Im­port Sub­sti­tu­tion in Fo­cus

Minsk Oblast plans to in­crease pro­duc­tion of im­port-sub­sti­tu­tion prod­ucts by 20% in 2012

Economy of Belarus - - CONTENTS - Nadezhda RADIVON

Minsk Oblast plans to in­crease pro­duc­tion of im­port

sub­sti­tu­tion prod­ucts by 20% in 2012

Foun­da­tion for Growth

In 2011, Minsk Oblast made cer­tain progress in for­eign trade, with the for­eign trade bal­ance sur­pass­ing the level of the most suc­cess­ful year 2008. The force be­hind the re­gional eco­nomic growth is the man­u­fac­tur­ing in­dus­try. Man­u­fac­tur­ers

Pro­duc­tion of high qual­ity com­pet­i­tive goods, and re­duc­tion of the im­port share in the do­mes­tic pro­duc­tion re­main pri­or­i­ties of the eco­nomic de­vel­op­ment of Be­larus. Bal­anced for­eign trade ac­tiv­i­ties and trade sur­plus will be­come a solid foun­da­tion for the eco­nomic well-be­ing of the state and all the Be­laru­sians. It goes with­out say­ing that it is im­pos­si­ble to fully ex­clude im­ports but it is nec­es­sary to fo­cus on im­port sub­sti­tu­tion in or­der to avoid last year’s mis­takes. There are two op­tions: we can launch the pro­duc­tion of new goods ei­ther on our own or with the help of in­vestors. Minsk Oblast in­tends to fully sup­port im­port-sub­sti­tu­tion projects and these two op­tions are re­flected in the re­gional im­port-sub­sti­tu­tion pro­gram 2012.

boosted pro­duc­tion and ex­ports. Some com­pa­nies for­merly spe­cial­iz­ing in im­ports shifted their fo­cus to ex­ports, hence in­creas­ing the num­ber of ex­porters by 300 over the year. In­vest­ment ac­tiv­i­ties were on the rise as well. Minsk Oblast is lead­ing other Be­laru­sian regions in cap­i­tal in­vest­ments. Last year, 80 im­port-sub­sti­tu­tion com­pa­nies were set up in the re­gion.

Sev­eral big in­vest­ment projects were com­pleted. Molodech­nobased Amkodor Uni­cab launched the pro­duc­tion of fork­lift load­ers. By the way, no­body else in Be­larus makes them. The com­pany plans to be­come a leader among for­mer Soviet coun­tries in this sec­tor mak­ing 2,500 load­ers per year. Me­tal­lart­stroi, a for­eign pri­vate com­pany, set up a me­tal pro­files pro­duc­tion in Lo­goisk Dis­trict. A new food com­pany Prodo­vol­stven­naya Man­u­fac­tura was set up in Minsk Dis­trict. Ex­ports ac­count for 90% of its over­all pro­duc­tion (bread­sticks, bagels, etc.).

An­other unique pro­duc­tion fa­cil­ity was opened in Zhodino. It pro­duces honed shaped tubes. This is a truly im­port-sub­sti­tu­tion project as these tubes, used in pro­duc­tion of hy­drolytic cylin­ders were bought abroad be­fore. Now Belav­toza­pchast pro­duces them both for its own use and for other com­pa­nies. Ac­cord­ing to the Econ­omy Com­mit­tee of the Minsk Oblast Ex­ec­u­tive Com­mit­tee, the de­mand for such tubes is very high in Be­larus and cus­tomers of this im­port-sub­sti­tu­tion fa­cil­ity in­clude MTZ, Lida­gro­prom­mash, Bo­bruisk­a­gro­mash, Or­shaa­gro­prom­mash, Gom­sel­mash, etc.

It is note­wor­thy that Minsk Dis­trict has been con­sis­tently tak­ing mea­sures to pro­mote im­port­sub­sti­tu­tion pro­duc­tion. Thus, as many as 127 projects were im­ple­mented in the re­gion over 2006-2010. In 2011 alone the num­ber of projects

grew to 27 with the to­tal in­vest­ments amount­ing to $200 mil­lion. About 60% of the projects were car­ried out by small and medium-sized com­pa­nies.

We are try­ing to at­tract in­vestors and carry out in­no­va­tive im­port­sub­sti­tu­tion projects rather than repli­cate im­ports for the do­mes­tic mar­ket. In or­der for us to be able to im­prove our for­eign trade bal­ance, these prod­ucts should sell well abroad, Deputy Chair­man of the Minsk Oblast Ex­ec­u­tive Com­mit­tee Alexan­der Yer­mak says.

More Pros Than Cons

Nonethe­less, im­port-sub­sti­tu­tion ef­forts have had some draw­backs in the last few years. In par­tic­u­lar, many im­port-sub­sti­tu­tion projects re­quired many im­ported com­po­nents. This is­sue was in fo­cus of the na­tional work­shop ti­tled “Im­port sub­sti­tu­tion as a key fac­tor to en­sure bal­anced eco­nomic de­vel­op­ment of the Repub­lic of Be­larus” held in late 2011. As a rule, prod­ucts made un­der the im­port-sub­sti­tu­tion pro­gram had 70% to 90% im­ported com­po­nents and there­fore had no im­pact on the re­duc­tion of the for­eign trade deficit. On the whole, high im­port in­ten­sity of the Be­laru­sian econ­omy is a sad legacy of the Soviet Union as Be­larus was the as­sem­bling shop of the whole USSR. There­fore now the share of im­ported com­po­nents is quite high.

In this con­nec­tion it is im­por­tant for the regions to im­ple­ment only ef­fi­cient im­port-sub­sti­tu­tion projects, to re­duce ma­te­rial and en­ergy con­sump­tion of pro­duc­tion and to use lo­cal raw ma­te­ri­als to the max­i­mum. Minsk Oblast sees a great po­ten­tial in de­vel­op­ing busi­ness ini­tia­tive as due to their speci­ficity small com­pa­nies tend to fo­cus on pro­duc­tion of im­port-sub­sti­tu­tion goods us­ing lo­cal re­sources. The cap­i­tal re­gion is one of the lead­ing regions in the de­vel­op­ment of small and medium busi­ness in Be­larus. As of early 2011, more than 15% of all the small com­pa­nies and more than 17% of medium com­pa­nies reg­is­tered in Be­larus were op­er­at­ing in Minsk Oblast. Slovechno-bel is one of the small busi­ness suc­cess sto­ries. Hav­ing started as an im­porter, the com­pany switched to pro­duc­ing poly­eth­yl­ene pipes for water dis­posal and canal­iza­tion sys­tems.

A pow­er­ful tool for re­duc­ing im­port de­pen­dency is at­trac­tion of strate­gic in­vestors who can of­fer new tech­nolo­gies as well as new prod­ucts. For in­stance, con­struc­tion of M-stan­dard pro­duc­tion fa­cil­ity of tech­ni­cal liq­uid and house­hold clean­ing agents is un­der­way in Minsk Oblast. When com­pleted, the fa­cil­ity will sat­isfy 60% of the do­mes­tic mar­ket in car, tech­ni­cal and house­hold clean­ing agents. Some of these prod­ucts will be sold in other CIS coun­tries. As­somed­ica will soon open a new closed cy­cle pro­duc­tion fa­cil­ity of dis­pos­able med­i­cal sup­plies; Vichu­nai Bel will open a seafood pro­cess­ing plant.

Minsk Oblast can also boast such well-known com­pa­nies as Henkel Bautech­nik, Av­gust-bel, Lekpharm and oth­ers, which help Be­larus save mil­lions of dol­lars. In ad­di­tion, they pro­vide jobs, ad­vanced tech­nolo­gies, ex­port op­por­tu­ni­ties, and lower prices as com­pared to im­ported goods. For ex­am­ple, by us­ing lo­cal ma­te­ri­als Henkel Bautech­nik, a Be­laru­sian branch of the Henkel build­ing chem­i­cals con­cern ac­count­ing for 25% of the Be­laru­sian mar­ket, man­aged to re­duce the cost of build­ing mixes by 15-20%. Av­gust-bel was ini­tially con­ceived as a pro­ducer of im­port­sub­sti­tu­tion pest con­trol prod­ucts and ac­cord­ing to es­ti­mates, the com­pany helps to save more than $17 mil­lion a year. Be­sides, de­vel­op­ment of the phar­ma­ceu­ti­cal in­dus­try ben­e­fits med­i­cal se­cu­rity of the coun­try.

A sig­nif­i­cant share of im­port com­po­nents in im­port-sub­sti­tu­tion goods is not a very good thing. Nonethe­less, these prod­ucts have more ad­van­tages than dis­ad­van­tages: high value added, ad­di­tional jobs, tax rev­enues, etc. Ear­lier, 100% of goods were im­ported. Now we im­port only raw ma­te­ri­als, so the prod­ucts are 50% Be­larus-made. It may be more ex­pen­sive to launch pro­duc­tion of raw ma­te­ri­als than to buy them abroad, Deputy Chair­man of the Minsk Oblast Ex­ec­u­tive Com­mit­tee Valery Skakun says.

Be­laru­sian Ro­que­fort and Moz­zarella

Like in the whole Be­larus the im­port-sub­sti­tu­tion ef­forts in Minsk Oblast go in line with the work plan

on sub­sti­tu­tion of im­ported goods which en­vis­ages im­port re­duc­tion across three groups. The first group in­cludes prod­ucts that are made in Be­larus but they are ei­ther pro­duced in in­suf­fi­cient quan­ti­ties to sat­isfy the de­mand or they are not as good as sim­i­lar im­ported goods. The sec­ond group in­cludes goods which pro­duc­tion is be­ing de­vel­oped un­der spe­cific gov­ern­ment pro­grams or plans. The third group in­cludes prod­ucts that are not made in Be­larus but which pro­duc­tion is in the stage of de­vel­op­ment.

Im­port re­duc­tion ef­forts in­clude ex­tend­ing the of­fer­ing range of prod­ucts, boost­ing pro­duc­tion, grad­ual re­duc­tion of the im­port share, max­i­mum use of small and medium busi­ness po­ten­tial for pro­duc­tion of im­port-sub­sti­tu­tion com­po­nents and ma­te­ri­als, set­ting up new pro­duc­tion fa­cil­i­ties, boost­ing cur­rent pro­duc­tion ca­pac­i­ties, man­u­fac­ture of hi-tech goods.

In 2012, the cap­i­tal re­gion plans to im­ple­ment 46 im­port-sub­sti­tu­tion projects, 16 of them be­long to the first group, 30 be­long to the sec­ond and one is from the first group. A to­tal of $240 mil­lion worth of im­port-sub­sti­tu­tion prod­ucts is planned to be made. This is 20% more than in 2011.

The most in­ter­est­ing nov­el­ties in­clude spe­cialty Ro­que­fort-like blue cheese and Moz­zarella-like soft cheese. To­day Be­larus im­ports up to 150 tonnes of Ro­que­fort a year. By the way, in the West soft cheeses are be­com­ing more pop­u­lar, while in Be­larus their pro­duc­tion is not so high.

The de­vel­op­ment of pro­duc­tion of pow­der paints, ther­mal un­der­wear and toi­let soaps will be con­tin­ued. Soon the Be­laru­sian mar­ket will see new smoked cheeses, dairy prod­ucts, tof­fee and gummy sweets, cos­metic and hair prod­ucts. Pro­duc­tion of fruit and vegetable juices, canned veg­eta­bles, pick­led cu­cum­bers, wooden floor­ing will be boosted. The as­sort­ment range of footwear for men, chil­dren and women, de­odor­ants, per­fumes and toys will be ex­tended. Zabu­dova is work­ing on in­creas­ing live lime pro­duc­tion in or­der to re­duce the im­port share of raw ma­te­ri­als used for build­ing blocks pro­duc­tion.

New Op­por­tu­ni­ties

Im­port sub­sti­tu­tion should not be the goal by it­self. De­ci­sions in this area should be based on eco­nomic vi­a­bil­ity and each case should be con­sid­ered from the point of view of eco­nomic ben­e­fits and ef­fi­ciency, Boris Batura, Chair­man of the Minsk Oblast Ex­ec­u­tive Com­mit­tee, stated at the work­shop of se­nior gov­ern­men­tal of­fi­cials. In or­der to bal­ance up the share of im­ports it is nec­es­sary to ex­port 60% of the na­tional pro­duc­tion.

Im­port-sub­sti­tut­ing goods should be in­no­va­tive, hi-tech, have a high added value and should be ex­por­to­ri­ented. Surely these prod­ucts will suc­cess­fully com­pete at home and abroad. If we keep con­stantly try­ing to catch up, we will al­ways lag be­hind, Boris Batura says.

Af­ter the cre­ation of the Cus­toms Unio­nands­in­gleeco­nomic­space­and pos­si­ble ac­ces­sion to the WTO, it will be im­pos­si­ble to limit the im­ports by ad­min­is­tra­tive mea­sures. To win the com­pe­ti­tion Be­larus will need to rely on the qual­ity and flex­i­ble pric­ing pol­icy.

Be­larus’ par­tic­i­pa­tion in in­te­gra­tion as­so­ci­a­tions opens up new mar­kets for na­tional pro­duc­ers. In­vestors’ in­ter­est in Be­larus is grow­ing too as the coun­try serves as a link be­tween Europe and Asia. Minsk Oblast as the cen­tral re­gion of Be­larus has to take ad­van­tage of this by cre­at­ing con­duc­tive en­vi­ron­ment to im­port-sub­sti­tu­tion pro­duc­tions. For­eign in­vestors have al­ready started sub­mit­ting their pro­pos­als. For in­stance, Av­tokom­po­nenty and a Chi­nese com­pany want to start pro­duc­ing cars. In 2012 alone this project prom­ises to bring hun­dreds of bil­lions of Be­laru­sian rubles worth of in­vest­ments. A Be­laru­sianChi­nese in­dus­trial park is planned to be built in Smole­vichi Dis­trict, which will surely ben­e­fit the in­no­va­tion de­vel­op­ment of Be­larus.

***

Im­port sub­sti­tu­tion is a com­plex is­sue and there are many things to be con­sid­ered. Not all the projects im­ple­mented in pre­vi­ous years gave the de­sir­able re­sults. Yet, many im­port-sub­sti­tu­tion com­pa­nies man­aged to launch the pro­duc­tion of com­pet­i­tive goods, find their niche in the mar­ket, and lay the foun­da­tion for the fu­ture de­vel­op­ment. The Be­laru­sians should sup­port na­tional pro­duc­ers by choos­ing lo­cal goods. Then, the in­vest­ments will re­pay and the coun­try will not have to spend bil­lions of dol­lars on im­ports.

Amkodor-unikab started a full-scale

pro­duc­tion of ware­house elec­tri­cal equip­ment. This is a joint project of the Be­laru­sian en­ter­prise and the Dimex firm from

Bul­garia

On 17 Fe­bru­ary 2012, Pres­i­dent of Be­larus Alexan­der Lukashenko vis­ited Av­gust-bel, where he was told about the pro­duc­tion, test­ing and stor­age of chem­i­cal crop pro­tect­ing agents

Henkel Bautech­nik man­u­fac­tures over 37 types of build­ing

and fin­ish­ing ma­te­ri­als un­der the fa­mous trade­mark

Cere­sit

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