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French Version

All that glitters : Gold manufacturing industry fighting for its existence (Daily Star)

All that glitters: Gold manufacturing industry fighting for its existence - Sector faces tough challenges from international competitors and lack of tax breaks at home
Everyone is turning a deaf ear to the cries of the gold manufacturing industry while it is fighting for its very existence, the head of the Lebanese Jewelers Association says.

“Our industry is losing its competitive edge by reacting instead of acting,” Vasken Hadidian said in an exclusive interview with The Daily Star. “Decisions are taken to minimize collateral damage, but are a poor substitute for innovative action.”

Hadidian decried the Ottoman-era legislation, full of loopholes, which is applied to the gold manufacturing sector. A situation or a legal entity can be considered “right” at one time and “wrong” at another, he complained, depending on the whims of civil servants, and fined accordingly. Lebanon imports its gold bullion mostly from Switzerland. Even Russian bullion has to pass through Swiss hands for refining and to receive the “stamp of good delivery.” Somr 20-30 tons are imported each year and the raw gold is subject to zero value-added tax (VAT).
“Exact figures are not available, not only for our sector but for everything else as well,” said Hadidian. “The figures supplied by the customs authority only denote a dollar value for imported gold for a certain period from which it would be impossible to deduce exact quantities.”

About 80 percent of Lebanese gold exports go to the Gulf. They are sent to Dubai, from where they are redistributed to other Gulf countries. The EU and the US are secondary markets, each taking a 10 percent share of Lebanese exports.

In the Lebanese market, 75 percent of goods are manufactured locally and the rest are imported, mainly from Italy. Only 60 percent of precious stones sold in the country are manufactured locally. The stones themselves come mostly from Belgium and India. “The Lebanese government believes that manufacturers have a profit margin of 25 percent on their turnover and so apply a 10 percent profit tax,” said Hadidian. “Our profit margin is 25 percent before labor and all other related expenses. Our net profits are more in the order of 10 percent.”

Hadidian said the Lebanese gold manufacturing industry is export-oriented and its survival depends on its competitive edge. As such, he said, the government should do its utmost to offer all available tax breaks to ensure the continuity of the sector in the face of growing international competitors, especially from the Far East.

The gold market is seasonal and peaks during the summer months with the inflow of tourists. The rest of the year is low season, especially as the purchasing power of locals has dwindled tremendously. “The three-month season is short and the financial situation of some outlets is critical as they have ongoing expenses, outstanding bills and interests payments,” said Hadidian. “Some have already stopped operating.”

Hadidian accused the government of neglect. Anytime a plan of action was proposed, he said, it got buried in the cemetery of committees until hope was lost. “A total liberalization is what is required, with appropriate tax reforms,” said Hadidian. “Gold is not a consumer product but an investment and should be treated as such. The government should apply the same criteria it does for the inflow of foreign investment capital, including a secrecy clause.”

Hadidian gave the example of the Dubai Metals and Commodities Center (DMCC) that was launched in April 2002 by a from the government of Dubai. The DMCC was created as a strategic goal to establish a commodities market in the emirate.

The DMCC offers a unique opportunity for participants and provides facilities that bring together the gold trade, the diamond trade (it houses a diamond exchange), and trading in other selected commodities. It aims to attract key players throughout the entire value chain of each of these industry sectors, together with relevant support industries such as finance, logistics and insurance. “We are not asking the government for any subsidies as the agricultural sector or the tobacco growers are,” said Hadidian. “All we require is modern legislation that will allow us to develop and prosper, and help replenish the treasury’s coffers.

“The livelihood of 20,000 families that earn their livelihood from the gold manufacturing industry, hangs in the balance,” Hadidian added. “Those who wish to survive will be forced to migrate and only the stupid will remain and face extinction.”

Beirut 22-09-2003
Ara Alain Arzoumanian
The Daily Star

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