Aleksandr Lukashenko hears out report about challenges in manufacturing sector

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Belarusian President Aleksandr Lukashenko is alarmed by the negative trends in the domestic manufacturing industry. The head of state voiced his concerns as he heard out a report about challenges in the manufacturing sector at a session on 4 February.

“You promised earlier that our exports will increase by leaps and bounds, as this matter is of paramount importance for us. The Prime Minister assured me that today’s conversation about the sales of domestic products will be conducted on a positive note,” the head of state said addressing the attendees.

The President pointed to the growth in foreign accounts receivable, reduction in exports, and poor financial standing of industrial companies. The head of state emphasized that the meeting aims to analyze how the instructions and the obligations are fulfilled and how the promises are delivered.

Aleksandr Lukashenko reminded the attendees about the session held in June 2013 to discuss challenges in the manufacturing industry and the sales of Belarusian products. At that session instructions and personal assignments were given to a number of officials. Each of them was to supervise the companies that had sales issues. “Back then we agreed that by the start of 2014 considerable progress would be made in reducing the finished goods inventory and getting the money for the products we sell,” the head of state noted. He reminded that the specific targets and deadlines related to output growth and reduction of finished goods inventory were presented during his visit to the company Motovelo in early September 2013.

 “The government reports that the situation with the finished goods inventory is improving; they claim that they have managed to reverse the situation,” the President said. At the same time, statistics suggests that the industrial output shrank by nearly 5%, the foreign accounts receivable increased, debts for manufactured and unpaid goods are accumulating. All in all, they reached Br118 trillion, which is equal to more than two average monthly outputs. “What kind of a breakthrough is that if the companies do not get the money for the products they sold? The gap between the foreign accounts payable and the accounts receivable is growing and we still credit our foreign partners. Simultaneously we make up for it by tapping into our banking sector and consequently complain of expensive loans in Belarus,” Aleksandr Lukashenko said.

The President noted that his biggest concern is the reduction in exports and no progress in diversifying sales markets. “The inability and unwillingness to trade is to blame,” the head of state believes.

“I have said many times that the government should be like a big trade ministry. It is particularly relevant in the given circumstances. When I was defining the objectives to be fulfilled by the officials, I asked them what I need to do to help resolve the issues. I immediately responded to all their requests,” the head of state said. In particular, the President issued a decree about subsidizing loans provided by foreign banks to foreign buyers of Belarusian products. To stimulate exports, the Development Bank of the Republic of Belarus was authorized to take measures to promote export. It also incorporated the Belarusian company Promagroleasing.

“In order to expand our sales abroad (in China, Venezuela, Ecuador and other countries) I had to travel all over the world and to receive people from all over the world in Minsk. I met with governments and businessmen of many countries, thus creating favorable conditions for our sales worldwide. I should say that everyone showed an interest in purchasing Belarus-made products,” the President said.

“It is clear that we depend on foreign markets. Our economy is export-oriented. Our wellbeing depends on what we produce and sell. Therefore, we are very sensitive to the fluctuations of prices for resources and the demand for finished goods. However, taking into consideration that Belarus has an insignificant share in the global export, we need to boost our overseas sales. We should search for and find new market niches and export destinations. We should move,” Aleksandr Lukashenko underlined.

“Where are the results? I will tell you honestly – I do not see the fruits of your work,” the President said.

Aleksandr Lukashenko pointed to the poor financial performance of manufacturing companies. In his words, the net profit has nearly halved, the number of loss-making companies rose 1.8 times to make up over 17%, the aggregate net losses increased 2.6 times up to Br4.5 trillion. There are tremendous finished goods inventories. A number of Belarus’ leading companies that contribute the most to the country’s GDP have made little headway in selling the stock of finished goods. “It means that the obligations and instructions are not duly fulfilled. I would like to find out why these plans are frustrated and who is responsible for that,” the President stressed.

The session was attended by many executives and senior officials who had been tasked with supervising the companies affiliated with the Industry Ministry. The head of state noted that these companies account for 40% of the country’s finished goods inventory.

Aleksandr Lukashenko emphasized that the session is designed to thoroughly analyze the work in order to set the pace for the current year. “I think some decisions will be taken at the end of the session,” the President remarked.

Chairman of the State Control Committee informed the head of state about issues in the manufacturing sector.

In his words, the work of the State Control Committee to reduce the finished goods inventory was unsatisfactory. In 2013 the finished goods inventory made up 70.2%, or 10.2% above the target, of the average monthly output. Last year the reduction of finished goods inventory was accompanied output decrease and the increase in accounts receivable for dispatched goods. “All that resulted from the fact that a number of government officials and heads of enterprises heedlessly fulfil the instructions of the head of state to upgrade industrial facilities, branch out into new markets, ensure financial stability of companies. Managerial decisions and measures, including on the modernization of companies, are not always well-developed and economically feasible. As a result, the final objective is not achieved,” Alexander Yakobson stated.

The Chairman of the State Control Committee said that loans are the main source of financing for industrial modernization. However, he expressed concern over the attitude of commercial banks. They begin financing projects after agreeing on business plans and signing loan agreements but after first difficulties appear they cut off this financing. It results in delays in the implementation of projects and leads to the freezing of investments.

“Moreover, exorbitant cost of loans, over 40%, against a backdrop of relatively low refinancing rate (23.5%) adversely affects the financial state of enterprises. Such a situation seems to be quite convenient for banks because their profits in 2013 went up 2.5 times while the number of loans issued grew only by 23%. I think that in this situation banks should tighten their belts and detect measures to reduce their expenditures, including on salaries, and optimize profits in order to bring down loan costs,” Alexander Yakobson underlined.

The Chairman of the State Control Committee pinpointed the issues of competence of the executive staff at companies. Some managers, instead of taking effective measures to sell products, are trying to just make it look like the real work on dealing with stockpiles. For instance, the attempt to cook the books has been thwarted at BelAZ and Gomselmash.

Of course, there are positive examples. In January-November 2013 the export of the confectionery factory Kommunarka went up 38% over 2012 due to the expansion of export geography, replacement of the major retailers on virtually all markets. “The situation is almost as good at Gomel-based Spartak. It means the issue is not in the form of ownership, be it public or private, but in the personnel and the organization of work,” Alexander Yakobson noted.

Nevertheless, the overall situation is not rosy in spite of a number of positive tendencies, the head of state said. In fact, the government and heads of enterprises fail to meet imposed obligations.

According to Head of the Belarus President Administration Andrei Kobyakov, the issue on industrial backlog inventory has improved in general since the President’s meeting in June 2013. At the same time accounts receivable has seen an increase over the period.

Aleksandr Lukashenko expressed indignation that in the situation of the kind certain executives, instead of doing their job, seek ways to color the truth. “I am surprised at people who bother themselves with such things rather than go and help the certain company or make someone work. Who needs it I do not understand? The main thing is money for the shipped product,” the President said.

Belarusian Premier Mikhail Myasnikovich named weak competitive ability and inability to sell the product the main difficulties in dealing in the stock in hand. “Indeed, in H2 2013 we eased administrative control over the fulfillment of gross figures in order to protect the economy of enterprises. All big companies in Belarus were in the black, although the profit was small,” the Prime Minister said.

Speaking about foreign accounts receivable, Mikhail Myasnikovich pointed out positive tendencies in the existing situation. “Accounts receivable are funds owed by importers. If it is zeroed or minimized other companies will branch out into those markets and we will not be able to trade with them again. Therefore, accounts receivable are a bad thing, but there is a chance that e will get money from companies and countries which import our goods,” he said.

Director General of MTZ Vladimir Volchok communicated a similar point of view. In his words, it is essential to apply various financial schemes, including installments, to promote our products. “Each an all competitors of ours make discounts and installments for a year, two years or more. Today we offer smaller installments because of our financial capacity. But sometimes it is the only possible way to sell a tractor to a region or a country,” the MTZ chief said.

In general, the session focused on various aspects of the operation of enterprises, analysis of ways to raise competitiveness, reduction of finished goods inventory and expansion of sales markets.

At the end of the session the President instructed the government to analyze all issues in the manufacturing sector and make concrete decisions to get economic effect.