EFFORTS TO REVERSE SLUGGISH UAE GOLD JEWELLERY MARKET – BY MATRADE

Introduction

Since 2016, the demand for gold and gold jewellery in the UAE has experienced a downward pressure due to the challenging dynamic ranging from higher gold prices, lower crude oil prices, India’s demonetisation exercise and taxes application.

Market Trend

In 2017, Dubai has removed 5 per cent import duty waiver on gold jewellery which further reducing the Emirate’s competitiveness in gold jewellery trade. Reports have noted due to that, numerous industry players have moved operations from Dubai to other locations including Turkey. The introduction of 5 per cent value added tax (VAT) since 1 January 2018 has made the situation worsen. According to the London-based World Gold Council (WGC), in the first three months of 2018, the UAE-wide gold jewellery sales are estimated at 10.5 tonnes and a fairly steep drop of 23 per cent from 13.6 tonnes in the first quarter of 2017. In the first quarter of 2016, the record was 15.3 tonnes. Separately, industry sources have estimated that wholesale gold jewellery sales in Dubai have declined by up to 60 per cent in first quarter of 2018.

Recognising the importance of the industry and current challenges, the UAE Government has decided to apply the “VAT reversed charge” mechanism for trading of gold, diamond and precious metals at the wholesale level. Under the mechanism, entries of 5 per cent VAT will be documented in the books of both buyers and sellers, but there will be no payment of the fee.

On the retailer forefront, the challenge to charm millennial shoppers has compelled them to shift jewellery options in showroom. Older generation shoppers are viewing gold as safe have investment and for that, 22k gold jewellery preferred due to its higher purity.

Millennial shoppers are less concern on the resale value jewellery pieces bought, but rather eager on contemporary and trendy designs and the value price point. Based on that underlying preferences, UAE jewellers have started to expand 18k jewellery pieces in showroom which able to offer more designs, lighter in weight and acceptable value. To date, several major jewellers in Dubai have moved gradually to open stand-alone 18k jewellery stores to cater the potential market segment.

The decision to apply the new mechanism for gold wholesale trading can be considered positive, nonetheless at this point the benefits are confined at business level. Retail gold jewellery sales are still applying 5 per cent VAT which may not resulted in upward changes in demand. However, it is rather premature to ascertain its direction as the decision has been announced only in May 2018. MATRADE Dubai is of the opinion that additional efforts may be required further to improve consumer sentiment which has subdued since VAT introduction. Approximately up to 25 per cent sales of gold jewellery in Dubai have been contributed by tourists, particularly from India but the current depreciation of Indian rupees might discourage them to shop.

Conclusion

For Malaysian exporters, it is crucial to quickly adapt to changes in the UAE market, which at times can be fast and swift. It is also worth to note that from January to April 2018, Malaysia’s total exports of gold, silver & platinum jewellery to Turkey has recorded at RM7.3 million from nil in the same corresponding period last year which may confirm the relocation of industry players from Dubai to Turkey.

For further enquiry, please contact MATRADE Dubai at dubai@matrade.gov.my

Disclaimer
While every effort has been taken to ensure that the contents of the article (MATRADE’S Insight) are accurate and current, MATRADE cannot be held responsible for any inclusion, omission or error and is not liable for any loss or dispute arising from the use of the information provided.