Belarusian industry fell in deep recession

Belstat published data about socio-economic situation in Belarus in the first half of 2013.

Industrial performance in the first half of 2013 is depressing. The main reasons are: problems in the main export market – Russia; poor supply diversification, loss of competitiveness due to wage growth. Overdue modernization and economic reforms restrict Belarusian industry options to get out of the crisis.

Statistics indicates that Belarusian industry is in recession. Industrial production volume in the first half fell in current and in comparable prices. Industrial production index in the first half of 2013 was 95.8%. Net profits in the industry as a whole halved the size of 2012. Net proceeds were growing only in two industries out of 16. One industry is loss making. Since July 1^st 2012 warehouse stocks increased by 47% and as of July 1^st, 2013 were USD 3.56 billion. Accounts payable and receivable continue growing, which complicates payments in the economy.

The situation is caused by both, domestic and external reasons. Export markets’ poor diversification for engineering products has resulted in that the crisis in the Russian raw materials economy has reduced the investment demand, which in turn has reduced the demand for Belarusian giants’ (MTZ, MAZ, BelAZ) machinery in the Russian market (other markets have no greater demand potential). Wage growth and administered production plans, regardless of the reduced demand, have raised production costs and increased enterprises’ debt – weakening domestic industries. There are no short-term solutions to this problem.

The root causes are in the overdue modernization of Belarusian economy and in primary focus on the Russian market. Belarus was not developing service oriented industry – was selling final products without thinking of developing maintenance services. For example, MAZ supplied its machinery to the EU market – in January – May 2013. It sold 5 items (of 1,643): 3 – to Latvia, and 2 – to Estonia. Carriers, engaged in cargo transportation in the EU, do not buy MAZ products, since there are no relevant service stations in Europe. Any breakdowns would incur significant costs.

Lengthy procedures for investment projects have resulted in the investors’ outflow to countries with more favourable investment conditions. That also creates additional competitors to Belarusian enterprises. Moreover, in Belarus large state-owned enterprises have over bureaucratized decision-making and other restrictions imposed by state, which makes them less competitive than private enterprises (more evident during global problems in the world economy).

Thus, problems in the Belarusian industry root in management quality and ownership structure and are insoluble in the short term. All attempts to solve the problem using old means only deteriorate the crisis in the country. The authorities are not even considering alternative means.