Pakistan Stepping into the Future

The Gems and Jewelry Industry Of Pakistan

Introduction
Pakistan came into being as the bloody partition of the subcontinent into two halves on
August 14th 1947.Pakistan is strategically located on the crossroads of Asia and has great
political and regional importance. Pakistan has towards its east India a regional super
power, towards its north china, west Afghanistan the war torn country and towards
southwest is Iran the Gulfs super power and towards the south stretches the Arabian Sea.
Pakistan has a physical distribution of many regions and climates. This is one of the
luckiest countries of the world having all season through out the year. It is also the only
country after Egypt to have the best rivers and canals system in the world. Pakistan
(Exhibit-1) has a rich cultural and political history. It has been the center of attention for
many centuries. It has been the birthplace of many civilizations and their empires from
the Indus Valley to the Mughal Dynasty; from the Advent of Mohammad Bin Qasim to
the British Raj this land has seen many cultural and political changes and challenges.

Today Pakistan is progressing in every field of the economy. According to an American

Columnist of the New York Times the fastest growing economy in the world after china
is Pakistan at a growth rate of 8 percent. It has the fastest growing stock market in the
world and i.e. Karachi Stock Exchange. The events of 9/11 have benefited Pakistan in
particular, as it has become a partner of the global alliance against terrorism being led by
the United States.

Foreign investment is pouring in and the economy is growing. Many of the small medium
enterprises have also been effected by this and are now growing at a very fast pace. On of
these industries is the Gems and Jewelry industry of Pakistan.

SMEDA (Small and Medium Enterprise Development Authority)

SMEDAi was established in October 1998 to take on the challenge of developing Small
& Medium Enterprises (SMEs) in Pakistan. SMEDA is relatively a new organization
with a futuristic structure and focus on providing business development services to small
and medium enterprises. SMEDA is not only an SME policy-advisory body for the
government of Pakistan but also acts as a one-stop-shop for its SME clients.
SMEDA is the flagship organization of Pakistan, which is providing the necessary
services to help SMEs overcome the weaknesses that are endogenous to their very nature.

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It is an autonomous body working under the umbrella of the Ministry of Industries &
Production and contributes towards the growth and development of SMEs in Pakistan
through:

a) The creation of conducive and enabling regulatory environment.

b) Development of Industrial Clusters
c) And provision of business and development services to SMES in all areas of business
management services.

Up to now, SMEDA has been involved in cluster development projects in the areas of
Boat Modification in Marine Fishery Sector, Credit for Auto Vendors, Carpet Weaving,
Marble & Granite, Dates & Apples Processing, Wooden Furniture, Leather Garments,
Ceramic Kilns, Gems and Jewelry (Exhibit-2), Cotton Ginning, and Glass Bangles
Cluster.

The Gems and Jewelry Sector of Pakistan

What is a natural Gemstone?

A naturalii gemstone is a mineral stone, or organic matter that can be cut and polished or
otherwise treated for use as jewelry or other ornament. A precious gemstone has beauty,
durability, and rarity, whereas a semiprecious gemstone has only one or two of these
qualities. A gem is a gemstone that has been cut and polished. Diamond, corundum (ruby
and sapphire), beryl (emerald and aquamarine), topaz, and opal are generally classed as
precious stones. All other gemstones are usually classed as semiprecious.

Global Trade Of Gemstones

Gems exports (SITC 667) have increased in last five years by 9% as a whole in previous
five years, with a negative growth of 10% only in 1998. Global exports of gems can be
subdivided into major categories such as pearls, diamonds, precious and synthetic stones.
Diamonds hold the largest share in the international exports of gems i.e. above 90%, and
by value its exports have increased by 11% in previous five years. Pearls registered
highest growth i.e. by 47% while growth rate were -30% and 4.65% for precious and
synthetic stones respectively during 1995-99.

Major Players

Belgium has been the major exporter of gems for the last five years. Its exports have
increased by 12% and it captured 32.14% of the gems trade in 1999. Israel, which had
20.77% of the export share and UK, capturing 15.14% of gems market in 1999, are two
other major exporters. Belgium has been the largest importer of gems for the last five
years and accounted for 22.21% of total imports with a value of US$ 11.12 billion in
1999. USA’s import of gems has increased by a high rate of 65% in these five years and
was second with approximately 22.05 % of world imports of gems in 1999.

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Pakistan

In 1999 (Exhbit-2) gems accounted for US$ 2.4 million in foreign exchange earnings,
which was approximately 0.0064% of international gem exports. The share reached a
high of 0.014% in 1998 when Pakistan exports were US$ 4.62 million, but the highest
value was achieved in 1997 when Pakistan earned foreign exchange of US$ 4.87 million.
Pakistan gems exports can be categorized into two categories i.e. precious stones worked
and un-worked, in which un-worked shared 92% on average in last five years. Pakistan is
also a regular importer of gems. Pakistan’s import value remained below US$ 36
thousand in the last five years except in 1996 and 1999 when imports were US$ 76 and
69 thousand respectively.

For international comparisons the data used is for the year 1999 (Exhibit-3). However,
data is also available for Pakistan for the year 2000-2001, which shows that there has
been a decrease in exports from US$ 2.4 million to nearly US$ 2.09 million while
imports were US$ 52.18 thousand in 2000-01. Some of the leading importers from
Pakistan include Hong Kong, which imported 40% of Pakistan’s (Exhibit-4) gems in
1999 while USA is another major importer sharing 20.2% of Pakistan gems exports.
UAE shared 29.37% of Pakistan exports in 1998 but its imports in 1999 were negligible.

Global Trade of Jewelry

Jewelry exports have registered a sharp decline in 1999 i.e. by 11% but overall for the
last five years a positive growth rate of 0.77% has been registered.

Jewelry exports can be distinguished into three categories i.e. imitation jewelry, gold &
silver jewelry and articles of other precious metals 4. Gold & Silver jewelry has had the
lion’s share of about 88% throughout the previous five years while imitation and other
articles of precious metal shared 8% and 4% of international exports in 1999. All have
experienced negative growth but other articles of precious metals have increased their
share in total jewelry exports from 2.22% to 4.2% in previous five years.

Major Trade Players

Italy is the major exporter of jewelry for the last five years and captured 27.54% of the
jewelry trade in 1999. China had 11.16% of the export share and Switzerland, with a
decrease of 32% in its exports, captured 7.18% of jewelry market in 1999. If exports are
analyzed on the basis of separate categories, Korea, Italy and UK were the largest
exporter of imitation, gold & silver and articles of other precious metals respectively.
USA has been the largest importer of jewelry for the last five years in each of the
categories. Its imports have increased by 32% during 1995-99 and it shared 36% of total
imports with a value of US$ 5.7 billion in 1999. UK was second with approximately
10.67 % while Hong Kong had third largest share in 1999 imports of jewelry.

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Pakistan
In 1999 jewelry exports accounted for US$12.24 million in foreign exchange earnings,
which was approximately 0.07% of international jewelry exports. The share has increased
from 0.03% (in 1995) while in value; the exports have increased by 99% from the last
five years. Pakistan exports can be subdivided into imitation jewelry of base metal, Gold
& Silver metal jewelry and gold & silversmith jewelry.5 Among them gold & silver
metal jewelry accounted for above 98% of Pakistani exports.

Pakistan is also a regular importer of jewelry, and its imports were of US$ 0.87 million in
1999, which have increased by 37% in the previous five years. If imports are analyzed
year wise, the import level has gone down after reaching a peak value of US$ 1.7 million
in 1998.

For international comparisons the data used is for the year 1999. However, data is also
available for Pakistan for the year 2000-2001, which shows that there has been an
increase in exports from US$ 12.24 million to nearly US$ 24.24 million while imports
have decreased to US$ 0.84 in 2000-01 from US$ 0.87 million in 1999.Some of the
leading importers from Pakistan include USA, which imported 43.78% by value of
Pakistan’s jewelry while UK and UAE are other major importer sharing 26.22% and 10%
of Pakistani exports of jewelry in 1999.

Pakistan’s Gem and Jewelry Sector

Nature has gifted Pakistan (Exhibit-5) with rich deposits of some of the finest and
valuable gemstones in the world. Most of these deposits are concentrated in the Northern
Areas, Malakand division, Bajaur agency etc. A variety of gemstones including Emerald,
Ruby, Peridot, Aquamarine, and Topaz, which have a worldwide demand, are mined and
traded for local and foreign markets.

Above are international prices of precious stones, which are present in large quantities in
Pakistan. All Pakistan Commercial Exporters Association of Rough and Un-Polished
Precious & Semi Precious Stones (APCEA) is working for the betterment of this sector.
Other associations include All Pakistan Gem Merchant & Jewelers Association, and
Gemstone promotion committee.

Requirements For The Gems And Jewelry Industry

Gems & Jewelry is an emerging sector of Pakistan with an immense export potential. In
Pakistan, the current level of trade, including the vast informal sector is expected to be
more than $50 million annually. Most of the exports are in form of rough stones, plane
jewelry and gem-studded jewelry mainly because of lack of sophisticated processing
industry in the country. The proposed project aims at filling this gap of value adding
facilities in the gems and jewelry industry. Financial analysis shows the unit making

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profit from the very first year. An enormous export market for the Pakistani gemstones
exists in West Europe, USA and East Asia. It is of important significance that the gem
industry and the Government of Pakistan are recognizing the potential in the local value
addition and consequently, import duty on lapidary equipment has been waived off. This
proposed unit with modern processing machines is an addition to a gems processing
industry where dozens of small players are involved in cutting and polishing by simple
and unsophisticated tools, which are not preferred by many trader/exporters of gems.

Opportunity Rationale

Pakistaniii is fortunate enough to be strategically located close to some of the major

markets such as Thailand and Sri Lanka. Besides, it has one of the largest deposits of
gemstone variety, including some highly priced and demanded gemstones like Emerald
and Ruby. There is also availability of low cost labor compared to those in other
countries. Pakistan has an enormous potential to increase its exports manifold, and could
become one of the major players in the $ 40.7 billion world market. There is a large
variety in gemstone deposits of Pakistan including Emeralds of Mingora, Gujar Killi and
Shamozai, Pink and Golden Topaz of Mardan and Aquamarine of Chitral and Neelam
Valley and Peridot of Dassu, which are well known for their color and clarity. Pakistan’s
Pink Topaz and Kashmir Ruby, are unique items all over the world, especially the Pink
Topaz was considered as one of the second highest valued mineral, that was being
smuggled to India in raw form, and then sold in the international market as a refined high
cost item by India. Establishment of gemstone and jewelry industry for cutting and
polishing of gemstones & jewelry, like Topaz and other precious minerals could alone
increase yields from current $12 million to over $1billion. Most precious stones, which
were previously being exported from Kabul, are now believed to be going through
Peshawar. Pakistan has a potential yield of 800 thousand carats of Ruby, 875 thousand
carats of Emerald and 5 million carats of Peridot, which lay unutilized.

Proposed Capacity
Our recommendation suggests an annual production of 3300 units/year.

Total Project Cost

The total project cost of this gemstone and jewelry unit is Rs. 1.65 million. Out of this
capital cost of the project is Rs 1.37 million, and the rest is the working capital
requirement.

Process Flow

The process (Exhibit-6) of Lapidary includes grading, cutting and polishing of

gemstones. Raw stones are either purchased from the market or collected from the
customers. Individual stone is then examined (graded) and cut into smaller stones along
its major line of fracture and inclusions. The smaller pieces are then mounted on cutting

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tools, which are then faceted on faceting machines. The final operation involves polishing
of the faceted stones. Polished stones are then delivered to the customers or sold to the
market.

Human Resource Requirements

For a gemstone and jewelry units, the human resource requirement is given in (Exhibit-
7).

Machinery Requirements

Following combination of machinery is required for cutting and polishing of 3,300 units
per year. Approximate prices for machinery of different origins are given in (Exhibit-8)

RAW MATERIAL

Rough Stones

For the purpose of this pre-feasibility study, a combination of the following types of
rough stones has been used: (Exhibit-9)

Other Consumables

Basic raw material required (Exhibit-10) for grinding semi-precious stones that are used
for beads making is Carborendum Powder, which comes in three sizes of 220, 400 and
600 mesh. Raw material required for grinding and polishing of precious stones includes
Diamond Powder, Aluminum Oxide, Tin Oxide, and Cirium Oxide and Chrome Oxide.

Suitable Location

The most appropriate location for setting up a gem & jewelry industry would be
Peshawar, since major trade/export is taking place in this city. Within Peshawar, Namak
Mandi area is preferable, as large gem cluster exists here. Similarly, Karachi, with its
large gold and gem-studded jewelry making industry, is another suitable location. Lahore
can also be another alternative location for establishing this unit.

KEY SUCCESS FACTORS

The commercial viability of this Gemstone Lapidary depends primarily on the regular
orders from the customers. Following are some other points that have to be ensured to
make the business successful:
 Availability of raw material (gemstones).
 Reliability and contacts with the traders.
 Proximity to the Gem cluster.

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Threats For The Business

 The main reason why Pakistan has not been able to boost its exports is due to lack
of value addition. Small units of cutting and polishing are established in all cities
of Pakistan, but their quality is not according to the international standards.
 We do not have experienced cutters to use imported machinery and this is the
reason that our cutting and polishing of precious stones are poor. Thus lack of
adequate technical know-how is one of the major threats for this business.
 The problem of irregular supply from the mines is also a major problem, which
hinders the smooth operation of cutting and polishing units. The present world is
demanding calibrated sizes of different shapes of oval, rounds, princess cut, etc.
The local market is also highly developed, and on per capita basis, it is one of the
strongest in terms of revenue generation in view of the importance given to
jewelry in Pakistan.
 For a business like a lapidary unit, safety and security also acts as a major threat.

Regulations

The Government has decided to declare lapidary as cottage industry and to achieve $1
billion mineral export target by 2006. The government plans to spend $50,000 per annum
for cutting, polishing and marketing of Gems, Topaz and other precious stones and
metals. The amount of $50,000 would be spent for hiring expatriates and lapidary experts
to impart training to local people to set up Gem Trade Centers in the private sector.
Under the present export policy, Government has allowed duty free imports of all the
equipment, which are used in finishing process of gems and jewelry. This will definitely
boost the exports of these two items.

Conclusion

The Gems and Jewelry industry in Pakistan is at its preliminary stages and requires alto
of effort on behalf of the concerned authorities the prefiesebility that has been given in
this case study is based upon the sartorial growth matrix proposed by SMEDA for this
sectors development. The macro economic indicators suggest as the pace of economic
development is increasing we will be seeing a lot of investment in this sector in the near
future.

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Exhibits

Exhibit-1

Pakistan an Overview (Geographically)

Province\Region Area Sq.Km

Pakistan 796,096
Federal Territory 906
Punjab 205,345
Sindh 140,914
Balochistan 347,190
N.W.F.P 74,521
F.A.T.A 27,222

Exhibit-2

Pakistan Major Export Partners

Value in US$ thousand

Pakistan Major Export Partner
Country 1998 1999
  V % Share V % Share
USA 2416 32.17% 5360 43.78%
UNTD KINGDOM 2397 31.91% 3210 26.22%
UNTD ARAB EM 1944 25.88% 2448 20.00%
SRI LANKA 272 3.62% 478 3.90%
CANADA 123 1.64% 213 1.74%
SINGAPORE 111 1.48% 65 0.53%
MALAYSIA 18 0.24% 0 0.00%

Exhibit-3

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 Pakistan’s Exports of Gems

Value in $ million  
Pakistan Exports Gems  
Years 1995 1996 1997 1998 1999 2000-01
Value 2.01 4.08 4.87 4.62 2.40 2.19
Growth %   102% 20% -5% -48%  
Share 0.0059% 0.0113% 0.0133% 0.0141% 0.0064%  
Pakistan Exports Precious Stones unworked  
Value 1.86 3.44 4.76 4.40 2.29  
Growth %   86% 38% -8% -48%  
Share 92.20% 84.49% 97.62% 95.18% 95.41%  
Pakistan Exports Precious Stones worked  
Value 0.16 0.63 0.12 0.22 0.11  
Growth %   303% -82% 92% -51%  
Share 7.80% 15.51% 2.38% 4.82% 4.59%  

Exhibit-4

Pakistan’s Imports of Gems

Value in $ thousand  
Pakistan Imports Gems  
Years 1995 1996 1997 1998 1999 2000-01
Value 27 75 34 36 69 52.19
Growth %   178% -55% 6% 92%  

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Exhibit-5

Pakistan Gemstone Reserves Mines

Gemstones Occurances/Showings    

Emerald   Gujarkilli-Swat, Mingora - Swat, Shamozai - Swat, Charbagh - Swat,

    Khilatro-Gilgit, Bajour Agency, Mohmand Agency
Ruby   Hunza Valley, Neelam Valley (Azad Kashmir), Upper Hazara
Pink Topaz Katlang - Mardan     
Light Pink Topaz Shamozai - Mardan     
Peridot   Sput - Kohistan     
Spinel   Hunza Valley     
Aquamarine Bulechi, Stak and Khaltaro in the Eastern Part of Gilgit District,
    Garm Chasma - Chitral    
Tourmaline Neelum Valley - Azad Kashmir, Garm Chasma - Chitral, Bulechi, Shingus in
    Northern Areas.     
Feldspar   Skardu, Gilgit, Chitral    
Quartz   Dusso (Skardu), Lasbela, Nagarparkar (Sind), Azad Kashmir, Gilgit, Chitral
Topaz   Shingus and Bulechi in Gilgit District and at Niyit Bruk and Gone, near Dusso
    in Skardu District     
Zircon   Chilas, Gilgit Agency     
Agate   Nagarparkar - Sind, Dir Kohistan    
Garnet   Jambil - Swat, Kot - Malakand Agency, Targhao - Bajaur Agency, Skardu
Turquoise Chagai Hills - Baluchistan    

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Exhibit-6

Process Flow

Exhibit-7

Human Resource Requirements

Exhibit-8

Machinery Requirements

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Exhibit-9

Raw Material Breakup

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Exhibit-10

Consumable Requirements

Exhibit-12

Project Economics

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End Notes

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i
http://www.smeda.org.pk
ii
http://www.pakboi.gov.pk
iii
A project of Marketing Management Done by Students of Mohammad Ali Jinnah University