By Stefania Trenti
Banca Intesa SPA

In recent years, ‘crisis’ has become the most common description of Italy’s gold sector, which since 2001 has seen exports fall off significantly. This article attempts to shed some light on the main competitive and structural problems in the Italian jewellery industry.

Photos Courtesy Unoaerre SpA

The export recovery seen in the Italian gold sector at the end of 2005 – and confirmed in 2006 – has attracted the attention of sector analysts, given that these figures might represent the first glimmer of hope after the severe crisis of recent years. Export data represent one of the few sources of information available to help monitor the economic situation in the gold industry, both at sector level and regionally. And despite a number of limitations, export statistics appear more accurate and informative than the figures on domestic demand or production where, as the operators themselves admit, there are many grey areas.

The word ‘crisis’ has become the most common descriptor of the state of Italy’s gold sector, which has seen exports fall off significantly since 2001. This, combined with sluggish domestic consumer spending, has led to a decline in production and job losses. The crisis was felt particularly strongly in some of the provinces where the historical ‘gold districts’ are located –Vicenza, Arezzo and Alessandria, where Valenza Po is located.

According to figures from the Vicenza chamber of commerce, the area’s gold district lost around 18% of its workforce (2,300 employees) and 17% in sales in the period from 2002 to 2005. Similar figures were recorded by the chamber of commerce in Arezzo, where there was a 15.6% decline in the workforce (around 1,620 employees, over the same period).In this article, I will attempt to shed some light on the main competitive and structural problems in the Italian jewellery industry to determine whether these recent figures may be interpreted as the end of the crisis (and if so, how), or whether they simply reflect the sharp rise in the international price of gold – in which case, the end is not yet in sight.

Competitive Challenges

For some years now the Italian gold sector has been undergoing a period of crisis and transformation, mainly due to increasingly fierce competition in the international markets.

Given the weak economy and changes in the tastes and habits of consumers (especially those relating to purchases for special occasions), domestic demand was unable to offset the fall in exports, resulting in declining sales for companies (Figure 1).Following a particularly critical phase that lasted until 2003, during the last two years the sector seems to have stabilised, although it has not managed to regain the momentum it had in the 1990s. Both exports and sales remained broadly constant in 2004 and 2005 at the levels reached in 2003, before beginning to show signs of improvement at the tail end of 2005 – which were confirmed in 2006, as we shall see.

The slowdown in the sector was undoubtedly triggered by the collapse of the US market, which coincided with a recession caused by the bursting of the dot-com bubble and the after-effects of the September 11 attacks. The US had represented the Italian jewellery sector’s key market, accounting for more than a third of the sector’s exports in 2000.Although the decline in retail jewellery sales in the US market was confined to 2001, as Figure 2 shows, Italian exports to the US have continued to fall, accelerating their decline in 2003-2004 in tandem with the period that saw the dollar’s greatest devaluation against the euro.

The link between jewellery exports and the exchange rate trend is quite significant, both on account of the US market’s dominance (US imports are either sold on the fertile domestic market or re-exported) and because of the general tendency to use the US dollar as the benchmark for goods in this sector. Despite this, the strong euro is not enough to account entirely for the negative trend in Italian exports.

An analysis of gold jewellery’s share in dollars of the global export market (this product represents the bulk of Italian exports in the sector) shows the strong growth of new competitors (Table 1). India, China (including Hong Kong) and Turkey in particular have, in a short space of time, managed to make significant inroads in the market, rapidly eliminating Italy’s until-recently undisputed leadership.

*HS Code: 711319 "Articles of jewellery & parts thereof of precious metals (excluding silver)"

**The share of China and Hong Kong was obtained by subtracting the bilateral flows from the sum of the two countries' exports

Source: Intesa Saopaolo chart from UNCTAD data

Source: Intesa Saopaolo from ISTAT data

In addition to the countries with low labour costs, others ranked as main exporters, such as the US and the UK, are also among the biggest importers of jewellery (with 34% and 14% of global imports respectively), and often trade or re-export the products to other countries. Note also the role of Switzerland, a country with a strong watch-making tradition, which delegates a significant part of its gold work (e.g. bracelets and watch straps) to Italy: around 30% of Italy’s exports to Switzerland are re-exports, highlighting Italy’s role as the location for Swiss companies’ workshops.

The decline of Italy’s position vis-à- vis the US market has been even more dramatic (Figure 3). In 1996, Italian products made up over 30% of US imports. This has now fallen to 11%, according to provisional data for 2005, which saw the position of ‘leading overseas supplier of gold jewellery’ go to India, followed by China and Hong Kong.