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By Atom Markarian
Production of gem diamonds, one of Armenia’s main export items, is on course to fall for a third consecutive year due to the dramatic strengthening of the national currency and weak global demand in precious stones, a senior official said on Monday.

The downturn began in 2004 when the Armenian diamond cutting industry posted an almost 20 percent drop in production following a decade of rapid expansion that resulted in thousands of new jobs. Official statistics show the combined output of its 50 or so mostly small and medium-sized enterprises falling by another 2 percent to $249 million last year.

According to Gagik Mkrtchian, head of the department on precious stones and jewelry at the Armenian Ministry of Trade and Economic Development, the slump accelerated during the first half of this year. “Compared to [the same period] last year, our combined output has fallen by 20-22 percent this year,” he told RFE/RL.

Mkrtchian said it is the small diamond cutting plants that are bearing the brunt of the crisis. “The big companies have essentially not cut the volume of their production, while the small plants are suffering quite serious losses,” he said. “Some of them have suspended their operations.”

The official insisted that there have been massive job cuts so far, but admitted that the average wage in the sector, estimated at $150 a year ago, has decreased by at least 30 percent this year. With the Armenian dram having gained more than 30 percent in value against the U.S. dollar over the past three years, industry workers may be earning even less in real terms as their wages are often set in dollar equivalents.

In Mkrtchian’s words, the dram’s appreciation against the dollar, which has also hit hard other Armenian exporters, is primarily responsible for the declining production. The official also cited other factors such as a decrease in global sales of gems diamonds and the volatility of supplies of uncut diamonds to Armenia.

The problem is compounded by a continuing shortfall in anticipated deliveries of rough diamonds from Russia. A Russian-Armenian agreement signed in 2001 enabled Armenian firms to process up to 400,000 carats of Russian stones, famous for their high quality, annually from 2002 through 2004. The quota was subsequently raised to 450,000 carats for 2005 and 2006.

According to official figures, Armenia's cutting plants bought only 180,000 carats of rough from Russia in 2005, compared to over 600,000 carats imported from Belgium and Israel.

The sector’s continuing downturn has all but scuttled the implementation of an ambitious plan which was approved by the Armenian government in late 2003. The government pledged to help the industry nearly double its annual production to $500 million and create roughly 10,000 new jobs by the end of 2006.

Gem diamonds accounted for nearly half of Armenia’s modest exports during the late 1990s, but their share in the country’s external trade has since been steadily declining. The precious stones made up only 21 percent of Armenian exports last year, down from 39 percent reported in 2004.
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