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No profit – No support

Belarus will stop subsidise loss-making industrial plants

photo by Wikimedia Commons

A few days ago, the Belarusian government has identified 106 most significant enterprises for the country. During this crisis, they will receive state support in the form of various benefits and privileges.

The first items in this list are the Minsk Automobile Plant, Minsk Tractor Works, “Amkodor”, “Naftan”, “Polymir” and several other giants of the domestic industry.

We are talking about the participation of these enterprises in the state programs, loans guaranteed by the government, compensation of interest on loans, exemption from import duties for imported equipment and other tax preferences.

The Prime Minister of Belarus Andrei Kobyakov recently described the mechanism of assistance at a cabinet meeting: “We look at each company individually, and work together with banks to reduce company’s credit load, helping to review business plans and take other measures so that enterprises can breathe freely.”

At the same time, the producers themselves need to be more actively engaged in the return of overdue accounts receivable and they should search for new customers more active. “If the company clearly sees markets and has export contracts, banks will always find the money. No one wants to work with company without market outlets”.

However, the size of the financial support of Belarusian enterprises this year will be reduced (because of recession). So, even the “particularly important companies” have to moderate appetites. In particular, the total amount of credit within state programs and activities has bee decreased by 36% to 44.2 bln. BYR, state investment programs – for 40%.

Meanwhile, many experts do not share the approaches to the formation of the list of priority recipients of state aid. As suggested by the deputy chairman of the Belarusian Scientific and Industrial Association (BSIA) Georgy Grits, government was guided by two main criteria: the number of jobs and contribution to GDP.

As a result, industrial businesses were chosen, not companies, which can accelerate economic growth. There is no support to modern business, which works in fifth and sixth level of development. Almost all the companies in this list, except for the “oil industry”, are subsidized.

In this context, the opinion, that government made the list primarily for the electoral stability looks fair. They don’t want to irritate employees of big factories. After all, managers and employees are accustomed that in the pre-election period they always have a weighty government support.

Alexander Obukhovich, economist, have the same opinion and believes that the approach of the government to promote the development of the real sector is wrong. According to him, the very structure of our economy, inherited from the Soviet Union didn’t change at all. Therefore, Belarus still believes it is an “assembly plant” for a non-existing country (USSR).

Large enterprises require huge investments. The return on them is not obvious. For example, to ensure a normal economic activity of one company as “Integral” 5-7 billion USD must be invested.

The current difficult financial situation of traditional leaders of the Belarusian industry is a consequence of their low competitiveness. Compression of the Russian market and the lack of alternative partners have put some of them in a terrific situation.

According to official statistics, during January – November 2014 the amount of non-payment for delivered products grew by 51.1%. Due to this fact, many enterprises are unable to pay its debts in time. Arrears on loans increased by 56.8% since the beginning of last year and amounted to more than 5.4 trillion BYR. Consequently, the share of insolvent companies was 36%. A quarter of all enterprises did not have own working capital on December 1, 2014.

A number of unprofitable organizations has increased by 48.4% to 1.116 from January to November last year. In this case, the total losses of Belarusian enterprises were 12.97 trillion BYR. As a result, the size of the financial losses of unprofitable organizations in January – November 2014 is almost 1.9 times higher than the figure for same 11 months of 2013.

The analysis shows that companies, which are to be supported, gained the biggest losses – big industrial enterprises.

On December 1, 2014, the value of their net loss was equal to 8.76 trillion. BYR, which is about 2/3 of the total. Moreover, in comparison with January – November 2013, the sum of the net loss of industrial enterprises increased by 97.5%.

Here, complex engineering companies were among the “leaders” in January – November 2014. Losses of manufacturers of machinery, vehicles and equipment reached 3.4 trillion. BYR It  s more than eight times higher than they were in the same period of 2013.

Moreover, the growth of losses is usually accompanied by an increase in stocks. Inventories of manufacturers of machinery and equipment were 2.4 times more than the monthly volume of output. The stocks of vehicle producers included 2-month volumes.

Thus, the current situation in the industrial sector proves the inefficiency of the existing model of management. The enterprises have to increase stocks in order to maintain production volumes.

Restructuring of Belarusian economy should be done according to one simple rule: the expenditures must be profitable. State can support small and medium business, as it shows great stability in times of crisis. However, private companies are forced to reduce production and fire employees, so the state can lend a shoulder there also.

 

Translated from “Belorusy i rynok”

About Filip Drazdou (16 Articles)
Filip Drazdou is High school student in Minsk. He is going to obtain a degree in the field of finance or economics. He is also interested in sports and politics.

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