Belarus Needs Renewed Economy by 2013
Conceptual remarks made by President of Belarus Alexander Lukashenko at a seminar for executives of central and regional government agencies on 15–16 December 2011
Conceptual remarks made by President of Belarus Alexander Lukashenko at a seminar for executives of central
and regional government agencies
Import substitution is the most important element of the economic policy and a tool to reach the key goal – a foreign trade surplus, President of Belarus Alexander Lukashenko said at a session of the permanent seminar held by the head of state for executives of central and local government agencies to discuss import substitution as a vital factor for balanced development of the national economy.
Speaking about the role of science in the national economy, Alexander Lukashenko remarked that Belarusian research products should be in demand in the country and abroad. He also stressed the importance of science contribution to import substitution projects. The President demanded that scientific projects should become more efficient. “Scientists should stop fussing about their titles only. Give us results. We will pay for concrete work,” he said.
“Members of parliament are present here. They will soon have to pass the budget bill. The 2012 budget of the Academy of Sciences should be reduced in comparison with 2011. Keep an eye on it,” said the head of state. “They work on their own, earning good money. It is time to gradually pull them away from the feeding trough,” Alexander Lukashenko noted.
“The budget of the Academy of Sciences should be reduced by 25-30%. Scientists and manufacturers will keep doing nothing as long as we give them money from the state budget. I have not said anything new. Such is life,” stressed Alexander Lukashenko.
The President gave instructions to consider structural changes in the Trade Ministry. According to the head of state, the place and responsibilities of the ministry are not yet clearly determined. “The Trade Ministry personnel should work hard, looking for opportunities instead of shuffling paper,” said Alexander Lukashenko and encouraged the ministry to get on with active practical actions.
“Maybe, it is time to set up a larger trade ministry by uniting domestic trade and foreign trade agencies,” the President contemplated.
He urged to work out concrete tasks for the Trade Ministry. The major task is to trade, remarked Alexander Lukashenko.
He reminded that regional government agencies had taken on some of the functions of the Trade Ministry. They have set up relevant bodies, pursue an antimonopoly policy and maintain control over the domestic market. “It is the right thing to do but the Trade Ministry has to have tasks to accomplish,” believes the head of state. “For the domestic market it will not be a volumetric task but overseas trade is our priority and the relevant task should be determined”.
Alexander Lukashenko summarized results achieved by the twoday seminar.
“In the current five-year term the government and the entire power vertical should focus on achieving a foreign trade surplus,” stressed the President. “As a condition for saving foreign currency and increasing export, import substitution is a tool to achieve the key goal and the most important component of the economic policy. It is crucial for our country that has insufficient natural resources,” the President added.
The dependence on imported raw materials and energy resources requires frugal spending of foreign currency.
The head of state underscored that every year billions of US dollars are spent to buy raw materials and energy resources, import a wide range of consumer goods, even
those that can be produced locally. “Some may say that many countries have a trade deficit and they are more prosperous than Belarus. However, what is the secret behind the prosperity? Constant borrowing? Debts? What is the end result? The countries are on the edge of an economic abyss. We see it happening to several seemingly stable and flourishing European countries,” remarked Alexander Lukashenko.
He said: “Of course, we used foreign loans. However, the loans we took in previous years were channeled into innovative development. They helped us set up new production facilities”. Belarus managed to reduce the import of buses, trucks, grain harvesters and other farm machines, grocery products (macaroni, cigarettes, juices, etc.) and household appliances (microwave ovens, automatic washing machines, refrigerators). This means that investments into new production facilities are paying back.
Therefore, the President instructed the government to keep channeling resources into highly efficient import substituting and export oriented production facilities.
“By mobilizing the potential of industries and regions we are capable of getting a trade surplus of $1.5 billion. It will guarantee a stable supply of resources and is a major indicator of economic security,” Alexander Lukashenko is convinced.
According to the head of state, we need to analyze the mistakes we made in the past five-year periods and identify the obstacles preventing efficient implementation of import substituting programs. The reasons why less than expected progress was made.
According to Alexander Lukashenko, a number of failures were revealed. The first one is inadequate elaboration and preparation of import substituting projects, which resulted in greater expenses and lower competitiveness of new products. The second one deals with heavy spending on investment imports and considerable production costs. The third one is inadequate coordination between government agencies while selling import substituting products. As a result, the domestic market gives preference to imported products rather than similar domestically produced goods.
“More than that, import has become a gravy train for several top executives and officials. Although the system of tenders and contests still exists, some tricksters are trying to find loopholes. I want to warn you: unjustified import will be viewed as a grave violation and a due punishment will follow,” the President said.
The inadequate infrastructure of the Belarusian export and low efficiency of commodity distribution networks of Belarusian companies are some of the major reasons for negative trends, the head of state said.
Alexander Lukashenko stated that sales instruments, like marketing, advertising and logistics still lag behind the international standards. A lot will have to be done to rectify the situation.
“Import substitution is a multifaceted issue. It is part of the work to ensure rational use of resources and dynamic and balanced economic growth. This year has showed how bad foreign economic disproportions can be for the country’s development. Their damage can be bigger if these disproportions per- sist over a long period. I am talking about the currency market, stability of the national currency, financial system and the overall financial solvency of the country,” the head of state said.
Therefore, import substitution and foreign trade surplus have transformed from merely economic goals into political ones. “We have an open economy. Our task is to ensure its stability and sustainable growth. This goal was set at the Fourth All-belarus People’s Congress,” Alexander Lukashenko said.
He instructed the government to secure sustainable and non-inflationary economic growth in 2012. In his view, the country is well-positioned to achieve this goal. “We have reached strategic agreements with partners from the CIS and non-cis countries,” the President said.
Upon the instruction of the President, a socioeconomic development forecast was prepared by the government and the National Bank of Belarus. The projected 5% GDP growth in 2012 is supported by the available resources. “This is our response to domestic and foreign critics of our economic policy,” the President underlined.
After the most important targets are approved, they should be submitted to all industries and regions.
“The officials responsible for the fulfillment of the targets will have to submit quarterly reports,” the head of state said.
“Please, keep in mind that the punishment will be tough, because it is a matter of survival. I would like to emphasize that the sources of economic growth do not destroy the established balance in the national economy. Everyone understands that,” Alexander Lukashenko said.
He noted that the seminar concludes the organizational and legislative part of the systemic work to form clear and comprehensible approaches to efficient and rational import substitution.
This is the final step following the examination of the problem by ministries, concerns, oblast executive committees, the special session of the Presidium of the National Academy of Sciences, and the extended session of the Council of Ministers.
The major points of import substitution were thoroughly discussed at all levels, from the macroeconomic to the microeconomic level. Every participant of the seminar came up with concrete proposals and ideas that will be put into practice starting from the next day.
According to the President, the first task is to ensure all-round saving.
“Everybody has to economize. The political objective for the government, ministries, concerns, and oblast, town and district executive committees is to implement an allround and severe austerity policy. This will serve as the most important criterion in assessing the performance of personnel and companies,” the head of state said.
The President finds it necessary to rationalize imports of intermediate goods, reduce import intensity of the national economy. He noted that the government and regional authorities have not yet addressed the issue. “Our economy is one of the most import-intensive economies in Europe,” said the head of state.
The President instructed the government jointly with oblast governors and the Minsk mayor to reduce import intensity of the manufacturing industry by 1.5-2% annually.
Alexander Lukashenko believes that the technological quality of the production facilities is good and the country has the right to expect lower material intensity. Consumption of raw materials and energy should be significantly lowered. Every participant of the seminar must work on this task,” the President stressed. He believes that in order to drastically reduce the energy intensity both economic and administrative stimuli have to be used.
Economic methods include regulation of energy prices for the organizations that use energy resources irrationally. “You are welcome to introduce consumption limits for natural gas and electricity. If someone fails to stay within the limits he will pay several times more,” said the President. He stressed that specific people should be made responsible. Conversely, those workers who economize should be awarded bonuses on a regular basis.
We will use administrative methods to continuously toughen the standards regarding consumption of fuel and energy per unit of output and also the state standards on manufacturing equipment. The President stressed that appropriate mechanisms should be launched as early as 2012.
“The government should keep most energy-intensive enterprises under special control, including energy-generating facilities. We have considerable reserves there,” said the head of state.
The President noted that at least one quarter of electric and heat energy should be produced from local fuels, secondary energy resources and alternative energy. “During this five-year term we need to reduce the energy intensity of GDP by one third. Thus we will meet the goal set by Directive No. 3 to reduce the GDP energy intensity,” said the head of state. Similar work should be done by the Council of Ministers and local authorities to optimize material intensity. According to the head of state, this is a direct GDP growth opportunity. We can achieve this goal by developing industrial cooperation and creating auxiliary production facilities to increase the level of production localization.
“We need to begin 2013 with upgraded, less energy- and resourceintensive economy,” Alexander Lukashenko stressed.
“I am instructing the government and regional authorities to take stock of all companies and
enterprises in 2012, to develop and implement measures regarding the industries aggravating the foreign trade imbalance,” the President said.
“We should not interfere with companies that contribute to the trade surplus and make profits. We need to let them grow further. Effective measures need to be worked out regarding companies that do not contribute to a foreign trade surplus,” the President said.
He noted that his requirements are well known: the efficiency of an organization should be measured by the amount of profit it makes and salaries of its workers.
“I am convinced that only large, well-equipped companies are able to fight off competition and ensure dynamic economic growth,” the head of state said.
“We did not use the recommendations of Western consultants who suggested splitting our industrial and agricultural flagship companies. That road would bring us to collapse. Today our MAZ, MTZ, Atlant, Gomselmash, BMZ, BELAZ and others are, in fact, the leading European-level enterprises,” the President noted. He added that work is underway to bring them together into holding companies.
According to Alexander Lukashenko, in some areas Belarusian companies are international leaders. Their technological level is a far cry from the one they had in the Soviet period. They have become much more technologically advanced.
The second most important task set forth by President Alexander Lukashenko is to build up export.
The President demanded that export during this five-year term should increase by 2.2 times. To this end, the head of state instructed the government and governors to take drastic measures to improve the efficiency and competitiveness of the Belarusian economy, specific sectors and enterprises.
The President stressed: “To achieve the 2012 year targets and to ensure balanced foreign trade every executive should seek to increase export and export share in the total output and minimize the import needed to perform the first two tasks.
According to the head of state, the work of executives will be evaluated taking into account the amount of foreign products imported directly from abroad and via mediators on the domestic market. “But today we have agreed that there should be no mediators. Every mediated purchase will be analyzed,” the President stressed.
Alexanderlukashenkoremarked that this work should result in balanced export growth, which should exceed import growth by at least 10%.
“The Economy Ministry has calculated the formula of foreign economic balance. At least 60-65% of the industrial output should be exported. This is the task for the government and heads of enterprises,” the President said. The State Control Committee will monitor the fulfillment of this target.
In order to hit this target, it is essential to develop industries with a big share of local raw materials and better processing technologies. These are production of construction materials, woodworking, food industry, agriculture, pharmaceutical industry, chemical industry and biotechnologies, production of hi-tech components. “The main reserve here is the use of better technologies and advanced processing of raw materials,” the head of state believes.
“The country imports a lot of goods that can be manufactured using domestic raw materials, namely milk, meat, vegetables, timber, chemical products, etc. We, in turn, export these raw materials without proper processing. And most of value added and revenue goes to foreign companies,” the President said.
As an example, he cited the export of round timber and sawn timber which will make up over $230 million in 2011. At the same time, the import of flake board, fiberboard, cardboard, and paper exceeds $800 million. Having such reserves, it is easier to advance using better processing methods, rather than increasing traditional export, the President believes. Alexander Lukashenko instructed the government and oblast governors to boost export by at least one third using local raw materials with- out increasing the import of raw materials.
As for the agricultural industry, the task to boost export to $7 billion by 2015 remains unchanged. The President noted that a step-by-step action plan needs to be elaborated for 2012 and 2013. “We have ensured food security of the country. And now we should seek to dynamically raise the export potential of all sectors of agriculture and other industries,” the head of state stressed.
Alexander Lukashenko also reminded participants of the session about the task that was previously set for the Healthcare Ministry. Domestic medicines should cover 50% of the country’s pharmaceutical needs in 2015. Moreover, Belarus’ pharmaceutical industry should advance into foreign markets. The President said that the progress in this area will be strictly monitored. “With God’s help, it will be good enough if our products become popular in Russia and Kazakhstan. You are welcome to sell products on this huge market. Nobody impedes trade today,” the head of state said.
The third task is to make most of the opportunities offered by the Single Economic Space (SES).
He reminded that for almost two years Belarus has been working
in the common customs area with Russia and Kazakhstan. The capacity of the market is estimated at about 180 million people. The Single Economic Space became operational on 1 January 2012.
Alexander Lukashenko gave orders to develop an industrial policy program taking into account the realities of the SES.
“I will not approve the document if it is not coordinated with the industrial development programs of Russia and Kazakhstan. We need no thoughtless competition in the common economic area. Our economies should be complementary. We need to develop joint holding companies and expand into foreign markets of raw materials and sales together,” the President said.
Alexander Lukashenko noted with regret that the government is making no headway here. No concrete steps have been made yet. In this connection Alexander Lukashenko ordered to step up cooperation with Belarus’ closest partners.
Besides, the President pointed out that the potential of cooperation with Southeast Asia, Africa and other promising regions where Belarusian products can be sold had not been explored.
More efforts should be put into establishment of joint ventures together with leading European companies using advantages of the Single Economic Space. In his words, there are good offers from Austrian, Italian, Slovak, and other leading foreign companies.
Alexander Lukashenko is convinced that Belarus can and should play the role of an innovator in the Single Economic Space. For this purpose, the country needs to adapt and develop cutting-edge technologies as soon as possible.
The head of state noted that we should make ample use of Belarus’ scientific potential. The President reminded that at a recent meeting with the Belarusian scientific community he emphasized that it is necessary to maximize the contribution of scientists to the implementation of relevant programs. “I hope that today’s talk will have a positive impact,” the President noted.
“The fourth task. I warn everyone we must not run import sub- stitution projects that make no economic sense even though we have to import a lot of these products. “We should not pull wool over the eyes of others”, the head of state stressed.
At the same time, Alexander Lukashenko noted that if a manager is ready to do something new, if he is bold and confident enough to try unconventional solutions, the risk then pays off. The President urged everyone to show enterprise and creativity. “You will be understood and supported,” he said.
“In the new five-year period all investment projects should earn foreign currency. The payback period should not exceed 10 years,” Alexander Lukashenko said.
One more requirement is to minimize investment expenditures. “The bulk of investment should be put in the purchase of necessary equipment. Expenditure on assembling works should be reduced to a wise minimum,” the head of state said.
The President warned the government to refrain from limiting investment imports but exercise a tough control on its efficiency. “The main requirement is you should earn twice as much and even more if you spend foreign currency,” the President said.
He also noted that it is high time the country stopped constructing new buildings since there are a lot of idle and inefficiently used production facilities. “If you are unable to do anything with it, give it away to private traders,” Alexander Lukashenko demanded.
The President stressed that the government jointly with the oblast executive committees and Minsk City Hall had been instructed to simplify procedures of handing over idle buildings and facilities under construction to small and mediumsized businesses; conduct a comprehensive inventory of the abovementioned facilities; take measures to stimulate and toughen responsibility for failing to address these issues and responsibility of entrepreneurs for compulsory involvement of facilities in the manufacturing process. “Starting 1 January 2012 these mechanisms must be up and running at full capacity so that we will be able to enter the year 2013 without this pile of abandoned and inefficiently used property. Everything should work for expanding the Belarusian economy and improving people’s wellbeing,” the head of state said.
The fifth task is to ramp up import substitution production.
“Substitution measures should cover at least 60-65% of non-critical imports. For this purpose, next year import substitution production should increase by 20% as against 2012 and make up $3-3.5 billion. Thus, we will be able to embrace all products which import substitution is economically sound,” the President said.
In his words, the complicated economic conditions that have evolved in the country recently require new nontraditional approaches, especially in the development and production of high-technology goods. Alexander Lukashenko set three priorities here. “First of all, close cooperation with transnational corporations within the SES as well as with Russian and Kazakh companies. The use of the advantages of the huge common economic market for setting up new businesses,” the President said noting that this would help reach the European efficiency level.
Secondly, Alexander Lukashenko believes it is necessary to coordinate manufacturing on a national scale. “It often happens that companies are unaware that the materials and equipment they import are produced nearby,” Alexander Lukashenko said. Sometimes it needs a slight effort and modest resources to launch the production of necessary feedstock, materials and component parts. This task should be performed by the government jointly with the National Academy of Sciences of Belarus as part of the industrial policy program.
Thirdly, according to the President, the localization level of import substitution products should be enhanced. “The Industry Ministry should gradually raise the localization level of equipment production up to 60-65%. It can be achieved via inter and intra-industry collaboration,” the President said.
The sixth task is to reduce import intensity in construction.
“We should aim for rational construction of housing, civil and industrial facilities,” the President said.
The head of state instructed the government and the National Academy of Sciences of Belarus to elaborate measures to toughen control over consumption of feedstock and materials. “The bulk of them is imported or has an import constituent,” Alexander Lukashenko said.
The head of state gave an example: steel consumption in construction has soared seven times over a decade at a time when the volume of construction work has only tripled. “And no one seems to care about the mismatch. How shall I call this? It is nothing but spendthrifting,” the President is confident.
“There is a need to make a wider use of new materials with high technical parameters, excellent performance characteristics and low consumption of raw materials. I want consumption of materials and energy resources in civil engineering to be under a strict control. I hope this issue will be settled in the first quarter,” the head of state said.
The seventh task is to promote import substitution on the consumer market.
The President noted that highquality competitive consumer goods that are made in Belarus should dominate the national market. “This is the direct responsibility of the oblast executive committees and Minsk City Hall as well as relevant ministries and departments,” he said. According to Alexander Lukashenko, imports account for about 17% of the total retail trade in Belarus. At the same time Belarus is perfectly capable of manufacturing many of imported products. It has enough raw materials and processing capacities for that. “This is true for non-foods as well, i.e. cleaning and washing agents, footwear, refrigerators, freezers, cosmetics,” the President noted.
“In 2012, it is necessary to minimize the import of consumer goods that we have already been producing or which production can be launched with the help of foreign direct investments,” Alexander Lukashenko said.
“To put it literally, the Trade Ministry has to take three to five globally-known investors by the hand and bring them to the country, if our producers fail to do so, in order to launch production of consumer goods that are in high demand”, the head of state concluded.
The eighth task is to develop import-substitution incentives
“We should stimulate import substitution and export, provide incentives for managers of state departments and organizations”, Alexander Lukashenko believes.
“It is necessary to develop an effective system of labor incentives and bonuses based on results of exports and import-substitution at all levels of the state management system - from members of the government to company executives”, the head of state said.
“In the present circumstances these fields constitute the basis for the balanced and sustainable development of the Belarusian economy. It is important not only to launch production of import-substitution goods and boost export, but also bring about a quality transformation of the export-import structure in order to eliminate the trade deficit”, the President emphasized.
“We have reached a very complicated and important stage of the state development. The journey we have to make will not be easy, but we know what we have to do during this journey. We have to act immediately; everybody has to get involved in this work. The accountability for the results will be rigorous and continuous. I will not stomp on anybody’s initiative, but I will not allow failure. Remember that ensuring the dynamic and balanced economic development and raising living standards of Belarusian citizens is a matter of honor for each of us”, Alexander Lukashenko stated.
In conclusion the head of state voiced his position on a number of topics raised during the seminar.
According to the President, experience of Minsk City Hall in supporting and developing initiatives of young people (successful businessmen shared their knowledge with high school students) is worth paying attention to. “I know that the oblast executive committee will continue supporting healthy and creative ideas of school and university students. This experience has to be shared with other regions of the country and what I said at the BRSM congress should be
added to it”, Alexander Lukashenko instructed.
Secondly, the head of state noted that it was urgent to consolidate provisions of decrees No. 1 and No. 9 into one legal act. These documents spell out the order and conditions of setting up new companies and production facilities in rural areas and small settlements. “Let us put everything in one document, it will be simpler and easier to understand for potential investors and easier to apply in practice”, the President said.
He instructed the government together with the oblast executive committees to draft this compressive legal act within a month. “Based on the gained experience you should optimize other regulations, too”, Alexander Lukashenko noted.
Thirdly, the head of state instructed to attract as many investors offering import-substitution and export-oriented projects as possible to the free economic zones by the end of the year. “A list of import-substitution products has to be approved for at least five years by January 1. The government, oblast executive committees, Minsk City Hall and the Belarus President Administration have to submit their proposals as soon as possible”.
“Fourthly, experience shows that we should review right away the design rules used in construction and technical production standards in order to reduce material- and import-intensity. The government’s task is to finalize this work in the shortest possible time”, Alexander Lukashenko said.
“Fifthly, a regime of fierce resource saving should be put in place immediately”, the President demanded and noted that it should apply to everything from use of vehicles for government business and government expenses to the amount of fuel used by every machine operator. “We have to pay attention to that. We will be returning to this issue constantly in order to make it a norm”.
“These are just some suggestions of participants of the seminar which have to be implemented today. We will summarize the rest of them and include them in a corresponding protocol of presidential instructions which means that they will be mandatory for all government levels”, the head of state concluded.
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