Turkey's Gold Market: Modernising the Midas Touch

Another step forward came in 1992 with legislative changes that recorded the importance of gold as a savings product and instruments. Investment companies and funds authorised under the new law were allowed to hold their assets in gold. Deposits account in gold, Lira deposits indexed to gold and gold accumulation plans all became permitted. A bank's gold liabilities could be balanced by financing the jewellery sector with gold-based assets.

In 1993, the CBRT's gold monopoly was ended and authorised market participants were allowed to import and export gold bullion on a declaration basis. Proceeds of exports no longer had to be remitted in Turkish Lira. These measures led to the opening of the Istanbul Gold Exchange (IGE).

The Exchange was designed to attract banks into the gold sector to support the industry. They could import gold, offer deposit accounts for gold denominated in grammes, and give credits to the jewellery industry. Imports of gold were privatised in 1995 and began to be carried out by the members of the Exchange.

The Turkish Jewellery Sector

The World Gold Council estimates that Turkish gold consumption in 2000 amounted to 110 tonnes – of which jewellery accounted for 85 tonnes, measured purely by gold content.

Twenty years ago, the jewellery sector was very different. Since all gold had to be imported – and there was no legal method of doing so – the business was off necessity highly secretive, with little co-operation among its members. There was minimal investment in technology, quality left much to be desired, and marketing was almost unknown.

By once the market was liberated and imports became legal, it became possible for manufacturers to build a firm based for conducting business. Their traditional customers base - the local market – views jewellery as an investment and therefore preferred high carat low mark-up pieces with simple designs.

Following the economic liberalisation of the 1980s, other sources of investment became available to the Turkish public and jewellery became to be viewed more as adornment. Design and quality, therefore, become more important, and there was growing interest in low-carat, more reasonably priced pieces.

Fabricators also found another customer base for adornment jewellery in the increasing number of tourists vising Turkey. Yet another new source of customers was the 'suitcase trade' – tourists, mostly from Eastern Europe and the former Soviet Union, newly armed with passports and dollars, who bought jewellery in Turkey and carried it back with them to sell at home.

The industry adapted to its new audience. While making simple bangles did not call for a variety of skilled workers, making modern adornment jewellery for differing, often sophisticated tastes required skilled craftsmen – including engineers and metallurgists to ensure the quality of the workmanship and designers to supply new designs. In addition, there had to be an investment in modern machinery and equipment and operators to run them.

Over the past decade, the average number of workers per shop rose from four to ten. And although there was a decline in the overall number of workshops – some of the smaller operations did not survive – the total number of workers in the sector mushroomed from 70,000 to over 200,000. The number of large fabricators (those with a minimum of 100 workers) has increased from 5 to 100. And there are now some very large manufacturers with over 1,000 workers, a good size for a manufacturer in any part of the world Where in Italy a very large fabricator might have several hundred workers and rely on a lot of machinery, Turkish jewellery manufacture is a hybrid, Dallin in between the machine-made products of Italy and the hand-worked products of the East.

As total employment in the industry rose, so did the number of designers from several to several hundred. To encourage the design side of the business, the World Gold Council introduced an annual contest in 1994, for which a catalogue was printed. Unfortunately, there weren't enough designer at the time in Turkey to fill the book, and it became necessary to use some Italian designs. But the time a catalogue was produced in 1997, there were 300 applicants – including students, freelancers and professional designers. At first, Europe was the source for inspirations, and local manufacturers adapted what they found. But over time, designs came to be made locally, reflecting local tastes and culture.

Direct exports

The next steps for Turkish jewellers after supplying the tourist and luggage trade was to begin exporting directly. The exportation of jewellery had actually been allowed since 1982 - before that of gold bullion - but at first not many took advantage of it. NGC statistics show that there was only one tonne of jewellery exports in 1991.

Arpas was the first company to concentrate on exports, commissioning others in the Bazaar to work to their specifications. The first export locations targeted were in the Middle East - Dubai and Saudi Arabia. By the early 1990s, they began to look farther afield, to the United States. Initial efforts did not meet with unqualified success, but they made investments - including building their own factory - persevered and eventually their efforts were rewarded.

Today there are roughly 50 manufacturers that are serious exporters of jewellery. Last year, jewellery exports as measured by gold content amounted to 58 tonnes, the highest level to date.

At the beginning of last year, many of the exporters banded together to form a trade association called Anagold. The members feel that there are advantages in working as a group - they can use their joint power to cut costs and streamline the export process, and they are supported in their efforts by some government incentives. Anagold plans to open their first overseas stores over the course of the year.

What else can the industry do to remain competitive, to keep growing? Hasan Yalinkaya, head of Goldas, one of the larger exporters, emphasizes the need to control inventory. Product lines must continuously be revaluated and revamped based on changing consumer tastes and preferences and designs that don't prove successful must be quickly discontinued to avoid costly inventory accumulation.

Continuing investment in technology is vital, from computer-aided design and manufacturing to the establishment of an electronic commerce platform for both wholesale and retail sales and distribution

Yalinkaya sees worldwide opportunities for growth both in and outside Turkey - potentially including new manufacturing facilities in locations such as Israel or retail outlets elsewhere in Europe or in the US. And within Turkey, Yalinkaya sees potential to increase demand by promoting an alternate reason for purchasing jewellery - not as the traditional investment, but as a gift. In that arena, jewellery must compete with a multitude of other products, but Yalinkaya is confident, saying: "We believe our efforts will soon pay off."