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Export plan ‘33-33-33’: is the goal attainable?

The government plans to diversify Belarusian exports by 2020 so that one third of the products would go to the Eurasian Economic Union, another third — to the European Union and the rest of the products to other countries.

In order to stimulate exports the authority has created monitoring groups on foreign market development — Mexico, Costa Rica, Panama, Chile, Morocco, Tanzania, Zambia and others — and has tasked the Ministry of Foreign Affairs with organizing its efficient work.

However, contrary to the government’s directions, Belarusian export demonstrates a reverse trend to date. In particular, the share of Russia — the main market for Belarusian product supply — in the overall volume of export from Belarus increased from 34.7% to 38% during the first two months of 2016 compared to January-Februrary 2015. While the share of the EU decreased by 3.2%, the share of other countries — by 3.6%.

It’s obvious that one won’t manage to diversify Belarusian exports by means of directive instructions. Especially against the background of decline in sales on alternative markets and decreasing competitiveness of Belarusian products.

 

Shifting the burden solely to enterprises is unfair

The diversification of exports is undoubtedly an important task. But shifting the burden solely to producers is not much of a fair solution,’ emphasised the CEO of the shoe JSC ‘Otiko’ Galina Belevich at the meeting of the National Directors Club in the late February. (For reference: the joint venture ‘Otiko’ was created in 1993 involving German capital. The number of personnel is around 600 people to date).

The joint venture ‘Otiko’ exports more than 50% of its output. Throughout 20 years the company operated profitably except for the last two years. And though in 2015 ‘Otiko’ made a profit amounting 10 billion rubles (about 495 thousand dollars), the company didn’t gain net profit. As stated by G. Belevich ‘a part of profit was paid as an interest on bank loans and the other part was absorbed by the exchange rate differences’.

To order to increase its exports the company should be actively involved in exhibition activities. ‘Exhibitions are very expensive. In many countries the government compensates exporters for either a part of costs or full sum of costs of participation in a foreign exhibition. In Belarus the issue on the similar support is yet being discussed,’ noted the managing director.

Besides, Belarusian enterprises can hardly increase their exports much having more expensive loans than foreign companies do. ‘The current conditions of bank loans are absolutely unbearable for producers,’ emphasised Belevich.

According to G. Belevich, the financial sector in Belarus has been keeping its head above water for the last 3 years by means of exorbitantly high interest rates that the producers have to pay. ‘Unfortunately, no one has evaluated the true extent to which the financial sector was financed with resources washed out from assets of industrial enterprises,’ noted the managing director. As a result, the assets of the company that ‘Otiko’ has created for 20 years of operation are close to ‘extreme points’. ‘Another year and the enterprise will gain unsatisfactory balance sheet,’ said the CEO.

In order to minimize its costs ‘Otiko’ renounced outsourcing, switched to a part-time regime on the initiative of the employer and etc. Furthermore, over the last two years ‘Otiko’ decreased its amount of loans almost by 30% trying to cut credit costs. However, it hasn’t improved the company’s balance sheet: since the dollar and euro are appreciating the sum of loans remains the same as well as the interest.

‘Otiko’ has taken advantage of one more opportunity of avoiding credit dependence. Since the company has been working with the majority of its partners for many years already it issues a letter of credit when delivering the goods or grants a delay of payment up to 90 or 120 days. However, working according to this scheme proved unprofitable. ‘During these 90 days the Belarusian ruble has depreciated, — and our state now is even worse than if we have taken out a loan for that same sum,’ stated Belevich.

In his turn the CEO of JSC ‘MOLODECHMOMEBEL’ Valery Bushilo reckons that what obstructs an increase of exports sales is restrictions on the return of foreign exchange earnings. They should be removed completely or at least the terms of foreign exchange earnings return should be extended. Also the procedure of export insurance ought to be simplified. ‘Try as our company might it never succeeded to take out insurance since the insurer’s requirements cannot be accepted by our counterparties,’ asserted Bushilo.

 

The competitiveness of enterprises is decreasing. One of the reasons is noncompetitive tariffs

Belarusian companies can hardly fulfill the government plan on development of new markets as long as their competitiveness is decreasing, including due to noncompetitive tariffs on energy resources. As BELRYNOK wrote, the Business Union of Entrepreneurs and Employers after Professor M. S. Kunyavskii (BUEE) quoted figures for the first half of 2015: during this period the material inputs of enterprises have increased by 11.4% compared to the same period of 2014, including fuel and energy costs by 31.9%. The CEOs are bewildered why they have to pay from 210 to 340 dollars per thousand cubic meters of gas while today Belarus buys it at the price of 132-140 dollars.

Against the background of a sharp decline in world prices of oil and other energy resources the BUEE considered it reasonable to suggest that the government should adequately — approximately twice — reduce the tariffs on gas, electricity, oil products and heat power for enterprises as well as levy tariffs in the national currency and, depending on the world prices of oil and the Belarusian ruble exchange rate, peg tariffs to a currency basket. However, that proposal the officials didn’t support.

 

Will the WTO accession stimulate the diversification?

The government rests its great hope upon Belarus’s WTO accession as a factor of positive influence on the diversification and growth of exports. Apparently, the government successfully used this argument to prove the necessity of Belarus’s entry into the WTO to its major opponent — the Belarusian President. In the late May Lukashenko entrusted the public bodies with intensifying negotiations on Belarus’s WTO accession (as it was stated, taking into account the national interests).

The presidential decree No. 167 of May 8 established a new composition of the interdepartmental commission on Belarus’s entry into the WTO. The first Deputy Prime Minister Vasily Matyushevsky was appointed chairman of the commission. It’s noteworthy that this time, apart from the government representatives, the composition of the commission includes business community representatives, among them the chairman of the Association of International Road Carriers “BAMAP” Nikolay Borovoy, co-chairman of the BUEE Dmitry Dichkovsky and the general director of the Business-School of the Institute of Privatization and Management Pavel Daneiko.

BELRYNOK wrote that in September 2015 the Belarusian Ministry of Foreign Affairs agreed with the WTO department of the accession of new countries on a ‘road map’ which provides for coordination of negotiation subjects with 40 countries included into the working group on Belarus. The schedule of talks with 23 states is currently being compiled. The Ministry reckons that, if all goes well, Belarus will be able to enter the WTO in a two-year term.

Nevertheless, experts warn that Belarus’s accession to the WTO won’t become an ‘export panacea’ for the country so long as the current Belarusian model of economy is maintained.

What is equally obvious is that unless structural reforms are carried out in the country Belarus won’t be able to considerably increase its exports to the European market. On the other hand, it gives Belarus chances to use the WTO instruments in order to promote domestic products to other markets (to countries where Belarusian products are almost not represented now). Still one remains hopeful that against the background of further exacerbation of the crisis Belarusian authorities will have to implement structural economic reforms.

 

For reference

From September 1, 2016 import customs duties in the Eurasian Economic Union will be reduced for 1780 commodity items due to another stage of implementation of Russia’s commitments to the WTO. In total, the duties will be decreased by 1-2%. In 2013 about 5 thousand rates of duties were reduces in accordance with these commitments, in 2014-2015 — about 4.5 thousand rates.

The reduction of duties from September 1 will involve some types of paper, wallpaper, carpets, certain types of furniture, sweets and candies as well as few kinds of shoes, automobiles, industrial refrigeration equipment, certain building materials, some types of fish and other goods.

In particular, the import duty rate for some kinds of trout and salmon will be decreased by 5.8-4.4% from September 1. Duties for certain mixtures of tropical fruits and nuts will be lowered from 8.3% to 6%, for household refrigerators-freezers — from 15% to 13.6%, for household freezers and microwave ovens — from 14% to 12% and for perfume and eau de toilette — from 8.6% to 6.5%. The reduction will also affect a range of wines with a protected name of origin (Bordeaux, Burgundy, Tokay, Beaujolais, Veneto). The duties for these wines will be decreased from 14.4% to 12.5%.

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