In 2012 the output of import-substituting products in Belarus is supposed to increase by 20% to a total of $3-3.5 billion
In 2012 the output of import-substituting products in Belarus
is supposed to increase by 20% to a total of $3-3.5 billion
For heads of ministries, concerns and enterprises the seminar was a brainstorming session that helped determine the key tasks and ways to improve the effectiveness of import-substitution efforts. The matter is of vital importance for Belarus because import substitution and the achievement of a foreign trade surplus are now becoming political goals.
President of Belarus Alexander Lukashenko stressed: “In the current five-year term the government and the entire power vertical must focus on achieving a foreign trade surplus. As a condition of saving foreign currency and increasing export, import substitution is an instrument to achieve the key goal and is a most important element of the economic policy. Import substitution is particularly necessary for Belarus because our country does not possess rich natural resources”.
2011 saw a record inflow of foreign currency proceeds – over $35 billion, 50% up on 2010. Nevertheless, the amount is still insufficient to pay for imports and causes disproportions in the economy. It should be taken into account that the 20062010 state import substitution program ended last year. The program was supposed to turn the situation round but failed. In 2011 the ratio of import to GDP reached 75%, with nearly three fourths of what the country earns spent on imports, including non-vital ones.
Every year billions of US dollars are spent on importing raw materi-
Import substitution should become a priority for the Belarusian economy. It will allow reducing import, keeping considerable foreign currency reserves in the country while making products cheaper, supporting domestic manufacturers and creating new jobs. A lot has been done already, however, the results are far from the desired ones. What impedes the fight against import, what can be done to stimulate import substitution, to increase export and achieve a foreign trade surplus was discussed at the seminar held by President of Belarus Alexander Lukashenko at the end of 2011 for executives of central and local government agencies.
als and energy, a large choice of consumer goods, even those Belarus can manufacture domestically. It is ridiculous that Belarus has to import even rakes, toothpicks and linen baskets. All these things result in a foreign trade deficit.
The President of Belarus remarked: “Some may say that some countries live with a foreign trade deficit and their living standards are much higher. But what is the secret behind the wellbeing? Constant borrowing? A larger and larger debt? What is the end result? The countries stand on the edge of an economic abyss. We see it happening to several European economies, which look stable and prosperous from the outside”.
Belarus has also used foreign loans. However, the loans taken out in previous years have been used for innovation-driven development. They have played a positive role: new enterprises have been set up, new jobs have been created. Belarus no longer has to import as many buses, trucks, grain harvesters, and agricultural equipment, various kinds of consumer goods. It means that the money invested in the production sector has started to bring results.
The President instructed the government to continue concentrating resources on creating highlyeffective import-substituting and export-oriented enterprises.
Alexander Lukashenko said: “By mobilizing the potential of industries and regions, we can reach a foreign trade surplus of $1.5 billion. The level guarantees stable resources availability for the economy and is a major indicator of the economic security”.
In 2012 the government is supposed to ensure stable and noninflationary economic growth. The country is well-positioned to make it happen. The 5% expected GDP growth is balanced with the necessary resources.
The tasks will be achieved primarily through ubiquitous frugality, frugality for every technological operation and every tonne of raw materials. It is not an instruction but a required style of life and economy management. Frugality and hard everyday work of every Belarusian can make Belarus richer, will allow reaching all the goals of the five-year term, will secure an export level that will steadily exceed import, beefing up the national security in the end.
Correction of Mistakes
Alexander Lukashenko urged heads of government agencies and enterprises to learn from the experience of the past, to understand what hindered the effectiveness of importsubstituting programs, to understand why their practical results are still insufficient and what slows down export growth rates.
Over the last few years the commodity spectrum of Belarusian export has had virtually no changes: Belarus still sells few expensive high-tech products. Products with a low degree of processing are still exported, for instance, round timber and sawn wood. Belarus exports
those while importing furniture, flake boards, fiber boards, pasteboard, and paper made of these commodities. As a result, foreign companies instead of Belarus get the bulk of the added value in revenues. The high share of imported components in the production of import-substituting exports is another problem.
To resolve it, the head of state urged to advance manufacturing projects that involve a high share of locally available resources and a higher degree of their processing. Those are construction materials production, timber processing, food industry, agribusiness, pharmaceutics, chemical and biotech industries, manufacturing of technically complicated components.
To hit the targets in 2012 and secure a balanced foreign trade, every executive must be aware of his or her contribution to the total output and how much justified import is required to accomplish the overall goal. Such efforts should produce balanced export growth that should exceed import growth by at least 10%. The Economy Ministry has determined the point of economic balance. Belarus has to export at least 60-65% of the industrial output. It is the task the head of state set for the entire power vertical and the administration of staterun enterprises. The State Control Committee will keep an eye on the fulfillment of the instruction.
Successful development of the infrastructure of Belarusian export is often hindered by the poor performance of distribution chains of Belarusian enterprises and the marketing policy that lacks energy. Advertising and logistics of Belarusian producers are still behind world standards.
The problems outlined by the President of Belarus include high cost of investment imports and high costs of manufacturing. Efforts of government agencies to sell importsubstituting products lack coordination. Therefore, the products sell poorly on the home market, with imports given preference.
Alexander Lukashenko said: “Moreover, import has become a kind of a feeding bowl for some executives and specialists. Although there is a system of tenders in place, some cunning people are on the lookout for loopholes. I would like to warn them that any unjustified import will be considered a serious violation entailing all the ensuing consequences”.
Focus on Local Resources
The advancement of enterprises relying on local resources should become a priority avenue for the development of the Belarusian economy, Prime Minister of Belarus Mikhail Myasnikovich is convinced.
“Calculations indicate that the development of enterprises relying on local resources is the most advantageous variant for the Belarusian economy. It is the key reserve of import substitution, improvement of labor productivity, better local stock processing,” the head of government said at a seminar.
This is why three strategic industries – woodworking, extraction and processing of potassium, production of construction materials –
should be vigorously developed in Belarus. Industries that rely on local resources and boast minimal import consumption, including agriculture, should advance the economy and account for over 35% of the total export growth in the five-year term. The program for the social and economic development of the country in the five-year term has been discussed via this angle.
Working on export development, Belarusian enterprises and industries should fully explore the opportunities granted by the Single Economic Space.
The Prime Minister said: “At the same time we enjoy the synergy of three unique factors: an increase in solvent demand of our partners in the Customs Union, an exchange rate of the Belarusian ruble that favors export, a common market with high tariff protection”.
Yet the effect of these factors is not limited. “The window of opportunity” may be closed fast so local manufacturers have no time to waste. Several commodities are now subject to tariffs lower than those Belarus had before joining the Customs Union, with their competitive ability reduced. Therefore, only stronger competitive ability, lower prices and better quality of products can stand against import. Russia’s accession to the WTO will reduce tariff protection for several commodities on the common market in the medium term.
In view of these circumstances Belarus put forward the initiative to introduce protective tariffs on the import of tablets and notebooks to the Customs Union. It is not profitable to start locally manufacturing these products because imports are inexpensive. Belarus intends to convince Russian and Kazakh counterparts that economic conditions should be enabled to localize the production of tablets and notebooks in the Single Economic Space.
In his speech Mikhail Myasnikovich pointed out the need to reduce Belarus’ GDP energy intensity. In 2012 the figure should be reduced by at least 3-4%. At the same time materials consumption of manufacturing processes should be reduced by 3-4%. It will make a direct contribution to the efforts to substitute imports and reduce foreign trade deficit. The government plans to introduce severe sanctions for enterprises that fail to hit energy saving targets.
Analyzing the measures taken to reduce import, the Prime Minister remarked the power vertical, particularly town and district levels, heads and specialists of enterprises overlook the problem for now.
In line with the scheme of importsubstitution efforts, all commodities are divided into three groups. The first one includes imports, which analogues are made in Belarus but lack quality or are made in insufficient amounts. Ministries and regional administrations will have to improve their competitive ability and boost the existing manufacturing capacity. 2011 saw this group of commodities achieve a foreign trade surplus for the first time. However, the result was achieved by monetary factors instead of structural changes in the economy.
The second group includes products, which have not been manufactured domestically yet and have not been covered by government programs. New enterprises are being set up to make them. It is a classic example of direct import substitution. Imports and exports of these commodities canceled each other out in 2011.
The third group includes imports, which manufacturing in Belarus is inadvisable. Their share makes 16%. The group includes mobile phones and tablet computers among other things.
The government believes it is necessary to rethink the entire list of new products to manufacture and their manufacturing conditions. Investments of private businesses and transnational corporations should be welcomed. As an example Mikhail Myasnikovich referred to cooperation between the Belarusian electronics manufacturer Horizont and the Chinese corporation Midea. Thanks to the partnership the Belarusian
company managed to triple its export in 2011.
Connection Between Science and Manufacturing
Matters of import substitution and ways to increase export should be handled as part of an overall production sector policy. This is why the Academy of Sciences has put forth the proposal to put together a law on industrial policy.
Chairman of the Presidium of the National Academy of Sciences of Belarus Anatoly Rusetsky said at the seminar, to achieve balanced development, existing enterprises have to increase their output and export while new enterprises have to be set up, primarily in industries with a high added value, a high share of local components, and a good export potential. This is why the Academy is eager to accomplish a series of advanced technological projects. In order to increase export and the output of import substitutes, countrywide strategies have been put together to bolster export of science-intensive products by organizations run by the Academy of Sciences and a program to make import substitutes in 2011-2015 has been compiled. By 2015 import substitution of the biotech industry alone is expected to reach $300 million.
Since innovations are important for the national economy, Alexander Lukashenko urged scientists to work out and advance the research products the market needs. Successful import substitution is impossible without scientific achievements. For instance, Belarus imports about $0.5 billion worth of medications while it can produce a considerable part of them. There are similar problems in other industries. This is why the productivity of research projects has to improve.
Belarusian Industry Minister Dmitry Katerinich has come up with an export development strategy of his own. At present the Industry Ministry is implementing 19 innovation projects that will spur the growth of the foreign trade surplus of certain kinds of products in the future. With a view to expanding manufacturing cooperation inside the industry, local programs are compiled to reduce the import component in Belarus-made products. Improving the effectiveness of import substitution, the Industry Ministry focuses efforts on setting up holding companies, fulfilling medium-term retooling programs, including in association with other ministries.
Dmitry Katerinich has suggested setting up an export bank to improve the country’s export potential.
The Industry Minister remarked: “In international practice investment goods are as a rule sold using export loans via a specialized financial body. Therefore, it is time for Belarus to set up an authorized export bank that will specialize in exporting advanced technical products to foreign markets”.
Belarus has created a sufficient legal base to encourage export sales. It has been proven effective in past years. The system includes export loans, the creation of a state leasing company, a system to insure exports. Presidential Decree No. 466 was signed in 2009 to support Belarusian exports shipped to the Customs Union by compensating part of the interest rate for the loans issued by non-resident banks to buy Belarus-made machines. The decree expired in 2011. Taking into account the positive results, the Industry Ministry suggests the decree’s effect should be prolonged onto 2012.
Belarusian Trade Minister Valentin Chekanov told participants of the seminar, in 2011 the share of imports shrank considerably thanks to import substitution. The share of imported macaroni products dropped 1.5 times in comparison with 2006, refrigerators and freezers – 2.1 times down, washing machines – 2.5 times down, tobacco products – 7.5 times down.
Along with import substitution the Trade Ministry works hard to bolster Belarusian export. New approaches to Belarusian distribution chains abroad are introduced. Companies with versatile business interests are set up at the industry level and the national level to distribute products. The BelarusianArmenian trading house is an example. Its share in the total Belarusian export to Armenia has reached 16%.
Valentin Chekanov said: “The creation of such facilities optimizes logistics costs and advances Belarusian products abroad”.
Results of the seminar were summarized by President of Belarus
Alexander Lukashenko. First of all, it is necessary to enforce all-round frugality practices.
The head of state stressed: “Everyone must economize. The government, ministries, concerns, oblast, district, and town administrations must enable all-round strictest frugality as a political goal. Frugality should be the main indicator to assess performance of employees and enterprises”.
It will be also necessary to rationalize the import of intermediate goods, to reduce import consumption of the national economy, materials consumption and energy consumption of manufacturing processes. Both economic and administrative methods will be used to stimulate these processes.
Economic methods should be used to regulate the cost of energy resources for the corporations that use them ineffectively. It is necessary to introduce consumption limits for natural gas and electricity. Those who exceed them should pay for them many times more. Not at the expense of state enterprises.
Administrative measures will be used to toughen expenditure of fuel and energy resources per product and the state standards for technological equipment. World standards will be introduced step by step. The relevant mechanisms should be launched as early as in 2012. In the near future it is necessary for the power engineering industry to generate at least 25% of electricity and heating energy using local fuels, recyclable and alternative energy sources. The GDP energy intensity has to be reduced by a third in the current five-year term. The year 2013 should begin with a renewed economy with lower energy and materials consumption.
The President instructed the central and regional government agencies to inventory all the enterprises in 2012 and to take measures against those that contribute to the misbalance of the foreign trade.
The President stressed: “Everyone knows the requirements: effectiveness of an organization is measured by registered profit and salaries of workers. I am convinced only large and well-equipped enterprises can survive competition and secure dynamic economic development”.
Exporting more merchandise and services is task number two. Belarus’ export is supposed to be increased by 120% in the current five-year term. The central government and oblast administrations will have to take radical measures to improve the effectiveness and the competitive ability of the Belarusian economy, its branches and individual enterprises.
Performance of executives will be evaluated taking into account the full import obtained via direct import and via mediators on the home market. Every purchase via a mediator will be analyzed. The government and oblast administrations will have to use local raw materials to increase export by more than a third without importing more raw materials. Agribusiness has to increase export up to $7 billion by 2015. By the same time the Healthcare Ministry should produce 50% of the medications Belarus needs and export them to foreign markets, including Russia and Kazakhstan.
Using all the advantages granted by the Single Economic Space is the third priority. Alexander Lukashenko has instructed to work out an industrial policy program taking into account the Single Economic Space conditions. The document should be adjusted to the development of the industrial complex of Russia and Kazakhstan.
Alexander Lukashenko said: “We do not need thoughtless competition in the common economic space. Our economies should complement each other. By creating joint holding companies, we should act together on foreign markets of raw materials and foreign sales markets”.
Belarus can and should be the innovator in the Single Economic Space. To do it, the country has to promptly adapt and develop the latest technologies. Besides, the potential of Belarus’ cooperation with Southeast Asia, Africa, other promising parts of the world where Belarusian products may sell is not fully explored.
Belarus cannot go for economically unjustified projects to substitute individual products despite their massive import figures. It is the fourth task of the country’s economic development. All investment projects should be able to earn foreign currency in the new five-year term. Their recoupment period cannot exceed ten years. Minimizing investment costs is another requirement.
“Most of them should take care of equipment that we do not have and that we cannot make today or
tomorrow. Installation costs should be reduced to a wise minimum,” explained the head of state.
Alexander Lukashenko warned the government that investment import should not be reduced but its effectiveness must be controlled.
Increasing the output of import substitutes is task number five. Substitution measures should cover at least 60-65% of non-critical imports. In 2012 the output of import substitutes should rise by 20% in comparison with 2011 to a total of $3-3.5 billion. There are plans to take care of the entire range of imports, which substitution is economically effective.
Reducing import consumption in civil engineering is another task. The country should start using rational practices to build homes, civil and industrial facilities. The President tasked the government and the National Academy of Sciences of Belarus with working out measures to tighten the standards that control the use of raw materials.
Alexander Lukashenko said: “It is time to start using new materials with high technical parameters that enable the same exploitation qualities and require less raw materials. I urge you to ration material and energy resources in the civil engineering industry starting next year”.
Substituting consumer imports is task number seven. Alexander Lukashenko remarked, the market should be saturated with quality competitive Belarus-made consumer goods. Belarus can make many of the imports on its own. The domestic raw materials and the processing capacity are sufficient for it. The Trade Ministry should bring at least 3-5 internationally recognized investors into the country for the sake of starting the production of sellable consumer goods.
Development of motivational mechanisms of import substitution is task number eight that has to be addressed soon. All levels of state administration – from members of the central government to heads of enterprises – should work out an effective scheme to encourage and reward labor depending on results of export and import substitution. These spheres are the foundation for balanced and sustainable development of the Belarusian economy.
Alexander Lukashenko remarked: “I will keep an eye on results all the time. I am not going to stifle anyone’s initiative but failures will not be tolerated. Remember that securing dynamic balanced development of the economy and better living standards of Belarusian citizens is a matter of honor for each of us”.
Summing results of the two-day seminar, the President issued key instructions to heads of government agencies and called upon all participants of the seminar to take concrete steps to achieve the goals that had been set.
By mobilizing the potential of industries and regions, Belarus can earn $1.5 billion in trade surplus, President Alexander Lukashenko said at the nationwide seminar on import substitution. December 2011
Export of products
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