Aleksandr Lukashenko holds session to discuss performance of leatherworking and footwear industries

Aleksandr Lukashenko instructed the government to submit proposals regarding further operation of the leatherworking industry in November. The head of state gave the instruction at the session held on 8 November to discuss the development of the leatherworking and footwear industries.

The head of state underlined that the development of the leatherworking and footwear industries was of much importance for the successful operation of the national economy. The operation of these enterprises is mutually related and should rely on locally available renewable raw materials. However, both economic and technological problems have been piling up in this area in the last few years.

“The best untreated raw materials were exported. Between 2000 and 2010 the export of untreated hides was tripled. You left waste and scrapped parts from primary processing for yourselves,” remarked Aleksandr Lukashenko.

In his words, in 2010 as the government was justifying the introduction of measures to prohibit the export of the raw materials, promises were made to reroute the raw materials to Belarusian enterprises. “How much Belarusian feedstock and intermediate products was used for footwear production as a result? Only 40%. The rest (over 50%) is still exported to Italy, Poland, India, and even Ukraine. The domestic footwear industry lacks sufficient leather supply of sufficient quality,” stressed the President.

As a result, high-quality leather is imported to make leather goods. In other words, Belarusian leather exports of a higher quality are imported to the country. Although the manufacturing cycle can be and should be established in the country, thus reducing foreign currency spending, Aleksandr Lukashenko is convinced.

“Footwear manufacturers have chosen to do the easiest thing. They have started importing more intermediate products such as sewed footwear tops with zippers and other accessories with bundled soles. The domestic footwear production has been reduced to one technological operation in essence – the gluing of the sole. With this know-how, so to say, widespread, the enterprises are losing their technological level, professional qualification, and are shedding workers,” said Aleksandr Lukashenko.

The state of affairs in the footwear industry is not that bad from the point of view of government agencies. “Footwear enterprises work and even at a profit, people get paid. What else should we do? But we should take a look at the profitability and the salaries,” remarked the President.

According to the data voiced by the head of state, in the last ten years the domestic footwear production in Belarus dropped from 16 million to 13 million pairs per annum. Meanwhile, the annual footwear import rose by more than ten times to 10 million pairs worth over $200 million. “We are losing our own market. We give money away to strangers. The key reasons are the poor quality and the lack of choice of Belarusian footwear,” stressed Aleksandr Lukashenko.

The President pointed out the large share of imported components in the prime cost of Belarus-made footwear: “Our footwear industry beats all the import consumption records. Imported components account for 71% of the prime cost of products made by Luch Company, nearly 70% of the prime cost of Belwest products, nearly 70% at San Marko, and more than half at Krasny Oktyabr. In other words, the things we make are nearly imports”.

As a result, footwear industries demonstrate a foreign trade deficit. Since 2006 it has risen by nearly 5.5 times to about $40 million.

“Virtually the entire branch of the economy freeloads off the state gold and foreign exchange reserves while everyone must bring foreign currency into the country,” said Aleksandr Lukashenko as he described the operation of the Belarusian leatherworking and footwear industries.

The President reminded that he had instructed the Council of Ministers to take the necessary decisions to fix the situation. The President said he wanted reports about what concrete measures had been taken already to reverse the negative trends

Aleksandr Lukashenko also pointed out that the leatherworking and footwear industries will have to work in new conditions of Belarus’ integration in the Customs Union, the Single Economic Space, and taking into account Russia’s accession to the WTO.

Aleksandr Lukashenko underlined once again that he had repeatedly pointed out drawbacks in the operation of leatherworking and footwear industries. “This is why today I am interested in how the government has heard the reproach voiced by the President, what has been done and what is suggested to be done for tomorrow. It is abnormal that we pride ourselves on the well-developed agriculture and the huge output of meat while we cannot provide sufficient raw hides for the footwear industry,” said Aleksandr Lukashenko.

First Vice Premier of Belarus Vladimir Semashko delivered a report about the state and prospects of the industry’s development. In his words, it is necessary to raise the output up to at least 25 million pairs per annum to saturate the domestic market and create the necessary export potential. At present about a third of the domestic market is secured.

It is also important to raise the quality and expand the model range of products. “For this purpose it is essential to radically upgrade existing funds and introduce state-of-the-art processes,” the First Vice Premier believes.

Vladimir Semashko suggested paying closer attention to the modernization of leatherworking enterprises since the quality of their products does not always satisfy Belarusian footwear makers. The latest equipment and technologies can raise the output per employee by 3-4 times, with top quality secured.

Yet the official stated that the enterprises lack proprietary funds for such an upgrade. According to the state light industry concern Bellegprom, about $20 million will be required to upgrade the Minsk Leatherworking Association, which is located in the town of Gatovo, Minsk District, up to the global output and quality standards.

To address the problem, the government suggested creating vertically oriented holding companies to process leather and make footwear prior to selling end products. There are plans to set up at least three holding companies reliant on the footwear manufacturers Marko, Belwest, and Luch, said Vladimir Semashko. He also suggested giving several preferences to the holding companies, including preferences in the payment of taxes and duties.

The head of state said: “I have talked about Gatovo more than once. Why no decision has been made yet? Why could not you find $20 million to bring the enterprise up to global standards? What are we waiting for?”

“I think that we should go for these holding companies. We will force the companies where we have the controlling interest to join the holding companies,” said the First Vice Premier.

In response Aleksandr Lukashenko remarked that there was no general consent regarding the idea and the heads of the companies disfavored the idea as it is.

President Aide Piotr Prokopovich doubted the advisability of setting up the holding companies, too. “What reasons are there to set up such a holding company? First, the leatherworking enterprises supply leather not only to footwear manufacturers but to furniture makers and the leather accessories industry. The footwear industry takes only 40%. Second, no footwear maker has money to spare. Whoever comes here will have to consider taking a loan”.

It turned out that the government had failed to get the oblast governors to look through the plans.

Vitebsk Oblast Governor Alexander Kosinets had suggested inviting the footwear manufacturers Marko and Belwest to set up a powerful leatherworking and fur enterprise based on the Vitebsk fur factory. A Korean company has already shown an interest in the project.

“By doing it, we will be able to create a leatherworking and fur enterprise with available raw materials and components. Then we will indeed reduce import by roughly 70%,” said Alexander Kosinets.

Director General of Marko Company Nikolai Martynov said that a framework agreement had been signed with the Korean company and they are willing to build or upgrade a tannery in Belarus.

Alexander Kosinets also said that by late 2015 the output of Marko and Belwest may reach 12 million pairs of footwear, or twice as much as the present figure.

Aleksandr Lukashenko backed the project and promised certain preferences if they are necessary. “If you are ready, prepare a draft decree for this specific merger,” he said. The fur factory and the leatherworking enterprise based in the town of Gatovo, Minsk District will be sufficient for Belarus, said the President. However, the head of state pointed out the shallowness of the proposals the government had brought for the meeting: “Too much formalism, indoor thinking. It should not be like this”.

Aleksandr Lukashenko instructed the Belarus President Administration to submit proposals regarding further operation of the leatherworking industry to the government in November. “I advise the government to get down to business. I can grade your performance for this work below bad for now,” added the President.