Aleksandr Lukashenko holds session to discuss manufacturing sector development

    According to President of the Republic of Belarus Aleksandr Lukashenko, it is necessary to clear the inventories of Belarusian companies in Q3 2013. The head of state made the statement at the government session held on 11 June to discuss the development of the manufacturing sector and the sales of Belarusian goods.

    Aleksandr Lukashenko emphasized that the session needs to discuss the most pressing issues facing the manufacturing industry. This pertains, first of all, to factors impeding the quality economic growth of the sector. “We need to find the truth. The fact remains – the increase in finished goods inventory is obvious,” the President said.

    In his words, Russia’s accession to the WTO does not justify reduction in Belarus’ export.

    “You should not complain that Russia, our major partner, joined the WTO or that Europe and Russia were hit by the crisis. We had known about it long before, there is nothing new about it,” the head of state said. “It is ridiculous to say that we cannot compete with other countries on the Russian market,” the Belarusian President said.

    “Our export to the European Union is now as big as that to Russia. Does that mean that the EU joined the WTO yesterday? Our export there and the competition we face there are the same as in Russia. Therefore, your reasons and references to the WTO factor do not stand up to scrutiny,” Aleksandr Lukashenko said.

    “We are running after the output, thus increasing finished goods inventory. It is a fact,” the President said.

    Aleksandr Lukashenko wanted to be updated on the situation on the financial market in connection with unfavorable economic developments. “God forbid this situation leads to social tensions in labor collectives,” the head of state said.

    Prime Minister of Belarus Mikhail Myasnikovich informed the President that last year fixed capital investments increased to $3 billion. State support made up $380 million. In 2013 the volume of investments will grow, too. According to the Prime Minister, Belarus needs to inject more funds into the development of the manufacturing sector to preserve the status of the country’s industry.

    At the same time, Mikhail Myasnikovich acknowledged that the performance of the industry in the first five months of 2013 was unsatisfactory. The biggest stockpiles were in the mechanical engineering and partially in the light industry.

    “A daily systemic work is conducted on these and other drawbacks. Monthly charts have been drawn up in order to reach the preset rates for the industrial production growth and inventory clearance,” the Prime Minister said. He added that the chance is high to reach the forecast growth in the industry by the end of the year.

    Mikhail Myasnikovich assured that the situation with the excess inventory should improve in June-September. There are plans for more shipment to the domestic market. The work is in full swing to diversify the geography of exports. As for the traditional Russian market, the export policy will be built here taking into account the changes related to Russia’s accession to the WTO.

    Director General of Gomselmash Alexander Kamko reported to the head of state that the company’s inventory was reduced by 20% if compared with the level of 1 May 2013. The company earned more foreign currency proceeds, signed new delivery contracts, including to Kazakhstan.

    Director General of OAO MAZ Viktor Osnovsky said that the enterprise is planning to step up efforts to reduce the backlogs of inventory, including by means of market diversification.

    According to Chairman of the Belarusian food industry concern Belgospishcheprom Alexander Zabello, in the near future companies of the concern will clear the inventory.

    Aleksandr Lukashenko warned against mechanical unloading of the warehouses, when the products are shipped to dealer centers or trading houses with no count on gains. The President expressed discontent of the efforts to seek opportunities for boosting exports, finding new markets.

    Mikhail Myasnikovich said that the work is in full swing to diversify the geography of exports. As for the traditional Russian market, the export policy will be built here taking into account the changes related to Russia’s accession to the WTO.

    The Premier pointed to the need to improve leasing schemes and make the use of such instruments in export sales as delay in payment, which is actively used by foreign companies. With this, the function to coordinate the leasing activity in the country will be handed to the National Bank. The relevant draft decree will be soon submitted to the President. Apart from that, there are plans to intensify the activity of leasing companies, OAO Promagroleasing in particular. According to the government, the monopoly of the Eximgarant of Belarus in export insurance should be reduced. The right to provide insurance services should be also given the companies with the government share of 50% and more. It is likely that another insurance company will be set up under the aegis of the Development Bank of Belarus to promote the exports of Belarusian products.

    Mikhail Myasnikovich reported that, apart from Sberbank and Bank VTB, Vnesheconombank shows interest in concessional lending of the purchase of the Belarusian equipment in Russia. “Thus, both leasing and export lending channels are expanding,” he said.

    The Prime Minister also believes necessary to increase the volume of business loans, which will promote solvent demand, including on equipment.

    “We have heard the main thing: the first stage is September. You said: progress in summer will be evident. You will considerably reduce the unsold stock in the third quarter and reach the preset targets by 1 January 2014. This promise is under special control,” the head of state stressed.

    Aleksandr Lukashenko ordered personal responsibility for inventory clearance. “The responsibility should be personal. For example, Mikhail Myasnikovich is responsible for clearing MAZ unsold stock, Alexander Yakobson and Vladimir Semashko – for other excess inventory. Do not forget about the Foreign Ministry,” the head of state said.

    “I cannot listen to the promises of the Prime Minister, i.e. the Government, any longer. They should be fulfilled,” Aleksandr Lukashenko demanded.

    According to the President, clearing up inventories should be free from falsification, false reporting, and prejudicial trade. “Keep it in mind: at the end of the year you will report on the results. That is why using any ways to clear the warehouses, getting rid of the products at the cheap rate will not do. The economy is at the forefront, only then sales, volumes, etc. Eyewashing and falsification are inadmissible,” the head of state stressed.

    Chairman of the State Control Committee Alexander Yakobson noted that, despite the measures taken by government bodies, the instructions of the President on addressing the problems in industry are not fully implemented. This relates to the schedule of investment projects, increase in the pace of modernization, improvement of competitiveness of domestic products and exploring new markets, development of domestic raw materials, reducing energy consumption, increasing the level of localization of production, improving the financial health of enterprises and loss-free production. According to Alexander Yakobson, amid declining output there has been a significant increase in the inventories. There is a high inventory backlog at the enterprises of the Industry Ministry, and much of it comes from the industry flagships. The light and the food-processing industries also have the impressive volumes of unsold stockpiles. For this reason, the industrial complex runs into a number of financial problems, first of all, the washing out of working capital. The Chairman of the State Control Committee noted that the instructions of the head of state to take measure to improve the financial health of companies in the real production sectors are not met. According to Alexander Yakobson, in such difficult conditions, individual producers, instead of taking efficient measures are trying to create the appearance of work. For example, the documents Orsha Meat Packing Plant show that it shipped Br6.4 billion worth of cans to Vitebsk Meat Packing Plant in April and May. In reality the products remained at the warehouse of the Orsha plant.

    Alexander Yakobson underscored that the State Control Committee identified specific reasons for growth of unsold stocks at more than 50 industrial enterprises, and many of which are subjective.

    In his words, measures to improve the quality and competitiveness of Belarusian goods are often declarative. A prime example is the situation in the textile industry. According to him, the products of OAOs Sukno and Kamvol are not in demand even amongst companies of Bellegprom Concern. The backlogs of inventory are estimated at tens of billions of rubles. The clothing manufacturers use largely imported fabrics. The share of domestic wool fabrics in the manufacture of clothing does not exceed 5% due to low consumer quality and high prices. According to Alexander Yakobson, to turn the situation around and improve the competitiveness of products it is vitally important to speed up the implementation of the orders of the head of state regarding the comprehensive modernization of the industrial sector. Certain measures have been taken, but too many projects, even those implemented on the orders of the President, fail to achieve the ultimate goal, noted Alexander Yakobson. As a result, we waste time, lose positions on commodity markets, and the funds are used inefficiently, he said. He cited as examples the modernization projects in the construction, energy, and woodworking industries.

    The Chairman of the State Control Committee stressed that individual enterprises do not hurry with modernization, which has had a very negative impact on exports. One example of the sluggishness is OAO Neman Glassworks, where the unsold stockpiles are rising, exports are declining. Shipments to seven foreign markets were halted altogether. In his view, the main reason for this is the large amount of mostly manual labor at the secondary production of crystal and glass products. This does not enable the company to produce competitive goods, and to comply with the instructions of the President to start the manufacture of new products, in particular glass wool.

    According to the State Control Committee, the reasons for the increase in inventory backlog at a number of companies are the lack of efforts to explore new sales markets, poor marketing and inactivity. A number of big companies are experiencing a decrease in exports and are withdrawing from several sales markets. “Hoping for the state to help them sell products on the home market, some companies do not invest enough effort to explore foreign markets,” he said. For example, the stable operation of Gomselmash before 2012 was in many ways due to the state support program for the agribusiness. The reduction in this support immediately led to serious sales issues.

    Alexander Yakobson informed that domestic companies failed to fulfill the President’s instruction that demanded that local raw materials should generate more than one third of the export growth. The export of such commodities rose by merely 1.9%.

    Another negative factor is inefficient marketing system at some companies, the Chairman of the State Control Committee believes. In 2009 company chiefs were given an opportunity to reward the employees who make appreciable contribution to the increase in sales. However, the remuneration of marketing specialists not always depends on the sales, which does not help attract qualified specialists and enhance their efficiency. Sometimes companies fail to conduct comprehensive study of sales markets and customer demand. For example, several products manufactured by Orsha Linen Mill do not sell at all and never leave warehouses. The government failed to fulfill the President’s instruction on timely modernization of the company, which would guarantee the manufacture of competitive products, Alexander Yakobson said.

    Apart from that, a number of companies having huge inventory backlog are unacceptably passive. For example, several major furniture makers affiliated with Bellesbumprom Concern have never taken part in domestic tenders for furniture supply over the past three years, although the finished goods inventory there was above the admissible level. Alexander Yakobson noted that the companies affiliated with the concern are not always able to sell even products that are in a steady demand. For example the Spartak paper mill launched production of napkins, but the products pile up in warehouses, although the company operates only at half of its capacity. The company’s products were not available in any of the eight examined retail outlets of Mogilev. At the same time, there was a broad choice of similar imported goods. The same situation was observed in nine shopping malls of Minsk.

    Alexander Yakobson believes that despite the pressure associated with objective external factors, the country has enough reserves to enhance the efficiency of the manufacturing industry. The government has already passed the industry development program set to run until 2020. According to Alexander Yakobson, timely and complete implementation of the program will help achieve the required results against the backdrop of toughened competition on the global market and Russia’s accession to the WTO.

    Present at the meeting, Chairman of Bellegprom Concern Mikhail Suchkov and Director of OAO Neman Glassworks Igor Batyan noticed that they are working to clear their inventories.

    According to Mikhail Suchkov, today Sukno exports 97.4% of its output, mainly to the Russian Federation. The backlog of inventory was reduced two times. At the same time, he drew attention to the fact that the demand for the company's products is seasonal. According to him, much of it will be sold in autumn-winter. Mikhail Suchkov said the company needs modernization to satisfy the domestic demand.

    Director of OAO Neman Glassworks Igor Batyan said that the factory developed a plan of action to clear the inventory, tap into foreign markets, and boost domestic sales. “This month, we made sure that stock in hand did not increase. Each month we will seek to sell the third part of products from warehouses,” he said.

    The President reiterated that by September there should be made a considerable progress in clearing the national warehouses.

    The President believes that the current moment allows focusing on the quality of the product.

    “Quality is number one issue. Poor quality is akin to crime,” the head of state stressed.

    The President emphasized that the government had created all the conditions for successful work of all the economic sectors. Hence, it has every right to demand results.

    “Do our industrialists, builders pay for natural gas the same as in Germany - $400 per 1,000 cubic meters? No, half as much at least. Do you consume oil at the world prices? No, at half the price. All these have been achieved due to the efforts of the government. You have been provided with good conditions. What are you waiting for? Tell me what you need to start working twice as good as Germany does, or at least go in line with Germany,” Aleksandr Lukashenko wondered.

    “You have the conditions neither Ukraine nor the European Union has. Start working. Everything in your hands, in the hands of business managers and ministers,” the head of state said.

    To conclude, Aleksandr Lukashenko said: “Summer is the first stage of clearing the inventory taking into account the manufacturing process during this time. Its second stage is the end of the third quarter. Warehouse clearance does not mean pushing products to every corner. The country should get revenue from this”.

    The President reminded the participants of the meeting about the instruction he gave Chairperson of the Board of the National Bank Nadezhda Yermakova a year ago to monitor the country’s export revenue. “Look into the matter together with the Economy Minister and the Finance Minister,” the head of state ordered.

    Aleksandr Lukashenko also paid attention to the economy of the national companies. “Neither I nor you need pushing the products outside the country at giveaway prices,” he warned.

    The head of state ordered to keep him constantly updated on the situation.