Professional Documents
Culture Documents
SYNOPSIS
1
This report on the gems and jewellery industry of Pakistan was compiled using
extensive tools of primary and secondary research. Primary research was done
through questionnaires and detailed interviews from traders who are existent
players in the field. In addition, an interview with manager training of Pakistan
Gems and Jewellery Development centre (PGJDC) and a visit to its respective
training centre in Karachi was also conducted. Chairperson of All Pakistan
Gems and Jewellery Merchants Association (APGJMA), Mr. Saeed and Imran
Khan, Managing director of the largest jewellery exporting brand, Tessori were
also interviewed for the purpose of analyzing the industry. Secondary Research
was conducted through an in-depth analysis of news articles, information
available over the internet, government websites and various brochures that we
were able to gather during the process. A reference to each source used has
been quoted throughout the report.
In the course of our research, we gathered that The Gems and Jewellery
industry of Pakistan is a lucrative trade to be in. Also, given the fact that
Pakistan is one of the top ten consumers of gold in the world, the industry can
expand beyond measures if provided with the proper facilities and investment.
Though the report progresses to present a detailed analysis of the basic
workings of the industry in Pakistan, on-the-field research allowed us to gather
the following points that are pivotal to the industry’s structure and workings.
These points are also later explained and discussed in detail in later sections of
the industry.
• Reluctance of the (jewellery) shop owners and traders to share information
specially regarding the taxes imposed on them.
• Prevalence of high rate of illiteracy amongst dealers which reflected on the
way transactions were carried out. Many dealers refused to provide us with
information after having one look at the questionnaire, which was printed
in English
• High illegal flow of raw material and finished goods both into and out of the
country. Smuggling of goods was openly confessed by many of the jewelers,
as ‘unofficial trade’
• Poor implementation of laws and regulations imposed by the government as
traders were able to find loop holes in the process and a large number of
them are still unregistered with the government. This results in poor
documentation of the industry. The problem exists despite there being a
proper policy design that has been chalked out to aid the jewellers in their
transactions
• A personal observation was that the markets were also not very busy and
the number of customers had significantly reduced. We visited the markets
in morning, afternoon and evening times to reach to the same conclusion.
Evening times registered only a slight increase in demand
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• Marketing efforts seemed to be minimal. This is probably because traders
are not aware of the opportunities available to them. As a result they do not 2
work towards branding their products
• The law and order situation and security issues of the country had made
both customers and traders unsecure which has further hindered the
growth of the industry.
The overall condition of the industry was unsatisfactory. Most traders were
upset of the fact that the government was not providing them sufficient help in
these difficult times. The industry has a lot of potential but resources are not
being fully utilized currently, as Imran Khan of Tessori said to us:
“The price of gold has risen, but when compared to the rising prices of oil and
dollar, it is still low. In addition, despite the high prices, the value of gold and
jewellery can never really erode in Pakistan given the cultural position it enjoys in
the inherited heritage. Nothing can replace jewellery, and more significantly,
nothing can ever be a true substitute for gold jewellery. Adding to the significance
of the sector, he added that the industry held the potential to pay off national
debt, if documented and regulated properly.”
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The yearning to adorn one with delicate ornaments acted as the root cause for
the rise to the Jewellery market in the sub-continent, over three thousand
years ago, as is evident from archaeological remnants spread across the Indian
Subcontinent.
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People of the Indus valley civilization were one of the first to start jewelry
making in this region. The growth was so phenomenal that by 1500 BC the 4
people of the Indus valley civilization were gaining expertise in the making of
gold earrings and necklaces, bead necklaces and even metallic bangles.
However, before 2100 BC, way before the time when metal had started to be
used widely, the major jewelry trade in the Indus valley was the bead trade.
The trend of wearing jewelry in the Indus valley was predominantly by the
female population of the civilization, similar to the gender-based trend of
jewellery used today. They wore many clay or shell bracelets on their wrists,
often shaped like a doughnut and painted in black color, what we now know as
bangles. Also, women of the Indus valley civilization are known to wear thin
bands of gold on their foreheads, earrings, brooches, chokers and gold rings.
Crafting small beads was popular amongst the people of the Indus: small beads
about one millimeter long were crafted, for the purpose of decorating them in
their hair, both men and women.
Because the subcontinent was largely catered at this point, the growth of the
jewellery-making trend was comparatively slower here. Many civilizations are
known to have actively been involved in the jewellery-making business for
adornment purposes.
The real boost to the industry however was seen during the Mughal era.
Because the rulers liked to flaunt their status and wealth through ornaments,
an increase in craftsmanship and innovation was seen. The trade of goldsmith
reached a zenith. A shift away from clay and inexpensive stones to more
durable metals, like that of gold and more precious stones was seen. Because
the subcontinent was a host to these resources itself, minimum obstruction
was faced in the production of jewellery. During the period, the artisan class of
goldsmiths showed their skills in making one of the most renowned gold
jewelry in history. The most famous among the jewelry types that emerged
during the times of the Mughals include, Minakari, Kundan, Polki, and
Nauratan, etc., most of them famous and in demand to-date. Indeed, Imran
Khan of Tessori Jewellers mentioned to us that many of their jewellery lines
were names after famous Mughals, because of the association. A popular
example is that of the Anarkali line.
The British who ruled the sub-continent also left a strong influence on the
jewellery line. With the setting up of railways and transportation facilities,
communication was easier. Foreigners, as well as the women folk of the British
soldiers were awe-struck by the local craft man-ship of jewellers. New demands
were placed, and the jewellers once again adapted themselves to fit the
changing trends and demands of the time. Western influence made it felt in
every sphere of life, even the native elite came under its influence. Though
traditional jewellery was not forgone completely, and sonars were still
producing it, distinctive western forms and patterns also made their presence
obvious. Gold bracelets with mounted miniature paintings and necklaces
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consisting of a series of oval plaques united by chains now came into vogue.
During this time, the jewelers continued to add to their knowledge and skills, 5
gaining influence from world-over and yet slinging to their heritage at the same
time Talismanic jewellery also gained popularity during this time, and enjoys a
special position is the Pakistani population to date. Though it dates back to
dates back to prehistoric times, such as the scarab ring of the ancient
Mesopotamians which was meant to offer the wearer immunity against
adversity, many local inhabitants wear it to ward off evils and perform charms.
Many stones hold a respectable place in the hearts of the Pakistani people,
majority of which is Muslim, as given significance to by Islam. For example, the
flesh-colored carnelian is considered lucky. The Holy Prophet (Peace Be upon
Him) is said to have worn this stone set in silver. An amulet or a hollow
pendant containing the words of a prayer, embossed or intricately worked, in
silver or gold, is worn around the neck by Muslims, as a measure of protection.
After partition, many sonars with their families also migrated to Pakistan, as
people from other professions had. The artisans of migrated families from
India with traditional Delhi and Jaipur traditions established small business in
Saraafa Bazaar near Kharadar, thus, became the first commercial market of
jewellery in this Cluster. It is to date the hub of jewellery designing and making
in Karachi, and one of the most popular markets of Pakistan.
Through times, however, the business locally has also seen trends. Where
previously heavy and weighted jewellery was proffered of intrinsically woven
designs, jewellery preferred now is light-weight and simple. In addition, an
increasing trend of silver jewellery is seen to gain popularity, parallel with an
increase in artificial jewellery, for purposes discussed in later sections of the
report.
The quote adopted from ‘Pakistani zevrat’ published by the export bureau
Pakistan, highlights the significance and importance, and summarizes that
jewellery business in Pakistan:
‘Diverse influences have played a vital role in Pakistan's development. Since the
cultural awakening of man, this region has come under a variety of influences:
religious, social and political. Aryans, Achaemenians, Greeks, Arabs, Turks,
Persians and the British have all come and gone, creating a bridge for the
interchange and migration of fresh ideas and new forms into the indigenous arts.
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Pakistani jewellery is the true mirror of its past, reflecting the social and historical
changes, colored by the people and temper of its times.’ 6
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INDUSTRY STRUCTURE
7
Jewellery industry in Pakistan is a large and wide spread one, with jewellery
hubs present in all major cities; and the demand for jewellery as high in the
rural areas of the country as in the urban. The industry comprises foremost, of
gold jewellery. Gold jewellery has largely dominated the local markets
throughout the country’s history. It is only recently that the country is seeing a
rise of artificial and silver jewellery, given the changing trends and the price
hike in gold.
The industry is largely UNSTRUCTURED and fragmented. More than 90% of
the players exist in the market because the business is family-owned one,
many of them fourth generations in the running. Because the business has
been passed down to them from their forefathers JEWELLERS have limited
knowledge of the opportunities available to them with the evolution of global
trade. ALSO, As a result a lot of trade is not documented. Lack of
documentation hinders complete development of the sector. In addition, it is
important to note that though regulations are present for importers and
exporters of the trade, no regulation policy or methods exist to keep in check
the regular, day-to-day trader. Implications of this will be discussed in the later
parts of the report.
In Karachi Jewellers throughout the city are present in clusters with major
players present in Saraafa Bazaar, Saddar, Tariq Road, Liaquatabad, Hyderi
and Clifton. Among all these Traders in Saddar and Saraafa Bazaar play a
dominant role in the Gems and Jewellery Industry. Each area has its own
major players that grasp a larger share than the competitors of the locality.
Overall, Tessori is the only jewellery brand in Pakistan and has complete
monopoly over designs and quality, and is also the largest exporter of jewellery.
Not only does it export jewellery to European states, but also to Hong Kong,
with its offices in Hong Kong and Dubai, and head office at Karachi.
The industry Pakistan is the 8th biggest consumer of gold in the world and
annually imports 127 tons gold but unfortunately there is no consumer
satisfaction and Pakistani jewellery industry suffers from unfair competition by
those who under-carat gold and therefore sell at a lower price. Also the high
volume of smuggled jewellery but into and out of the country is hampering the
industry’s growth.1
Locally produced gold is minimal: according to an article in daily times2, ‘The
Reko Diq site (Baluchistan) holds up to 11 billion pounds of copper and 9
million ounces of gold reserves, according to the government.’ However,
1
Flourishing Pakistani jewellery industry suffers unfair competition (Sana News)- 13
September, 2009
2 Daily times: Jan 15, 2010
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because of a lack of value-addition & proper mining facilities, political upheaval
in the province and militancy issues, exploitation of the resource has not been 8
possible.
Because of this, gold is largely procured through imports, which have seen a
decline in recent years. This is confirmed by the trend of falling gold imports,
from table13. This also reflects on increased imports margins of jewellery
witnessed by the country during 2006 and 2007, and declined only minimally
during 2008. This reflects largely on artificial jewellery that is imported from
china and India. Any mention of an increased import of gold represents an
increased demand of gold for investment and not jewellery-making purposes. In
addition, also note that a major portion of jewellery imported in the country is
smuggled into neighboring countries, as stated by jewellers from Golf.
Similarly, exports of jewellery can be accessed from table 24 , also adopted from
TDAP statistics. This highlights the fact that jewellery exports have increase
their share from 1.00% to 3.60% in total Pakistan exports, showing that while
local demand for the industry slumps, international demand exists. Dawn
news5 reports this as: ‘export of jewellery in July-June 2008-09 went up to
$288 million as compared to $213.3 million in 2007-2008’. This shows a
considerable increase in exports, given the fact that the country experienced a
marginal cut in the exports of jewellery during the year 2007 and 2008. The
decrease is largely attributed to the global recession that inflicted the developed
countries, given the fact that Pakistani jewellery is mainly exported U.A.E,
USA, UK, and Thailand. Recently assessed Demand for artificial Pakistani
jewellery and bangles is especially observed to be high in these markets.
This also supports the primary data gathered, in which we found that where
most jewellers stated that there was no local demand, manufacturers
commented on high demand being experienced for their products, with little
time on hands. The lag is largely reflected in exports of the item.
Pakistan’s jewellery industry is gradually gaining a position of utmost
importance to the country. It is also one of the top 40 export commodities, as
will be discussed in later sections. According to the managing director of
Tessori, the sector alone has the potential to pay off the country’s debt if given
the appropriate government attention and resources to operate. In addition,
given the rich abundance of jewellery in the Pakistani culture and heritage, the
managing director added, jewellery can never go out of fashion. Commenting on
gold jewellery, he added that its value can never be eroded, no matter how high
the price. He was supported in his views by a local jeweller from Saraafa bazaar
who added that the value of gold remains as it was 15 years ago. It is only the
‘pockets’ of people that is unable to reach for the yellow metal now.
3 Table attached in appendix
4 Table attached in appendix
5 Dawn News: 4 August 2009
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In recent times, the government has tried to indulge in various strategies to
promote and develop the sector, especially with the support of PGJDC. These 9
initiatives were taken to support the expansion of the industry through
technology up gradation, skill development, creation of awareness among
traders and increasing market exposure by encouraging participation in Fairs
and exhibitions. It is hoped that all these efforts in the long run will help
improve the quality and designs of Pakistani jewellery thereby increasing its
demand both in the local and international arena.
In short, the industry can be summarized as:
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Keeping in view of the above facts, the Pakistan Initiative for Strategic
Development and Competitiveness (PISDAC) Project was launched by the
United States Agency for International Development (USAID). The project was
implemented in partnership with Pakistan’s Small and Medium Enterprise
Development Authority (SMEDA). As part of the initiative a group of committed
industry stakeholders agreed to form a Strategy Working Group (SWOG) to
address how the industry could improve itself through a better strategy. Within
16 months from its inception, the SWOG had 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 platform. In the light of its
recommendation Government of Pakistan formed Pakistan Gems & Jewellery
Development Company (PGJDC) in June 2006 as a non-profit public/private
entity for the development of the Sector. The company became operational in
April 2007. The main objectives of PGJDC are to ensure the implementation of
the Strategy formulated by SWOG, SMEDA with USAID for general uplift of the
industry and increasing the competitiveness of Gems & Jewellery Sector.
These training centers also impart knowledge regarding the use of latest
techniques for manufacturing and offer courses like Jewellery pattern making
6 Brochures and course list attached in appendix
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in wax and computer-aided designing. This has helped break the monopoly of a
few major players in the market. 11
For this purpose new machine such as CAD/CAM, Lapidary machine and XRF
machine has been acquired
These skill development and technology up gradation interventions have
improve the performance of the sector in terms of
o Saving on wastage
o Saving time
o Saving cost
o Improved quality
o Internationally competitive export price
o Improved designs7
• Facilitating trade
Continuous attempts have been made by PJGDC and a recent
achievement has been the reduction of value charges on domestic
shipments by PIA.8
7 PGJDC Newsletter Jan- Sept 2009
8 www.pgjdc.org
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DEMAND
The unprecedented hike in the prices of gold that has been observed in the
markets from late 2007 has declined the consumers’ purchasing power and is
keeping them at bay from bullion market, even for purposes of investment.
During this time, and afterwards, a growing rise in silver has been observed,
for investment in metals. However, more importantly, the Opening of many
investment opportunities in the country, simultaneously to an increase in gold
prices, has caused a decline in the number of gold investors. Most people now
demand jewellery, especially that of gold, only during wedding seasons and
related festivals.
The rapid expansion of the artificial jewellery market has also proved to a
driving force for a fall in the demand of gold jewellery. The number of shops
dealing in imitation jewellery in Pakistan has increased during last three years.
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Now about 5,000 imitation jewellery shops are being run in Pakistan.9Because
artificial; jewellery is available at lower prices, and offers a multitude of designs 13
and varieties, it caters more to the economic and the fashion needs of the
customers. Article from daily times 10 quotes a customer, Arisha Tariq as ‘I
need lots of different sets to wear to match all the different types of clothing I
have. Therefore, I prefer to purchase a wide variety of cheap artificial jewellery
for different parties and occasion.’
Therefore where the demand for gold jewellery has seen a decline in recent
times, a boost in the demand of artificial jewellery and that of pewter and silver
has been observed. The general demand for jewellery can be categorized as
income elastic. This means that a direct relationship between the quantity
demanded and per capita income of the customers exists. This is mainly
because jewellery comes under the luxury goods category, thus meaning that
as a customer’s purchasing power falls, his demand of jewellery will fall.
Industry survey shows that demand for jewellery (of whatever kind!) however,
cannot absolutely be eroded from the Pakistani culture, given the heritage and
values that are related to it in terms of dowry. this view point was supported by
the chairman of APGJMA, Mr. Saeed Mazhar, who stated that ‘demand for
Pakistani jewellery is present, both in the local and international markets,
which is largely explained by the fact that gold souks are being built and
promoted and business closures are hard to put fingers on. New malls and
buildings, for example Sufi Tell in Clifton, have a whole floor devoted to the
business of gold and jewellery’.
A multitude of factors affect demand for jewellery, most of them prominent and
obvious, as have been stated by all jewellers. In this section, an analysis of the
factors effecting demand of Pakistani jewellery in the local and international
markets is presented, keeping in mind the cultural significance of the item.
Although all factors can affect both local and international demand, we have
tried to categorize them never the less, based on general industrial trends and
market surveys.
9
http://www.commodityonline.com/news/Gold-price-rise-boosts-imitation-jewellery-
trade-15337-3-1.html
10 Daily Times: Sept 07 , 2008
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1. Price Of Gold
The major factor influencing the overall demand for jewellery is its price.
Gold prices are set internationally; therefore local traders do not have much
influence on it. a price hike in gold leads to a slump in the jewellery trade,
leading to lower demand for gold jewellery, and parallel, leading to an
increased demand for artificial and silver jewellery (reasons for the trend are
explained in later sectiosn of teh report)
3. Tourism
As explained by Mr. Shamim Sarwana for silver jewellery especially, the
demand increases during peak tourist seasons. This allows us to generalise
the trend also for artificial jewellery. Tourists visiting Pakistan demand local
jewellery artefacts, given their uniqueness, beauty and sophistication. Also,
because the artefacts cannot be found on such large scale in foreign
markets, which also lack variety when compared to the local market,
demand for jewellery, especially silver and artificial increases. Word-of-
mouth by tourists of the jewellery in their home-country may have the
impact of increasing international demand for Pakistani jewellery in the
foreign markets.
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copper. Copper is added to strengthen the gold), as they now cost more than
before. 15
7. Seasonal Variations
Demand for jewellery is impacted the largest because of seasonal
variations, especially in the local context. The demand for jewellery,
irrespective of the kind, has been observed by jewellers to be higher during
the Islamic months of Rabbi-ul-awal through Sha’abaan. this is largely
because these months are associated with weddings, and experience a
higher purchase. Similarly, demand is also seen to be high during festivals
and occasions, like Eid. Husain Son Jewellers of Tariq Road identified the
months of May, June, July and December as showing higher demand.
Similarly, Mr. Shamim Sarwana associated higher demand through the
months of mid November to February, and mid-June to September.
However, the higher demand in this case was associated with an increase
11
Business Recorder, November 14, 2009
12 The Nation: October, 2009
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in tourist activities in the country during the identified months. Similarly
demand is relatively low during Muharram. 16
10. Smuggling
Smuggling within the jewellery is widespread spurring concerns regarding
the growth of the entire sector. Smuggling is done through land, air and also
by a legal means whereby women are made to wear them while travelling.
13
Article
attached
in
appendix
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This is likely to hamper the official demand for our products internationally
and hamper the growth of the industry in the long run. 17
SUPPLY
In the current economic scenario, the supply is enough to meet the demand,
both local and international, stated Mr. Saeed. Supply, like demand, for
jewellery in Pakistan is chiefly determined through demand, as a major
determinant. Stated by 85% - 90% jewellers, supply of jewellery is shaped by
demand primarily. Higher the demand, greater the supply; given the fact that
the industry suffers form no capacity shortages at the moment. Also interesting
to know is that gold is non-perishable, and does not depreciate in value if kept
unused. It suffers from zero inventory-loss: a jewellery article of gold unused, if
pushed out of trend can be melted to produce a new one of the latest trend!
Other related factors largely enhance, and not primarily determine supply.
These factors are:
PJGDC has also set up training centres in Gilgit, Lahore and Karachi where
they offer courses focusing on gem cutting and identification, jewellery
manufacturing and designing. Labour should also be trained to use the
latest techniques and trends used in gold refining and assaying worldwide
(for details, see the attached news letter from PGJDC)
14
Business
Recorder
:
December,
2005
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2. Value Addition
Supply of finished jewellery is also dependent on value-addition. Availability 18
of polishing, cutting and refining facilities, commonly known as value
addition, also affect supply through the availability of gems and finishing
facilities.
3. Trade Policies
Gold imported or fetched back into the country (See section _____), is
detained at airports for one week or more, lamented the APGJMA chairman,
Mr. Umair. Detainment of the basic raw material in the craftsmanship of
jewellery holds the labour useless for about fifteen days a week. This causes
a delay in production, and also, a week or more delay in the available
exports or supply of jewellery in general.
High import duties also discourage local sonars from importing gold from
Dubai, thus causing a slowdown in the cycle of jewellery production. This
leads to lower supplies, locally as well as internationally in the form of
exports.
4. Energy Crisis
The devastating power crisis all over the country has significantly harmed
the entire industrial sector including that of jewellery. Manufacturers
lament and complain of the disruptions caused in the work process, leading
to delayed production, as even small machines are run on electricity.
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6. Market Exposure
Government policies aimed at increasing the exposure of local 19
manufacturers in the international market will help them to increase their
supply in the international markets. For this cause is supported by UNIDO
investment Promotion Unit (IPU) along with Small and Medium Enterprises
Development Authority (SMEDA). They have initiated efforts of facilitating
co-operation with international markets, like that of Italy. Foreign
companies that operate in Pakistan to develop the gems and jewellery sector
via USAID, encourage local jewellers to visit foreign lands to understand the
demand there, and shape supply accordingly. , foreign companies, like J.E.
Austin Inc holds competitions, and through form-filling-procedures, carry
out an all-paid trip of local jewellers to USA’s developed market, to aid them
in improving the supply.
7. Availability Of Technology
Jewellery made with the aid of machinery consumes less time, leaves less
wastage and improves the efficiency of the kaarigars (Artisans). This allows
jewellery to be supplied quickly in the markets, consuming little time in the
manufacturing process.
PGJDC has introduced pattern wax-modelling for the first time in Pakistan
which has decreased wastage costs by great extent and also, decreased the
chances of error that were previously seen, when designs were manually
produced.
Recently after the economic crisis many people have started selling off their
old jewellery to make ends meet. The high price of gold has also encouraged
people to do so. This has increased the supply of used jewellery in the
market which can be easily recycled.
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One jeweller interviewed in Saraafa bazaar went as far as to say that 100%
old gold is being used as in its raw form for new jewellery production, while 20
others stated that the percentage ranged from 50% to 75% or more.
Sellers can sell old gold jewellery directly to the sonars (jewellery shops), the
kaarigars (workshops) o in ‘labs’. Labs ‘purify’ the gold and testify its
standings. In addition, labs also melt the jewellery form of the article and
make them available to sonars, at a price, in the form of pure gold.
The highest return value enjoyed in the case of old jewellery is that of gold.
Buying back of silver occurs at a much depreciated value, which lies in the
range of 50% to 75%. Also, silver does not perish in its original form in
Karachi’s weather; it erodes to turn black, losing its value and beauty. To be
put in use again, silver has to go through the refining process all over again.
In a similar fashion, no re-sale value as such exists for artificial jewellery,
which depreciates over time. A set purchased for Rs. 5000 can fetch back as
low an amount as Rs. 500.
15
Daily
Times:
Feb
2010
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Though one of the top ten consumers of gold, Pakistan experiences certain
draw backs in its regional and global standing.
When compared with other countries, the country is seen to be using superior
quality of gold- 22 carat in its jewellery production, especially that of export, as
can be seen from the table below:
The country benefits to a great extent from the fact that it has developed-
value-addition facilities. In addition, design innovation and creativity also help
the country gain a competitive edge over Pakistan. Jewellery industry of the
neighboring country has been recognized and supported by the government for
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more than last five years. With the government aiding, supporting and
promoting it through various means of financing and funding. India is also 22
ahead of Pakistan because of its superior command over marketing strategies
in the sector.
In comparison,. Pakistan’s jewellery sector was recognized only two years ago,
and still suffers from a lack of documentation and proper government
attention, which cripples its development. Lack of proper value-addition
(cutting and polishing) facilities, designing courses, and learning facilities, also
hinder the the industry’s growth.
As a result, the import and export statistics of the country vary markedly.
Mr. Saeed jokingly said that the export of a single jeweler from India equaled
the total export of Pakistan!
The table presented on the next page gives a snap comparison between the two
countries, in terms of their jewellery industries.
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Pakistan India
Jewellery exports $20 million in Sept $ 3,375.32 mn (Nov 23
2007 16 2007) 17
Growth rate 39.95 per cent till
Nov 2007
Major export destinations U.A.E, USA, UK, USA, Europe,
and Thailand Middle-East
New markets Not identified as Australia, China,
such - but Peru, CIS nations
planning future
expansions in
Australia and
Canada
Core exporting ethics Cost, time Quality, Cost, Time
Prominent competitors India Italy, Hong Kong,
China, Turkey
Focus area Skill-development, Professional
using modern tools Designing,
and equipment Extensive
International
Market Information,
Understanding
Customer
Preferences
Total world exports 0.04% 13%18
Interesting on note that where Pakistan considers only India as one of its
major competitors, the neighbouring country tries to compete with more
developed markets. The difference largely exists because [Pakistani
jewellery often lacks originality and imitates the Indian ones, whereas
the other Indian industry has added a touch of professionalism to the
trade. It is taught as a valid skill-learning and designing course in India
with individuals opting for majors in it. Also, the fashion industry in
India is more developed and mature than that of Pakistan, which has
just started off and is still in the infancy stage. This adds to the
increased popularity of Indian jewellery, locally as well as
internationally.
16 Dawn News: Nov 8, 2007
17 http://www.diamondworld.net/contentview.aspx?item=2166
18
Business
Recorder:
July
8,
2009
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Dawn article 19 however states that:
24
‘Jewellery exports have jumped 75 per cent in three quarters of FY10 primarily
because of still-high prices of gold, a pickup in demand for gold jewellery in the
Middle East and Europe and improved designing.
An official of Pakistan Gem and Jewellery Development Company told Dawn that
this year’s jewellery export would touch $500-million-mark for the first time.
Extensive jewellery designing and manufacturing training courses conducted
across Pakistan and holding of gems and jewellery exhibitions have helped in
boosting exports.’
This hints that Pakistan can hope for an increase in its jewellery items in the
coming years, though to reach up to the Indian mark, strong efforts in terms of
quality and branding techniques will be needed.
19
Dawn
News:
May
3,
2010
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PRICE
25
The Jewellery sector is largely dependent on raw materials that are imported,
as has been discussed. These raw materials, which not only include gold, but
also include copper, silver brass, majoos and Indian metal are dependent on
the international forces that effect and determine their prices.
Therefore, in effect when prices are set locally for gold jewellery especially,
international price settings and exchange rates have to be considered widely.
Also important to note that where a trend of price increase has been seen in
gold jewellery, a similar price trend has also been observed for silver and
artificial jewellery.
In this section, an analysis of pricing will be presented. The section will largely
look over the factors that determine the price in the industry, and will also
probe into factors that influence the pricing of the jewellery products. In doing
so, an assessment of the overall impact of rising price trends and fluctuations
is made, which effects demand and customer behaviors.
Given the fact that gold has to be imported, a lot of factors need to be
considered when determining the price of gold jewellery. Basic factors that
determine the price of jewellery are those that have to be charged and expensed
out regardless of the economic well-being of the country or other situational
factors. These factors include:
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b) Cost of production: the jewellery sector laments on the absence of
government support and aid, and lack of subsidies, as have been provided 26
to other sectors. In addition, given that no schemes have thus far been
introduced to allow jewellers to take loans or credit from the banks, the
cost of operations is quite high for the jewellers. An estimated minimum of
around 50% of total earning alone is expensed out to the work shop
owners. These workshop owners, after keeping profits for themselves,
distribute the earnings to the makers. In addition to maker cost, the
jewellers also have to deal with over head expenses on a monthly basis in
the form of utility bills, which also take up a substantially large portion of
a jeweller’s earnings (the increased cost per unit in electricity prices for
example!). These costs of production, by means of simple economics, are
passed onto the customers, in the form of increased pricing. The costs of
production incurred therefore influence strongly the price of jewellery
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e) Wastage costs: these costs are expensed out to the customers and vary
generally between 10% to 15%. Jewellers expense an approximate of 3% to 27
4% wastage to kaarigars (Artisans), according to chairman, APGJME. (for
more information on wastage see appendix)20
ARTIFICIAL JEWELLERY
Prices of artificial jewellery are also dependent on a number of factors. A
normal artificial set can be made of silver, 18 carat gold or of brass, copper, 2
per-cent silver, semi-precious and artificial stones. One heavy bridal set
usually costs Rs. 20,000 to 35,000, on average. However, a recent increase in
the prices of artificial jewellery was accountable to a number of factors, which
21largely include the following:
a) Varieties in artificial jewellery: those sets that are heavy are cheaper, while
those that are lighter in weight are expensive.
b) Import factor: artificial jewellery sets that are imported are more expensive
than the locally produced one. This is largely because import of artificial
jewellery takes place from China and India. Therefore, transportation and
freight costs are added to the basic cost structure.
Interesting to note is that imports from the Chinese markets are cheaper
because of lower transportation costs: lower than those incurred in
imports from India. This is largely because import from India is not direct
but is done via Dubai.
20
What
is
wastage?
Attached
in
appendix
21
These
factors
have
largely
been
discerned
through
secondary
data
from
the
article,
‘artificial
jewellery
sees
boom
as
gold
price
soars’,
published
in
The
News,
Thursday,
November
26,
2009:
the
author
is
Samia
Saleem
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gold is the most suitable one, and therefore is the most widely used one.
For example, the article referenced stated that previously, coating on one 28
gram used to cost Rs. 4, but with the hike in gold prices, the coating costs
have increased to Rs. 9 per gram and later sky rocketed to Rs. 12 per gram.
This increases the total cost of the jewellery article or set, and ‘the difference
has to be collected from the customer’: hence the increase in pricing
PRICE FLUCTUATIONS
Apart from these basic price determinants, other factors also influence the
price of jewellery regularly, causing it to inflate or deflate accordingly. These
factors are largely responsible for causing fluctuations in gold prices, and other
jewellery articles, often by large margins. Presently, as confirmed by most
jewellers interviewed, the market undergoes a fluctuation of 5% to 10%.
Factors that give way to price fluctuation, mainly, are:
a) Crude oil prices (specifically for gold jewellery): the reader must be
wondering how crude oil prices actually influence gold prices! We thought
the same thing when Mr. Khan of Tessori jewellers mentioned the same.
Quoting him on the matter, he stated that ‘oil prices and Euro act as
hedges22 to the gold market prices’. This fact was reiterated by Malva
Jewellers from Sarafa Bazaar and also by ____________ jewellers from
Murshid Bazaar. Secondary research highlights that a direct relationship
between the two does not exist. However because oil is used in the process
of excavating and refining the gold therefore, if oil prices go up, so does
gold prices and vice versa.
22
In
finance,
a
hedge
is
a
position
established
in
one
market
in
an
attempt
to
offset
exposure
to
price
fluctuations
in
some
opposite
position
in
another
market
with
the
goal
of
minimizing
one's
exposure
to
unwanted
risk.
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c) Dollarization: the recently experienced falling of the exchange rate gave way 29
to a fast depreciation of the Pak Rupee, against the USA dollar, making
dollars more expensive. This dollarization has also made import of raw
materials and import of jewellery-related machines more difficult. In
addition, because gold is largely traded in US dollars, the dollarization
effect has lead to huge leaps in the local gold prices.
d) Gold reserves held by China: another factor that influences the price
fluctuations in the sector if the Chinese reserves. As per Business
Recorder23, China is the world’s ‘biggest producer of the precious metal’.
Also, ‘China is the world’s second-largest consumer of gold, after India,
with demand exceeding 14bn dollars in 2009, or 11% of the global
demand. If China continues to grow in near the current rate in economic
and wealth terms, gold consumption in China will continue to expand and
has the potential to double during the next decade. Investment and
jewellery are the main sectors of the Chinese gold market, with demand for
gold bars, rings and necklaces reaching 423 tones in 2009, outstripping
domestic production of 314 tones’. This highlights the growing value of the
yellow metal in the Chinese market. China holds 4% of known global
reserves for gold. An accumulation of the precious metal by China will not
only hamper supply by the country (as China will retain its gold!), but will
restrict supply to other countries as well. This will largely be because
Chinese gold market will be purchasing gold from international markets,
creating a shortage of supply with an exceeding demand. Through simple
economic laws discussed this will create a price hike. The stable Yuan also
supports the increased demand for jewellery in the Chinese economy.
In addition, rumors regarding the same also recently caused an increase in
fluctuations in the prices of the commodity in context, stated Mr. Nadeem
Basit from PGJDC. Rumors cause speculation which lead to a false
demand for gold, causing prices to raise more than required.
A business recorder article24 states that ‘surge of $11.5 an ounce in the
international market gold price is said to have stirred the local market
prices. Local traders see speculative buying of gold on the world market,
after world investors found the US dollar is weakening against other
developed economies, which provided them with opportunity to sink
capital in the precious metal trade’
23
The
Nation:
March
30,
2010
24
Business
Recorder,
September
09,
2009
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f) Duty on international products: a hike in the duty increases cost of
production, causing an increase in price that is forwarded to the customer 30
as an increased price of the commodity and vice versa
PRICE TRENDS
In the past five years, as confirmed by all jewellers interviewed and an
assessment of news articles, price trends for jewellery generally show an
upward trend i.e. prices have generally seen to be increasing. Quoting harming
jewellers, ‘prices have soared from Rs. 770 per gram in 2006 to Rs. 3110 per
gram in 2010’
‘Fears of rising inflationary pressures, crisis in credit markets and the dollar’s
collapse earlier this year pushed gold prices to a record $1,030.80 an ounce in
March’, stated an article in daily times on friday, november 21, 2008. The
rising trend in gold jewellery has been seen since late 2007, till date.
This price trend has not been seen in articles of gold, but has also been
observed in silver and artificial jewellery sectors, which given a change in the
factors described in the last section, have registered a marked increase in
prices.
Interesting to note, as has been explained in the earlier part of the report, is
the fact that jewellery is part of heritage and culture in Pakistan. No wedding.
Especially, is complete without jewellery. Dowry for girls often also demands
jewellery as the most important element. Earlier, given the intrinsic value of
gold, gold jewellery was optimal for dowry. However, with the recent price
hikes, the trend of wedding and dowry jewellery has found its focus on the
artificial jewellery sector. Quoted by a jeweller from Saraafa bazaar, only the
rich can afford to buy and buys gold jewellery now, even for wedding purposes.
The middle lower and lower classes prefer cheap artificial sets, which is within
their economic reach.
Another implication that the soaring price has, even on gold-buyers is that
buyers are shifting their purchases to yet lower-carats: people who used to
purchase 22 carat gold are now demanding 18 carat, people who purchased 18
carat gold are now demanding 16 carat and so on. This has largely been
observed as a result of price hikes in the yellow metal.
In addition, Pakistan has also seen a fall in export because of the surging gold
prices. As Sadia Qamar says in the nation26, ‘fluctuating oil prices, world
economic recession and internal record high inflation have all been prevalent
indicators in striking the gems and gold market in Pakistan. The stark changes
have spill the beans in the market place, with the data showing Rs. 254 million
exports of gems and gold in July-December 2008 against the exports of 277
million in the corresponding period in 2007. Earlier, the gems and gold
industry was not too costly a market to deal in jewellery but the trends in
jewellery have sidelined the buyers’.
Parallel, with an increase in international gold price, gold imports have become
expensive. This has led to a decrease in official import channels, and given way
to unofficial channels via smuggling the precious metal into the country.
Details on export and import can be found in section ________.
Also important to note is that jewellery items largely fall into the luxury good
category: inflation in price has therefore led to a lower demand of the relatively
income-elastic commodity.
26 The Nation, Feb. 07, 2009
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COMPETITION
32
The sector is largely widespread and unorganized in nature. Karachi’s cluster
of Jewellery may be regarded as advanced and organized as compared to other
areas in Pakistan because of greater market access, consumption and
availability of raw material (ease of availability discussed before!). Currently
there are more than 5000 units of Jewellery employing more than five lacs
people. Saraafa Bazaar, Saddar, and Tariq road were previously established
jewellery markets: however, with time more clusters have sprung up which now
include areas of Liaqatabad, Hydra, and Golf and Clifton. This new array of
clusters have added to the competition as customer bases now become diluted
and prefer to shop in their own localities. These new clusters have also led to a
loss of previously established brand names like: Motswana, Tessori, Ruby
Jewellers etc. Customers see little product differentiation and thus are less
motivated to travel across the city for an article they can get from their own
localities. Where this has increased competition, the increasing clusters have
also led to the creation of local regional markets, with few players enjoying
more leverage in each market than the others. For example, in Tariq road,
Motiwala and Chotani jewelers, in sadder ruby jewelers and Tessori and in
Saraafa bazaar Malva jewelers and so on enjoy greater brand leverage and a
stronger and more loyal customer base, based on factors of trust, customer-
service and superior designs. This allows us to conclude that competition in
the jewellery sector is based on more than the monetary units. In addition, it
also allows us to conclude that the current structure of Jewellery Industry in
Pakistan can be labeled as MONOPOLISTIC COMPETITION. This is because
there are numerous players in the market competing with one another for
products that are differentiated in term of branding and designs.
BASIS OF COMPETITION
a) Brand name: the brand name of a jewellery shop acts as one of the most
vital element of competition. Not only does it allow a shop to enjoy
leverage in the customer base, it also allows the shop to attract yet a
more potential customer base. In addition, a brand name is a sign of
trust (in quality terms) for articles purchased. However, it is pivotal to
our research to keep in mind that jewellery shops in Pakistan do not
utilize branding on large scale. Few shops capitalize on the marketing
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strategy to increase their popularity, as will be discussed in depth in
later sections of the report. 33
b) Designs: designs that a customer seeks also become an important
element of competition in the industry. For tessori, each design it
produces is different from the other, thus catering to a woman’s basic
desire to have a unique look through jewellery that no one else has. For
tessori, this uniqueness of designs often leads it to enjoy a greater
market share. Therefore, it can be concluded that designs offer an
element of differentiation for the jewellers, which they can capitalize on
to give them a competitive edge.
d) Customer loyalty: trust will lead to customer loyalty in its next stage. This
will allow a jewellery shop to expand to capture newer markets. Loyal
customers will boast of their purchases and praise the jewellers for the
quality and design, in their peer circles and families. This word-of-mouth
marketing will bring ‘hundred customers through one customer’s27 to
one shop. The more loyal a customer is to a shop, the more will his
dependence for purchases be on the shop, this giving the jeweller a
completive edge in terms of present and potential customer bases.
27 Imran Khan, Managing Director Tessori
28 Ground Floor, Dolmen Mall, Tariq Road
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offering more variety and perfection than competition, and being in the
sight of customers’, it is easier to increase the potential and sales. 34
f) Customer-service: last But not the least, customer service often allows
jewellers to ‘convert’ a customer, and win him over. Customer service
largely includes not ignoring a customer, no matter how small his
purchase might be. A customer bringing a minimal of Rs. 5000 in the
shop today has the potential of brining Rs. 50,000 or more tomorrow. In
addition to this, politeness, savvy salesman ship and free give always on
purchases also allow a jeweller to improve his customer service. For
buyers who buy in large quantity, personalized marketing like sending of
cards before festive occasions also makes the customer feel ‘special and
remembered’ through simple marketing principles, this inclination of the
customer to the brand will allow it to retain its present customer and as
mentioned before, also attract potential customer.
In this regard, it can be said that customers of jewellery are largely fickle and
the purchases spontaneous: unless a shop enjoys a very large momentum of
built trust and loyalty, it is likely to lose its customers to competition if it fails
to deliver promises of superior design and fine quality.
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MICRO-ECONOMIC FACTORS
35
Labor
The industry is a highly labor-intensive one in Pakistan and depends at large
on the skill-man ship of labor. Surveys of the market highlighted that labor
was broadly categorized into kaarigars (Artisans) and Salesman
Labor today is largely in the form these of illiterate, but skilled artisans. Skilled
here is primarily abilities gained and sharpened through on-field exposure and
experience, and not through professional training. According to most jewellers
interviewed, costs expensed out to the labor lied in the range of 50% to 75%.
Mr. Saeed further elaborated the process as: ‘each kaarigars is paid according
to a per tola scale. Generally a kaarigars can earn up to Rs. 300 to 400 per
tola. Therefore, if jewellery set weighs 10 tola with which he has had to work, it
will bring him approximately Rs. 4000.
To offer more compatibility to kaarigars with the changing times, and offer
them a competitive edge, PGJDC introduced a training centre at main Saddar
location. However, jewellers complain that the training is largely for the
already-educated, demanding a minimum of inter-mediate. In this way it is
rarely helping the mainstream kaarigars: indeed the first few batches from the
center consisted of no ‘laymen-common artisans. It was only after the protest
by APGJMA, that the concession was made, and common kaarigars started
benefitting from the institute. However, the designing taught there is largely
matrix-based, and often demands heavy computer knowledge. To fill this gap,
ARY jewellers plan to open shortly, a more commercial-based training centre.
This will focus more on tool-based courses that the industry commonly uses:
the courses will be more worker-related.
Designs made available to the artisans are generally local, only some jewellers
use foreign designs. These designs are made available at large from catalogs
(kaarigars-created), magazines, internet and customer-own. Customer-own
related to when a customer may bring his own designs to be created. In this
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case, designs are first made on silver by artisans, to reduce error chances, and
wastage costs, and then the finalized design made of gold. 36
Labor in the form of artisans varies only minimally in gold, silver and artificial
jewellery; the major differences being that artisans for gold have lingered for a
greater time in the industry than the other two.
Salesman: most of the jewellery shops visited were family owned; therefore the
owner himself was a salesman. However, newer generation is taught skill the
same way as artisans: through work exposure of salesmanship. In cases of
shops that have expanded and employ salesman, the criteria largely includes
previous work experience. A probation period of one-two weeks is given, during
which the salesman is assessed on his work. In many a cases, shop-owners
themselves provide the training to ‘fresh’ salesman in the business, and reap
the benefit of loyalty at large. Unlike artisans, who possess no education or a
minimum one, salesmen are largely inter-mediate graduates. However, the over
all literacy rates in the industry is very low, accounting for poorer
understanding of the market needs and changing trends. Generations carry out
the business of their forefathers, not having much knowledge of it themselves,
until some time is spent on shops, says Erum Jewellers on Tariq Road.
Some jewellers, like Tessori have their own designers hired. These are
professionally trained and educated personnel in the field, the managing
director himself being a graduate in diamond designing. In addition, brands
like Tessori that account for a large share of Pakistan exports and cater to local
and international needs all the same, hire labor (both artisans and salesman)
that is highly skilled. This labor is further refined through courses in foreign
lands of Sri-lanka and India.
29 Business Recorder: November 14, 2009.
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Technology
37
The industry has the potential for expansion and achieving the export target, if
it is provided with latest technology, training and supportive infrastructure.30
At present, the industry makes use of traditional jewellery: though the work is
not manual, the processes are now obsolete and historic in nature. Most
kaarigars use casting and similar bangle-making machines, imported from Italy
and Germany. Locally available machines can be obtained from Gujranwala
and other cities of Punjab that specialize in the business. Often, expensive
machine abroad is locally identified and created on jewelers’ demands, at a
much cheaper price, with no compromise on quality.
Capital
Part from labor and machinery, as have been discussed, the capital that is
largely required to operate a jewellery business is the ownership of the shop
(rental structures can often prove expensive, especially during times when the
economy is slow and business generates little profits), maintenance of
operating over head costs and wages and employment of security as per the
preference of the owner.
Most jewellers get the business in inheritance, reducing their initial starting-up
costs. However, for a new entrant to enter the business, he would have to
arrange for a location/shop and then gather finances to purchase raw
materials and jewellery for show-casing. Shop-presentation and over head
costs add on to the intensive capital-needs. Though raw material is easily
available, costs of procurement vary according to international process. In
addition, over-head costs are expensed out as a minimum 25% and maximum
50% of a jeweler’s total earnings.
Most of the shops are self-owned, but because of low security provided by
government, are insecure. Almost no shop is insured, because of the high
premium accounts. This means that security employed by the jewellers is also
self-maintained, adding to the costs.
31 Gems And Jewellery News Letter, Janury-September 2009
32 Business Recorder: Dec 27, 2006.
33 Appendix: Certificate Of Customer Sania
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Resources
39
Not many other resources are needed in a jewellery business. Basic raw
materials are either locally available or imported, as has been mentioned in the
previous sections of the report. Only copper is locally produced. Gems and
related stones needed for production are locally available, albeit their value-
addition lacks. Important resources for the business, then, can also be
highlighted as value addition: the art of cutting and polishing and refining gem-
stones, used in jewellery.
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34
The Nation: Feb 2009
35
Performance
Report
2008/10
36
Gold
finds
new
way
into
foreign
markets‐The
News
(May
2009)
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Inflation
41
According to the primary research conducted, it was found that the demand for
gold jewelry has locally declined in the past five years. One of the major
reasons of this is inflation. With a decrease in the purchasing power
experienced, Mr. Saeed is seen to quote in a Dawn news article37 that He said
inflationary trend in food prices is not allowing many families to buy gold sets
with a free hand for their daughters’ weddings. He said many families have
been trying hard to manage low weight sets with heavy work of semi-precious
stones while many people are bringing old jewellery for renovation’. All jewellers
interviewed were upset of the fact that there has been a decline of about 50% to
70% in their business.
Security Issues
CEO of Pakistan gems and jewelry Development Company, Fawad khan, was
asked if the security issues in the tribal areas affected the gems and jewelry
industry in any way. Khan said that he didn’t seem to think so. He maintained
that the acts of terrorism and other security issues did cause hindrance in the
business but had not damaged the industry in any significant manner.38
Mr. Tahirul Qasmi, accounts and administrative officer of the gems exchange
in Peshawar, was quoted in an article written by Riaz Khan Daudzai recently
saying that, gems and jewelry was among those sectors that flourished even
during years of militancy and insurgency in the NWFP and adjoining tribal
areas. Qasimi gave credit for the same to the Pakistan Gems and Jewelry
Development Company. 39
37 Dawn News, August 4 2009.
38 Gems Industry Neglected Despite Trade Potential-The News (Jan 2009)
39 Gen, Jewellery Exports May Cross Rs 250m Mark- The News (Feb 2010)
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2010 the jewelers at Karachi Saraafa Bazaar, called a day’s long strike in order
to protest against the recent robberies that had happened in the city, since 42
such events were adversely affecting their business. The jewellers demand a
‘fool-proof security’ from the government to ease their operations and restore
consumer trust, who fear the purchase of gold items on account of the
increasing insecurity. The jewellers further stated that hunger-strikes will be
demonstrated if the sector is neglected for any more time than has already
elapsed, and resulted in suffering losses for the industry and jewellers at large.
In contradiction with the earlier stated information, many jewellers reported a
loss of trade, which has adversely affected the business. They pointed at the
almost deserted shops in the market at four-thirty in the evening to prove their
points. ‘We’re sitting here since morning and not a single sale has been made.
This is the routine that has been going on since the past many weeks’,
emphasized the representative from Sami Jewellers, in Saraafa bazaar.
Political Uncertainty
The growing instability of the government and the feeling on uncertainty, where
fear of life and wealth always lingers on the population, people aim to invest in
more secure commodities. Solid gold in the pure form of biscuits and coins is
one such commodity. Investment and purchase of jewellery is even lower, and
many sellers have shifted or are in the process of shifting their units abroad to
safeguard their interests. In a similar fashion, where many buyers are also
migrating to foreign land, they feel cash-in hands will more valuable to their
needs than this liquid asset.
In addition, the changes in import/export duties and taxes jewellers are
subjected to vary considerably with time, not being relatively stable. This also
adversely affects the industry, as will be explained in section __________________
One of the reasons why Pakistan used to get benefitted from export of gold
jewelry was that there used to be a big price difference between the gold jewelry
made locally and that made in the Dubai market. Unfortunately this difference
remains no more for reasons explained. This is especially where Pakistan
looses out in the international market, affecting the global demand for our gold
jewellery.
The high international price trends of gold have discouraged consumers from
buying gold jewellery, and shift to silver and artificial, however, a price hike in
artificial and silver jewellery ahs also been observed. Despite this, Pakistan is
gaining popularity now for its artificial jewellery in foreign markets. Swedish
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ambassador, Ulrika Sundberg in an article published in the news40 has
reported to have said that amongst many other products, Pakistan is known for 43
its artificial jewellery in the European markets. However, a proper introduction
of the commodities is yet to be developed and initiated by Pakistan.
This highlights that though a rapid growth in gold prices have led to the gold
jewellery exports to suffer, artificial jewellery and silver jewellery from Pakistan
is gaining increasing momentum in the international market. Indeed, Mr.
Shamim Sarwana said that his jewellery was widely distributed and much
desired in European countries, and exported to the same along with to USA
and Australia. In this case, however, the jewellery is not exported under the
brand name of Sarwana, but is sold to retailers there who purchase it
accordingly. A lack of marketing facilities is demonstrated here.
Marketing also being one of the macro economic factors for the industry is
under-developed and poorly made use of. Trade fairs are one outlet for the
industry to mark its name in the international world, which have recently
gained popularity amongst the jewellers, who now strive to capitalize the
events. However, lack of funds to hold self-financed exhibitions in the foreign
lands to introduce Pakistani jewellery there has held the country back on its
exports especially. Te concept of branded jewellery is vital to be introduced in
the international markets. ‘We have a mission to give Pakistan its due share of
recognition in the international jewellery trade. There is urgent need for
jewellers and manufacturers to realize the need of the hour to create demand
for Pakistani jewellery in the global market’, reports Kamran Khan of Tessori in
an interview with Business Recorder41
40
The
News
(April
21,
2010)
41 Business Recorder, December 27, 2006
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44
GOVERNMENT POLICIES:
Lack of documentation in the trading of jewellery sector has led to the industry
being neglected despite having tremendous potential for foreign trade,
especially with US markets, reports Faryal Najeeb in the news.42 In addition he
states that ‘the non-traditional sector was worth US$210 million with over a
million people directly associated with it, and yet the figures do not present the
true picture as most of the transactions go unrecorded.
The lack of proper documentation facilities have by far led to tremendous
losses to country’s GCP in terms of lost tax revenue in the national exchequer.
The lack of documentation also hinders the government and related authorities
from gauging the true picture of imports and exports, and thus prevents it from
chalking out strategies and developing initiatives to help the industry.
It is vital that the reader knows at this point that gold is considered to be
foreign currency in Pakistan, therefore no gold is supposed to leave the
country. Being so, jewellery exports are generally made of value-addition and
skill-man ship. From the total export revenue, the basic gold price must be
recovered, as per law, within seven months. Being so, exporters and importers
largely comprises of the same group of people: who export gold jewellery, and
then recover the basic gold back in the country
The section will largely highlight the government policies regarding the sector:
regulations regarding the import and export, and the imposition of taxes, and
providence of subsidies. It will also briefly explore the recent government
initiatives taken to promote the industry.
Export
Policies and requirements:
42
The
News:
Jan
13,
2009.
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• Maintenance a Jewellery Pass Book authenticated by TDAP for placing
entries of all export and import transactions. Then following is the 45
procedure for export
Apart from these legal pre-requisitions, the exporters were previously required
to pay additional customs duty on exporting jewellery items and gemstones,
which brought down more problems for the exporters.
Also an interesting find was that exports in their raw forms, especially 24 carat
gold is not allowed by the government. Stones and gems similarly, could not be
exported in their rough form previously: only after they were polished and
processed was the export allowed. However, regarding the gems and stones,
allowance has been made to export them in their rough form.
Import
Policies and requirements:
• Import of gold and gemstones under all schemes shall be exempt from
normal import tariffs. The import of other raw materials, tools,
machinery and equipment under import of gold and gemstones against
export of jewelry or import entitlement shall be allowed free of customs
duties and advance income tax. In case an exporter uses duty-paid raw
materials procured from the market, duty drawback shall be admissible
according to the standard duty drawback system in force. Sales Tax on
export of Gold Jewelry and Gemstones is zero-rated. An exporter can
claim refund of Sales Tax paid on raw material inputs. Advance Tax at
the rate of .75% shall be charged on export of Gold Jewelry and
Gemstones along with 0.25% Export development surcharge
• Import of gold, directly by the exporter or supplied by foreign buyers,
shall be in minimum quantity of five hundred grams (adopted from
PGJDC)
Through surveys conducted, it was found that no legal import of finished
jewellery products is allowed in the country. This is to maintain the competitive
edge that the local traders hold in the Pakistani markets. However, finished
products from a broad are broadly available with the jewellers. Malva jewellers
openly and blatantly confess that the import of finished goods is unofficial.
This import is largely made possible from Dubai, Singapore and India.
Also adding to the flourishing smuggling trade in the country, Mr. Saeed
elaborated, is the fact that previously, imports were levied with a duty of 50
cents on per tola of gold. Since last three years, however, importers have faced
a levy of 1% Advance income duty on their shipments. This is reported in Dawn
news43 as, ‘The government has levied one per cent withholding tax and 50
43
Dawn
News,
4
Aug
2009
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cent per tola duty’. Further, Dawn article 44 states that ‘Gold imports used to
cost only Rs32 per tola, including import duty and income tax ahead of 46
announcement of the budget 2006-07. After the imposition of one per cent
wealth tax, the cumulative impact of duty and taxes had surged to over Rs200
per tola.’ Making import of gold more difficult leads to a thriving underground
economy, that smuggles not only gold and raw materials out of the country,
but also finished products of the same. This greatly discourages the official
imports, and indirectly the exports of the country.
Taxes
Before analyzing the taxation policies in the sector, a common complaint must
be discussed received in the process of completing the report. Most jewellers
are dissatisfied with the methods of taxation. They believe that the government
should not tax the gold used, but should tax them on the earnings other wise.
A lack of a proper model for calculation and imposing taxes on jewellers is felt
widely in the industry, in addition to a lack of implementation policies
regarding taxation.
Primary research highlighted that Jewellers are subjected to the following tax
figures:
* A discrepancy in primary data was found at this point, because Mr. Basit
Nadeem reported that the sales tax for registered jewellers was 16%. Husain
sons jewellers confirmed this by stating the sales taxes they were subjected
were approximately 15%. At the same time, jewellers many jewellers disclosed
the sales tax levied stated that it was 5%.
An interesting observation during primary research was the fact that most
jewellers avoided the question of taxes which made them groan. Though most
of the jewellers said more than 50% taxes accounted for their costs without
thinking, some stated that they cannot disclose the figure. One jeweller
explained that a jeweller can be paying zero taxes, or as low as 1% to 2%,
Depending on the information he wishes to disclose to higher authorities. This
personal holding over the information to be disclosed and to be exposed is one
of the major draw backs that a government faces due to a lack of proper
documentation, which allows many jewellers to operate on a free-from-tax
basis. Also, many jewellers were reluctant to provide information, or sign n
44
Dawn
News:
Nov
8,
2007.
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verification forms for fear the information provided may be passé don to the
FBR and so on. This reluctance on a majority of jewellers allows us to conclude 47
that many jewellers pay below-the-belt taxes, and many do not. It also hints
towards any illegal activity that a jeweller may be carrying out.
Chairman of APGJMA stated that the association had only 300 registered
members (per year membership fee equals Rs. 2000). Of this, 150 were listed
as exporters while only 15 were active exporters. Registration with APGJMA is
a pre-requisite to operating business and trading in the industry, said the chair
man. However because the association is directly linked with the ministry of
commerce, giving the government direct exposure to the jeweler’s earnings,
profits and asset base, registration is apparently low. Jewellers in this case
seek memberships in unrecognized associations that operate to help them in
their routine tasks, and manage their conflicts.
45
Business
Recorder,
Sept
18,
2008
46
Business
Recorder,
Dec
27,
2006
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three years since, to date, no formulation of such a policy has come into
existence. 48
• TDAP has initiated the up-gradation and expansion of the industry
through considering the proposal of setting up of gems and Jewellery
Park in Karachi, by the name of Dazzle Park. 16 acres of land has been
earmarked by the civil aviation authority at Karachi for the proposed
Dazzle Park.
Controversy on the above however exists. Mr. Saeed of APGJMA
explained in an interview with him, that the proposal for the same had
been sent twice to TDAP in the last 15 years, and has thus far only been
under consideration. The delay is attributed to factors such as that of
unfeasibility etc. no visible outcome has yet been seen, a depressed Mr.
Saeed informed us.
• An agreement was signed between the governments of Pakistan and Italy,
Business Recorder reports47 , ‘for availability of soft credit line of Euro
7.75 million for Pakistani SMEs.
• Participation is facilitated for participation in various trade fairs by the
government and government bodies. One such facilitation was seen in
the Vicenza Fair, one of the most popular shows for gem and jewellery
traders and machine suppliers. PARTICIPATION in gem trade fairs allows
local traders an avenue into international markets: allows them to
compete internationally and gain a larger share in the trade pie.
• Establishment of common facility centres for training and manufacturing
have been established in Lahore and Karachi by PGJDC.
Despite the initiatives identified in newspapers, claimed to be taken by the
local government, the local jewellers and association chairman complain of
little aid given to the mainstream jewellers, and the limited facilities that are
available for them.
Regulation in Sector
The sector operates under limited, in most cases no regulation or vigilance.
Given an industry status two years back, the sector still suffers from a lack of
documentation. Despite policies existing in regard with routine trade-
operations, no policy implementation can be seen. Export/import policies and
regulations exist, but that is as far as regulation stands: no regulation exists to
be implemented and keep in check the operations of routine, day-to-day
traders and their activities.
Problems faced by the jewellers in their routine transactions are solved by ad
looked after by the associations of which they are members. Problems that
jewellers normally face involve conflicts with pother jewellers, problems with
kaarigars and the supply chain, problems with the availability of raw materials
and so on. Jewellers reported that associations provide them with a 100% help,
47
Business
Recorder:
April
24,
2008
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without delay, and all rated the association’s role, and importance as being
‘very good’ in the surveys. Associations, however, it must be noted, largely exist 49
in commercial areas. Jewellers operating in posh localities, in places like the
forum and park towers face a dearth of associations. APGJMA, the only
recognized association for jewellers in Pakistan claims to solve even the
problems and complains by customers against jewellers. It has its branches in
all major cities of Pakistan, with its head office being in Saddar.
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FRAMEWORKS
50
Porter’s Diamond Model
Factor Conditions
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The industry should become more attentive, with kaarigari, cutting,
polishing, refining and retailing an organized chain. 51
• The knowledge of artisans is learned through direct decent, and is
praise-worthy. They are skilled in their field of expertise. However, an up-
date of the global jewellery trends will better equip them for producing
jewellery designs that sell, and increase their know-how of the field.
Demand Conditions
International demand
Pakistan possesses of gem-stones used in the jewellery making process.
However, it lacks value-addition. The basic competitive advantage it holds over
other countries in jewellery production is the availability of cheap, skilled labor
as artisans. The country also seeing a bloom in individuals aspiring to become
branded jewellery designers, recognized world over. Sarwana, Zehra Kachelo,
and Maria Athar are just a few names from the large pool.
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• Cutting, processing and polishing: though a dearth is faced of the
industry, commonly known as that of ‘value-addition’ in the country, the 52
industry supports the mainstream jewellery industry by supplying
processed and finished stones and gems to be used in jewellery
• Fashion industry: one of the major influencers of demand through
changing life-style trends, fashion leads the women into purchasing the
jewellery in showcases and displays. Women of Pakistan often ask for
Indian-style jewellery after having seen them repeatedly in Indian soap
operas or in Indian fashion magazines.
Latest clothes also demand with them a trendy jewellery that
compliments the dress and its colour. This for example supported the
trend and need of silver and artificial jewellery
• Transport industry: by providing inland transport from north to the south
with precious raw materials, the transport industry also acts as one of
the supporting industries for jewellery.
Firm strategy
• Goal setting: largely seen as to increase and maximize sales. This will
often include a comparison with previous year’s performance, and a sales
target will be pre-set to so that costs of running business and routine
activities may be covered.
• Process to achieve the goal: through promotion in various fashion
magazines. Also, on-spot-promotion, where jewellery shops’ presentation
acts as a major source of attracting customers. The more well-kept, well-
decorated and well-maintained a shop will be, higher will it’s chances of
attracting customer be. In the same way, better the items and articles of
jewellery to be sold on display, better the shares in sale. In this regard,
location discussed in earlier sections of the report, plays an important
role as a means for a jewellery shop to achieve its goal.
Industry structure
Competition
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Government
• Low regulations for the industry: exporters and importers have chalked
out regulations to follow and implement, whereas routine jewellers trade
as per their will
• Lack of documentation in the industry. This leads to a failure of
implementation of
• A proper tax structure, which is lacking. Jewellers may pay or not pay
taxes because many of them operate as unregistered trade-players
• No visible subsides or credit/finance schemes offered by the government
• Has minimum effect on supply of raw materials currently: imposition of
import duties restrict supply. 15 years back, no gold imports were
allowed officially. All gold brought in the county for use in the jewellery
sector was smuggled. ARY jewellers purchased the first license for gold
import in the country from the government48. Today global price hikes,
import duties, and internal inflation have deflated the demand for gold as
raw materials. Many jewellers make use of old jewellery sold in the
markets as raw materials, other prefer cheaper ways of smuggling
• The government policies have seen to have no impact on competition.
48
Attachment
regarding
ARY
jewellers
in
appendix
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Porter’s five Forces Model
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• Suppliers have high operating costs in terms of over heads, taxes and
self-employed security, in addition to that of production and inflation 55
• The product is undifferentiated at large: the only differentiation that
occurs is on the basis of designs and brand name of the supplier. In case
of designs, the customers largely tend to compromise for the ones that fit
their price ranges
• Switching to substitute products is simple and not related to high costs
• Customers are price sensitive: demand has seen to fall because of high
gold prices and factors previously described
• Jewellery is a largely a luxury good, and income-elastic
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customer population is relatively low when compared to the entire buyer-
population. Most customers search for economical jewellery that has 56
good designing and value to carry.
•
Even though the industry faces low government regulation and an easy access to
raw materials, coupled with the availability of distribution channels. Threat of
new entrants is low because of security constraints of the country, as well as the
high opening and operating costs that a buyer is faced with.
Threat Of Substitutes
Rivalry
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PEST ANALYSIS:
57
JEWELLERY
IDUSTRY
PAKISTAN
Political Factors
• Current law and order situation of the country is not favorable especially
in the tribal areas of NWFP. This affects the performance of the gems and
jewelry sector since it has created many security problem.
• Non existence of hallmarking results in Pakistan’s increasing loss of
export, self independence and less acceptability of Pakistani products
both in the local and global markets
• This sector has a huge untapped potential that is being wasted because
of the negligence of the government as there is an absence of a specific
gem-related mining policy, dearth of creativity, lack of global market
knowledge and export methodology are heavily hurting the entire sector.
• The practice of smuggling gold to other bullion markets has existed for
long time and there is not much being done about it, despite the
knowledge of the lost official revenue.
• Lack of documented trading
• No price regulation policies by government, because prices largely driven
by international forces
• The political instability also lead people to reduce demand for the luxury
item and invest in more ‘solid’
• Though gold refining uses lead, which is poisoning in itself, no health or
environment related policy has yet been established.
• Establishment of the Pakistan gems and jewellery development company
through public/private ownership as an initiative to organize the
lucrative industry. This has led to an increase in the country’s exports,
according to an article published in The News.
• According to the laws of the State Bank export of jewelry to India is not
allowed at all
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• With the rising prices of gold jewellery buyers have started purchasing
less of it.
• Recession has affected the jewellery sector in terms of its demand. With
less purchasing power people buy less jewellery, given its income
elasticity.
• Import of gold and silver is subject to State Bank's authorization
• Higher living costs have also led people to sell their old jewellery, to
capitalize on the increasing market trend
• Jewellery forms one of the most valued heritage symbols for women of
Pakistan, and subcontinent largely. It holds high cultural significance,
especially in terms of dowry for women in the subcontinent.
• Jewellery is mainly a luxury item that is purchased mostly by women of
all age-groups in Pakistan.
• Because of a decline in the purchasing power, people no longer purchase
gold jewellery in the same amount that they used to at a point.
• Where before women used to wear gold jewellery in heavy amounts to
flaunt their marital status after marriage, today’s women prefer trendy
and light jewellery.
• Because this fashion need is often unfulfilled in gold jewellery,
supplemented by the fact that gold prices are not sky rocketing and the
security constraints in the country dense, a shift towards silver jewellery
has been seen.
• Development of the country’s own fashion industry has also accounted
for a shift in trends to lighter jewellery
• Silver jewellery often gold-plated, allows women to purchase varying
designs at cheaper costs. The same is the case with artificial jewellery.
Gold jewellery is now only purchased during the wedding season, and
that too has seen a shift towards lower carats. This is largely for
purposes of dowry, and gifts
• Increased exposure of Pakistani women to global trends has also led to
an increased demand of jewellery articles
• Higher exposure to Indian fashion has also led to an increased demand
for Indian-style jewellery
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• Local jewellers use casting machines for making bangles, chains and
nose rings, etc.
• Machines are imported mainly from Italy (finest jewellery market of the
world, as stated by Mr. Saeed). Also imported from Germany, USA and
France. Import of these machines if of high costs. Transportation takes
from 4 days to one week.
• Locally machines available from Gujranwala, Lahore and other cities of
Punjab. These machines re also of high quality, and relative cheaper.
The old methods and techniques used in the industry create a lot of
wastage of precious stones and metal, for example a lot of precious
stones go to waste due to old excavation methodology
• Pakistan is to adopt hallmarking production in the sector very soon.
• Jewellery that is produced through CAD/CAM, using software matrixes
are of superior quality and presentation, and more in demand for export
• Use of technology saves costs, time and wastage. It increases efficiency
and productivity of the sector.
• Introduction and mainstream use of technology will reduce costs of
production by large numbers for the industry. In addition, it will also
help Pakistan meet international standards, and build economies of scale
in production for international markets.
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SWOT ANALYSIS OF JEWELLERY
INDUSTRY
STRENGTHS
WEAKNESSES
OPPORTUNITIES
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RECOMMENDATIONS
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• The government should take steps to complete import-of-gold transactions
in one day, so that raw gold does not wait in cargo idle. This will help the
industry improve its productivity, and help it meet export orders on time
without delay.
• A separate room for checking of gold imports- away from the general import
section- so that security risks are relatively reduced for the industry.
• The government should have follow-up steps taken after designing and
establishing a policy to check if it is being implemented o not. Post-
implementation steps of assessing the changes brought by policy
implementation should also be developed so that the industry can flourish
and gain momentum locally and internationally
• Provide security measures for local jewellers who are trading to ease their
operations
• Government support through bank loan and credit facilities will also aid the
sector in advancing and acquiring expensive technology to aid production,
otherwise not possible
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• Improve the marketing strategies implemented in the sector through
introducing the concept of branded Pakistani jewellery to improve its world- 63
wide-recognition and demand
• Speeding up the process of hallmarking and assaying will help the industry
improve its quality standards, and conform to international standards,
thereby adding to the international demand and a simu8latenoes increase
in local exports.
• Government support through bank loan and credit facilities will also aid the
sector in advancing and acquiring expensive technology to aid production,
otherwise not possible
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CONCLUSION
Pakistan Gems and Jewellery Industry is currently facing a slump due to the
tremendous rise in the international prices of Gold and poor internal economic
and political situation of the country. According to many traders in the
industry the demand for Gold Jewellery has declined by about 50-70%. On the
other hand the demand for silver and artificial jewellery has increased.
However, this demand increase and an increase in gold prices led to a
subsequent increase in their prices, which has been has been a limiting factor
the growth of the entire sector.
The fact that a major portion of the industry is still not documented and the
existence of widespread ‘unofficial trade’ in order to escape taxes have been
major contributors to the inefficiency prevalent with the industry. Shocking to
know was the fact that unrecognized associations played a role in aiding and
supporting the unofficial trade/smuggling
However despite the weaknesses the industry has a lot of potential. Pakistanis
come from a culture and traditional background where jewellery especially that
of gold is highly demanded, especially for purposes of dowry and to flaunt
marital and wealth status. Thus this accounts for the popular a high
importance of it during the wedding season and festive events. Pakistan I also
blessed with a large number of skilled artisans who have acquired skills
generations, and are now expert in this ‘family business’
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