-apprentice) method of teaching is most popular. A few leading shops have their
own small training workshops where they teach students who are later employed by the same
shop owners. These establishments provide on the job training rather than formal teaching.

30
Piece of jewelry worn on the forehead.
31
Internationally, cadmium is being replaced with Indium as cadmium is hazardous to health.
32
Sarafa bazaar refers to jewelry market. Jewelry markets in Lahore are Sooha Bazaar, Latif Market, Liberty Market
and Commercial Building; Jewelry markets in Karachi are Saddar, Tariq Road, and Sarafa Bazaar.
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 Pakistan Gems and Jewelry Strategic Working Group
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Figure 2.1.1: Segmentation of the Jewelry Market in Pakistan

Gold
(Imported (formal and
informal) and recycled)

Karachi Lahore
Focal Market Focal Market

Major Markets
30

Small cities/towns
300

Micro markets
276 towns and rural markets
45,000 villages
Source: SWOG estimates, 2005

The following table gives an estimate of industry participants in the jewelry sector. These
figures are based on a study conducted on behalf of the World Gold Council in late 1997 by a
local company, TECHMA. No formal study has been conducted on the Gems and Jewelry
sector since.
Table 2.1.1: Industry Participants

1997
Jewelry retailers
Showrooms 8,750
Jewelry manufacturers
Skilled artisans 100,000
Fabrication units 22,000
Mechanized chain manufacturers 4
Jewelry wholesalers 20
Bullion dealers
Major dealers 30
Other dealers 500
Refiners and bar manufacturers
Major refiners None
Small refiners 1,000
Jewelry exporters
Significant exporters 6
Other exporters (sporadic) 300
Gold trade associations
Significant associations 10
Other associations 500
Recognized by the Government 2
Bullion importers 3

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 Pakistan Gems and Jewelry Strategic Working Group
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Jewelry Manufacturers

Presently, the metropolitan cities of Lahore and Karachi are the major hubs of jewelry
manufacturing. There are more than thirty major cities and nearly three hundred smaller
cities/mandi33 towns where jewelry manufacturing and trading clusters cater to domestic
demand. In addition, there are at least 45,000 villages where jewelers operate as single-shop,
manufacturing and selling units to meet the demand of rural population. With a rich tradition of
craftsmanship in jewelry manufacturing, Pakistan’s skilled/semi-skilled labor force is available at
relatively lower rates, which offers a comparative advantage to the country.

The Jewelry industry is highly fragmented, with very few players having complete in-house
production facilities. A small number of high-end retailers are pursuing backward integration
along with efforts to brand their services and products. Most of the players outsource
manufacturing to small vendors. The trade consists of small companies (generally up to 15
workers) with freelance craftsmen. The workforce works in the traditional manner sitting on the
floor at low benches rather than seated at conventional workbenches, which are more
comfortable and productive. The use of high-technology machinery is missing throughout the
value chain. Pakistan was one of the first countries in the region to introduce the mechanized
process of casting. However, casting technology in Pakistan has not kept up with international
standards. The tools and techniques used are adequate for 22kt traditional jewelry
manufacturing but not for the technology driven 14 to 18kt contemporary jewelry and for volume
production. A few exporters producing chains and bangles in large quantities have invested in
modern production techniques.

Designs are priced by the gold weight in units of Tola=11.664 grams at the 24kt market price
but delivered to the customer in alloy of 21 or 22kt. All labor components along the supply
chain, from casting, polishing, stone setting and lacquering are priced as a percentage of gold
weight and wastage.

Design outside of local traditions is mostly derivative, taken from foreign mass-jewelry
catalogues with in-house designers.

Retailers

In the local market jewelry manufacturers and retailers have three distinct consumer groups:

Domestic elite favoring western inspired designs and aware of large foreign brands;

Domestic popular (gold) customers accumulating gold for investment. The most lavish and
prevalent designs are to be found in the wedding category;

Foreigners working in Pakistan and Pakistani expatriates, mostly living in the US, Canada
and UK or other EU markets.

33
market
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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

The following table provides a breakdown of retailers on the basis of sales volume:
Table 2.1.2: Average Sales Turnover

Jewelers Volume in Kg

A type (large size) 10 35 Kg/year

percent

B type 40 percent 12-35 Kg/year

C type 50 percent < 8 Kg per year

Source: SWOG estimates, 2005

The local market is vibrant due to the social mandate or practice to invest in gold jewelry. This
being the source of great demand, most jewelers pack their showcases with designs that
adhere to strict design codes.

Retailers are constrained in charging sufficient margins. Customers exert constant pressure on
margins since gold and diamonds have internationally standardized prices. Labor is
standardized as a fraction of gold gram weight, average no more than 1$ to 3$ per gram
depending on the level of intricacy. This is also the going rate for gold jewelry sold in Sri Lanka,
where women regard gold jewelry also as a way to build personal assets.

Retailer/Consumer interaction differs in several key points from the West. Customers can return
a purchase at anytime and get a refund of the purchase price minus 30 percent. Therefore,
pricing strategies are completely different due to the focus on gold as the purchasing driver.
During a purchase, non-branded retailers break up their pricing structure into gold, labor and
stones with labor and stones contributing a small percentage to the final price. Since
consumers are educated shoppers they can squeeze retailer margins along the cost structure.
This leads to the historical industry practice of under-karating through which everyone along the
supply chain gets to squeeze out additional profit. As a result there is an inefficient market
where retailers let consumers dictate what they are willing to pay yet in the end do not give
them what they believe they paid for.

Most local consumers are content with synthetic and low-grade precious and semi-precious
stones. A synthetic premium stone brand launched under a joint venture of Golay and
Swarovski, called Signity, is being used by several jewelers in an attempt to use a co-branding
strategy to differentiate their collections from the competition.

Well-known retailers are proactively pursuing some form of branding by emphasizing on

customer service, quality workmanship, adherence to industry standards such as marking and
assaying and expanding through multiple stores and advertising. Proactive retailers have also
started diversifying their products based on international trends.

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 Pakistan Gems and Jewelry Strategic Working Group
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2. 2 Gemstones

Overview

Pakistan has been gifted with abundant resources of precious and semi-precious gemstones, at
present found in Northern Areas and NWFP, with significant potential in Balochistan. Despite its
enormous resources, Pakistan has been unable to penetrate the international market
significantly. Mining technology and processes are rudimentary and unscientific resulting in
significant wastage at the extraction stage. Indiscriminate blasting damages the gemstone
crystals and mineral specimen thus drastically reducing their value. Gemstone cutting and
polishing is done on a very limited scale and that too with obsolete machinery and tools. Due to
lack of adequate processing facilities and skills, a majority of Pakistan’s exports consist of
unworked stones, representing a significant loss in value added. Commerce is mainly
conducted on a person to person basis with no established pricing structures.

Mining

Pakistan produces Emerald of Mingora (Swat), Pink and Golden Topaz of Katlang (Mardan)
and Aquamarine of Chitral and Neelam Valley. With the liquidation of Gemstone Corporation of
Pakistan, with the exception of two significant deposits in Azad Jammu and Kashmir, all the
identified precious stone deposits have been leased out to the private sector. In the absence of
transparency in ownership and leasing policies, proper management of production activities
and scientific exploration of mineral deposits, this sector remains underdeveloped and
undervalued. Mining technology and processes are rudimentary and unscientific resulting in
significant wastage at the extraction stage. Indiscriminate blasting damages the gemstone
crystals and mineral specimen thus drastically reducing their value.

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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

The following table contains information on the available gemstone resources along with sites
where these stones are found.

Table 2.2.1: Gemstone Resources of Pakistan

Province/Area District
Ruby
FANA Between Hunza and Ishkuman Valley
Azad Kashmir Shantor and Neelum Valleys
Aquamarine
FANA Gilgit, Skardu, and Hunza Areas
NWFP Chitral District
Tourmaline
FANA Gilgit District
NWFP Chitral District
Azad Kashmir Upper Neelam Valley
Topaz
FANA Gligit and Skardu Districts
NWFP Mardan District
Spinal
FANA Hunza Valley
Pargasite
FANA Hunza District
Moonstone
FANA Gilgit District
Garnet
FANA Gilgit and Skardu Districts
NWFP Chitral, Swat, and Malakand Districts
FATA Bajaur Agency
Balochistan
Quartz
FANA Hunza, Gilgit and Skardu districts
NWFP Chitral District
Sindh Nagarparkar
Balochistan Lasbela
Epidote
FANA Gilgit and Skardu Districts
Emerald
NWFP Shamozai, Mingora, Gujar Killi, Makkad and Charbagh,
FATA Mohmand and Bajaur Agency
Peridot
NWFP Kaghan Valley
Pink Beryl
Azad Kashmir Dunga Nar Area
Turquoise
Balochistan Chaghi Hills
Lapis Lazuli
FANA
NWFP Chitral, NWFP Afghan Border
Balochistan
Zircon
FANA Gilgit
Feldspar
FANA Gilgit, Skardu
NWFP Chitral
Agate
Sindh Nagarparkar
NWFP Dir Kohistan
Kunzite
NWFP Chitral (Garam Chashma34)
Source: Investment Oriented Study on Minerals and Mineral based industries, Ministry of Industries and Production;
SMEDA; GGIP, Industry Sources

34
Major reserves lie in Nooristan, Afghanistan. The mines touch the border with Pakistan near Chitral.
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Trading

There is currently an absence of formal trading infrastructure due to which miners and dealers
resort to temporary locations to conduct their transactions. There are several informal trading
centers in Pakistan. Namak Mandi, the gem market in Peshawar is one of the main gemstone
trading hubs in the country; it contains a cluster of dealers, miners as well as lapidary
workshops. The second market place is Quetta in Balochistan. Dealers receive rough stones in
small rooms along the main road, rented by real estate owners exclusively for processing
transactions, get paid on 10 percent of value on completed sales transactions.

Dealers in Peshawar have established a reputation in international markets through the famous
SWAT emeralds (the mine is closed), and Kashmir rubies (limited access to high altitude
mines). It is recognized as a source for a large variety of semi-precious stones such as lapis,
turquoise, champagne pink Topaz, Aquamarine and Peridot. Activities are in great part limited
by dealers who sell rough to Thai and Sri Lankan traders, officially and otherwise. 90 percent
of the traded stones are unprocessed. The most successful dealers are ones who deal in rare
stones for which demand is steady. They are competing with African traders, targeting buyers
directly in centrally organized market places of Thailand, Hong Kong and Sri Lanka. In
Peshawar some assistance in quality assessment is given through a small gemological
evaluation facility at the GGIP. In the absence of any testing facility at Namak Mandi, most
trading is still based on practical and traditional experience.

Lapidary and Processing

Gems cutting and processing in Pakistan suffers from obsolete technology, limited skills, and
lack of precision. Presently, there are more than 30,00035 people involved with the industry and
there are around 50036 units involved in cutting and polishing of gemstones. Most of the
gemstone processors are clustered in Karachi and Peshawar (Namak Mandi), with smaller
clusters in Lahore, Quetta and Islamabad. Little value is gained by processing stones as
cutting exists on a very limited scale in small one to 3 persons workshops.37 The prevailing
technique is cutting for yield to maximize weight, not value. The industry lacks expertise in
precision and calibrated cutting and is not up to date with the latest treatments. The skill level of
the craftsmen engaged in gems processing depends entirely on their experience and on what
they have learned from their ancestors, mainly migrants from Jaipur, India. These local
craftsmen are unaware of latest technologies and international quality standards. Most of the
stones are recut, once they reach international markets. While the value addition which can be
accrued through processing of these stones (cutting and polishing) starts from 10 percent and
goes up to as high as 100 percent. This reduces the potential price a dealer is willing to pay to
the Pakistani seller. Lapidary training is being offered at the Gems and Gemological Institute of
Pakistan at Peshawar. Experienced dealers have voiced concerns over the institute’s limited
resources and training capacity.

2.3 Geographic Spread

Although jewelry manufacturers and retailers are spread all over Pakistan, Karachi and Lahore
are the main hubs for these activities. There are more than thirty major cities and nearly three
hundred smaller cities/mandi38 towns where jewelry manufacturing and trading clusters cater to

35
An Overview of the Gemstone Sector of Pakistan, Small and Medium Enterprise Development Authority (not-
dated).
36
ibid.
37
ibid.
38
market.
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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

domestic demand. In addition, there are at least 45,000 villages where jewelers operate as
single-shop, manufacturing and selling units to meet the demand of rural population.

Gemstone deposits are concentrated in NWFP, Northern Areas and Balochistan. Most
gemstone processors are clustered in Karachi and Peshawar (Namak Mandi), with smaller
clusters in Lahore, Quetta and Islamabad.

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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

3. Industry Statistics
3.1 Employment
The total number of persons employed in the gems and jewelry sector is estimated at
800,00039. Presently, there are more than 30,00040 people employed in the lapidary and
processing sector.

3.2 Growth

The following table demonstrates growth in the gems and jewelry industry over 1997 and 2004.

Table 3.2.1: Industry Growth

Projected based on Projected based on SWOG

Actual WGC
WGC figures of Gold estimates for Gold
figures for 1997
consumption for 2001 consumption for 2004 (170
(81 tones) 41
(120 tones) tones)
Jewelry retailers
8,750 12,960 18,360
Showrooms
Jewelry
manufacturers
Fabrication units 22,000 32,640 46,240
Mech. chain
4 6 9
manufacturers
Source: SMEDA

3.3 Exports

The following table provides Pakistan’s exports in 2003 compared to the world as well as India,
Thailand and Sri Lanka as these are our major regional competitors.

Table 3.3.1: Gems & Jewelry Exports for 2004 (USD million)
World India Thailand Sri Lanka China Pakistan
Jewelry 27,341 2,998 1,290 18.6 1,825 24.4
Gems 68,166 10,535 735
42
221.6 1,418 3.6
43

Total 95,507 13,587 2,025 240.2 3,243 28

Source: www.unstats.un.org; www.customs.go.th

39
SWOG estimates for 2005.
40
An Overview of the Gemstone Sector of Pakistan, Small and Medium Enterprise Development
Authority.
41
170 tons was reached based on WGC estimates for 1997 and 2001, extrapolating the growth between
these years. Some industry sources claim that total consumption in 2004 was 200 tons.
42
Export figures for Thailand for 2004 were not available. This figure is based on 8% growth over the
UNSTATs recorded figure for 2003.
43
According to the All Pakistan Commercial Exporters Association, total formal export of gemstones from
NWFP alone were USD 8 million in 2003-2004 and USD 11 million in 2004-2005. Informal exports are
estimated at an average of USD 12 million per annum.
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February 2006

Table 3.3.2: Jewelry Exports of Pakistan (USD), 2000 – 2004

Years Amount
2004 24,387,250
2003 23,634,702
2002 29,962,060
2001 19,213,211
2000 23,753,572
Source: www.unstats.un.org

Table 3.3.3: Five Years’ Cumulative Export of Jewelry Figures with Major Trade Partners
(USD)

Country Amount
56,533,407
Utd. Arab Emirates
35,574,328
USA
21,572,519
United Kingdom
3,523,701
Canada
Singapore 948,508
44
Source: www.unstats.un.org

Table 3.3.4: Gems Exports of Pakistan – 2000-2004 (USD)

Year Amount
2004 3,613,530
2003 3,677,641
2002 2,057,290
2001 1,636,249
2000 2,870,659
Source: www.unstats.un.org

Table 3.3.5: Five Years’ Cumulative Export Figures with Major Trade Partners (US$)

Country Amount
Hong
6,122,726
Kong
Germany 1,729,011
USA 1,538,422
India 1,325,004
Thailand 783,565
45
Source: www.unstats.un.org

44
‘ 8973’ SITC Code Revision 3.
45
667’ SITC Code Revision 3.
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 Pakistan Gems and Jewelry Strategic Working Group
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February 2006

4. Social Value and Role in Poverty Reduction

Developing the potential of the Gems and Jewelry sector will have a significant impact on
Pakistan’s economy in terms of increase in export revenues, employment and
entrepreneurship, income generation, and consequently poverty alleviation. Consisting of
mainly small and medium entities, growth of this sector will also have positive externalities for
social indicators such as health and education.

Pakistan has been gifted with abundant resources of precious and semi-precious gemstones, at
present found in Northern Areas and NWFP, with significant potential in Balochistan. These are
the least developed regions in Pakistan. Up-gradation of the gemstone sector will have a direct
impact on income levels in these areas.

Current mining technology and processes are rudimentary and unscientific resulting in
significant wastage at the extraction stage. Indiscriminate blasting damages the gemstone
crystals and mineral specimen thus drastically reducing their value. In majority of the mines
basic machinery and equipment like compressors and drill sets are not available. A large
number of mines are currently inactive due to lack of equipment. Training in modern mining
practices will reduce wastage and improve the quality of extracted gems, thereby increasing the
income of miners. It will upgrade the skills of the mining workforce, leading to an increase in
productivity and consequently in salaries. Access to mining equipment will rehabilitate closed
mines, causing an immediate impact on employment levels.

Due to lack of adequate processing infrastructure and skills, approximately 90 per cent of
Pakistan’s exports are in un-worked stones, representing a significant loss in value added. With
the up-gradation of gemological and lapidary training and processing infrastructure, a higher
volume of exports will be in processed stones, leading to tremendous value addition. By
enhancing the income levels of those directly involved in mining and trading, it will have spin-off
effects for the entire region.

Similarly, expanded training opportunities in jewelry manufacturing will upgrade the industry’s
skill level leading to higher worker’s salaries. Jewelry Design programs initiated by BNU and
PSFD will create new entrepreneurs and new employment opportunities. Employment will also
be generated as a result of established manufacturers expanding into export-based, high-
technology production.

43
 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

5. Market Economics
5. 1 Market Growth

Gold consumption in Pakistan rose from 81 tones in 1997 to 170 tones in 200446, representing
an increase of 12.7 percent per annum.

5. 2 Demand Drivers

Apart from universal factors such as population growth and increases in income level, weddings
are an important driver for demand for jewelry in Pakistan. Gold jewelry is also often purchased
as an investment. An expanding middle class, increase in consumer finance, and evolving
fashion trends due to international influences also provide tremendous opportunities for the
industry to diversify and expand its product base.

5. 3 Supply Drivers

Supply is primarily driven by the availability of gold, access to competitively priced diamonds
and international standard colored gemstones, import of finished jewelry, productivity of
manufacturers, logistical infrastructure, access to finance and government policies.

5.4 Technological Advances

Use of modern technology is missing throughout the value chains of the gems and jewelry
sectors. Mining machines are outdated; lapidary facilities are limited and underdeveloped. In
jewelry manufacturing, there is little use of electrically powered tools such as flexible shaft
motors although many workshops do use locally made rolling mills, belt-driven by electric
motors. Alloy melting is done by charcoal fire furnaces in open air. Polishing is done by hand on
electric motors. There is a need to improve polishing and finishing techniques, for which
hanging motors are needed. For crude polishing, mechanical tumbling is used which damages
the gold. This should be replaced by magnetic tumbling. There are no modern casting
machines or ancillary equipment. The total amount of gold loss amounts to as much as 8 -10
percent47 during manufacturing.

In recent years, a few exporters producing chains and bangles in large quantities have invested
in modern production facilities.

5.5 Cost of Production and Margins48

Pricing of all forms of gold and gold jewelry at every level is unfixed, determined by the
prevailing gold price in Pakistan. Pricing and profitability of gold jewelry in particular is
complicated due to the hidden element of reduced karatage and variable methods of payment
in the forms of cash or old gold jewelry.
For standard gold jewelry, the following generally applies:
Labor charges USD .71 - $2.1 per gram (Rs. 43 – 129)

46
According to World Gold Council estimates, total consumption of gold in Pakistan was 81 tons in 1997 and 120
tons in 2001, reflecting 12 percent growth per annum. Based on this growth rate, the estimate for 2004 is 170 tons.
According to some SWOG estimates, consumption of gold in 2004 was 200 tons.
47
SWOG estimates.
48
The following information is based on SWOG estimates.
44
 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

Wastage 8 - 10 percent

The cost competitiveness of jewelry manufacturing in Pakistan is evident from the fact that
labor charges in New York would be USD 1.50 to 3.00 per gram.

Retailers

Average Mark-up 15 - 25 percent

The price currently quoted for a jewelry item is based on the cost of gold with added labor
charges.

45
 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

6. Competitive Position of Domestic & Regional Competitors

6.1 SWOT Analysis

Strengths Weaknesses
+ Abundance in skilled craftsmanship for - Lack of modern mining, gem processing and
manufacturing of 22kt traditional jewelry jewelry manufacturing technology and skills
+ Historical manufacturing tradition - Irregular availability of high quality raw
+ Strong domestic market demand materials, i.e., gems and gold
+ Natural resources of precious and semi- - No authentic source of information on natural
precious gemstones gemstones resources of Pakistan
+ Distinct jewelry designs (stone-studded) - Lack of skills in high technology, export-oriented
+ Availability of basic Infrastructure/Network jewelry manufacturing
+ Low cost of Labor - Limited understanding of gemstone properties
- Limited availability of skilled trainers
- Low customer confidence in locally produced
products due to lack of quality standards
- Lack/absence of recognizable brands
- Lack of awareness regarding latest trends and
limited access to international markets
- High levels of wastage
- Weak linkages between industry and local and
Factor Finternational
actor training institutes, R&D institutes
(Input) (and
Inpuservice
t) providers
Conditions - CoUnsafe
nditionworking
s environment and use
hazardous solders

Opportunities Threats

↑ Expanding domestic and international market x Industry may get more fragmented if the
↑ Collaboration with internationally recognized deliverables are delayed or suspended
institutions/bodies x Aggressive competition especially from India
↑ Increasing interest of foreign and local investors and China
↑ Joint ventures with international companies, x Political Instability
training institutes, government agencies, etc x Increased penetration of international
↑ Expansion/modernization of products in the local market
infrastructure/networking for the sector
↑ Willingness and excitement among stakeholders
to move forward through mutual cooperation
↑ Establishment of an information
sharing/dissemination mechanism
↑ Government focus on the sector

46
 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

6.2 Value Chain Analysis

Currently, of the total gemstones mined in Pakistan, 75 percent are exported in the rough. Due
to indiscriminate blasting the quality of the extracted stone is often substandard. Of the
remaining 25 percent that goes into processing. Of the total stone that is processed, 60 percent
is wasted; of remaining 40 percent, 36 percent is exported and 4 percent is used in jewelry
manufacturing. Of the 4 percent that is used in jewelry manufacturing, 5 percent is used in
jewelry that is exported and 95 percent is used in jewelry for local consumption.

In jewelry manufacturing, of the total gold consumed in Pakistan, 20 percent is recycled, 30

percent is imported through formal channels and 50 percent through informal channels. Total
production time is 15 days on average with overall losses of 8 to 10 percent and value addition
of only 10 to 25 percent.

The following diagrams illustrate the current value chains of gems and jewelry:

Figure 6.2.1: Gems Value Chain Analysis

75%
Rough Export/Informal Trade

Processed Stone Exported

36% of processed stones

Mining
Stone Studded Jewelry
Exported
5% V.A: 15%

Lapidary
V.A:200-500%
25%
4% of processed stones

Used in
Jewelry
95% Stone Studded Jewelry
Locally Used
V.A: 20%

Waste
60%

47
 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

Figure 6.2.2: Jewelry Production Value Chain Analysis

Raw Gold Sources

Recycled (20%) Formal Import (30%) Informal Trade (50%)

Production Process:

Traditional Design

Pattern Design

Sheet Drawing

Casting/Handcrafting

High Quality Cast Products need lesser polish; low Production cost

Finishing

Polishing

Studding (Gems)

Final Product

Current situation:

Production Time: 15 days

Overall Losses 10%

Values Addition is 10-20%

48
 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

6.3 Benchmarking

A benchmarking analysis of Pakistan’s industry and regional competitors was conducted in

order to identify gaps. The following table provides a summary of the study:

Parameters Pakistan India Sri Lanka Thailand

Gems and Gems: 3.6 Gems: 10,535 Gems: 221.6 Gems: 735
Jewelry Exports, Jewelry: 24.4 Jewelry: 2,998 Jewelry: 18.6 Jewelry: 1,290
2004 (USD Total: 28 Total: 13, 587 Total: 240.2 Total 2,025
million)
49
Consumption of 170 520 tons (according to N.A 100
Gold, 2004 in WGC); 800 (according
tons to GJEPC)
Employment in 800,000 2,000,000 151, 350 Chantaburi, a major
50
the Industry cluster employs
55,000 people
Training Institutes GGIP 7 institutes Gems & Jewelry 6 institutes
Institute
(CAD/CAM)
Strength of 45 members 7,000 members 360 members 180 members
Associations APJMGA GJEPC SLGJA TGJTA
Duties, Taxes & USD 0.5 per tola 2% import of gold; 0% duty on import 0% duty and 7%
Incentives (for 5 kg and 0% customs duty on of diamonds, VAT on import of
above) import duty rough diamonds and colored gemstones diamonds and
and USD .03 per colored gemstones and gems; 2% duty on colored gemstones
tola income tax on 5% on cut and polished gold imports for
gold import; diamonds and colored local sales, no duty
Rough stones and gemstones; exporters on gold for jewelry
diamonds at 0% of gems and jewelry export
duty; 5% duty on can import duty free
finished inputs; To boost
gemstones; sales exports of studded
tax of 15 % and jewelry, there is a 100%
income tax of 6 % tax exemption on
on import of rough export income for the
and finished next 10 years.
gemstones, Gold
and gemstones
imported against
exports are exempt
from duty
Logistics/Financi PIA (non- Air India, Speed Post, Air Lanka Thai Airways,
al Services competitive freight UPS, FedEx, Brinks FedEx, Brinks
charges) Swiss Air Arya
International None WGC, De Beer, GIA None WGC, GIA, IGI
Institutional
Presence
Hallmarking/ None 35 Hallmarking centers Initiated in 2004; 1 There is
Assaying Assaying/Hallmarki no hallmarking
ng center in system in Thailand.
Colombo

49
Not available.
50
Includes allied industries.
49
 Pakistan Gems and Jewelry Strategic Working Group
Strategic Plan
February 2006

Parameters Pakistan India Sri Lanka Thailand

51
Int. recognized None 3 None 6
Gem Certification
Labs
Product 22kt gold jewelry 14, 18, 21, 22kt gold 14, 18, 22kt gold 14, 18, 22kt gold
development & (mainly ethic), jewelry (ethnic and jewelry jewelry
Diversification Limited processing, contemporary), (contemporary), (contemporary),
no calibration or platinum jewelry, high high quality cutting platinum jewelry,
treatment quality cutting; and processing; high quality cutting
calibration and calibration and and processing,
treatments treatments calibration,
treatments
Indigenous Gem Emerald, Ruby, Reserves of Ruby and Sapphires and Sapphires and
Resources Peridot, Topaz, 20 other gemstones rubies amongst rubies amongst
Aquamarine, Lapis including aquamarine many others many others
amongst many and garnet believed to
others be in Orissa
Availability of ARY, Tessori, 13 Agencies, Banks Agencies Agencies and
Gold Pardesi bullion banks
Special Export None SLEEPZ (Mumbai), Sri Lanka Export Gemopolis (300
Processing MEPZ (Chennai), Development acres)
Zones NEPZ (Noida) Board
Trade Exhibitions 1 in Peshawar 3: Mumbai, Delhi and 1 in Colombo 3 in Bangkok
Jaipur
Source: UNSTATS, the Gem and Jewelry Export Promotion Council, India, World Gold Council, All India
Associations of Industries, Board of Investment, Sri Lanka, National Gem and Jewelry Authority, Sri
Lanka

51
Under The Competitiveness Initiative Project funded by USAID, establishment of an internationally affiliated gem
lab has been identified as an initiative.
50