Mas­ters of their Land

Grodno Oblast ac­tively en­cour­ages pro­duc­ers to stand up to im­ports

Economy of Belarus - - CONTENTS - Ye­lena STASYUKEVICH

Grodno Oblast ac­tively en­cour­ages pro­duc­ers

to stand up to im­ports

Mea­sure Thrice, Cut Once…

This year Grodno Oblast has a new im­port sub­sti­tu­tion con­cept. While be­fore only spe­cific projects were fo­cused on im­port sub­sti­tu­tion, now any op­por­tu­nity to cut down on im­ports is thor­oughly an­a­lyzed and thought through. To­day im­port sub­sti­tu­tion should be, first of all, con­sid­ered as a pow­er­ful tool for en­sur­ing a for­eign trade sur­plus, in­creas­ing ex­ports and sav­ing for­eign cur­rency, says Alexan­der Ru­sanov, Deputy Chair­man of the Grodno Oblast Ex­ec­u­tive Com­mit­tee.

He had to ad­mit that some im­port sub­sti­tu­tion projects did not

See­ing is be­liev­ing, de­cided the State Con­trol Com­mit­tee and or­ga­nized an un­usual ex­hi­bi­tion show­cas­ing im­ported goods and their lo­cal equiv­a­lents suc­cess­fully com­pet­ing with them. As ex­pected, the ex­hi­bi­tion has clearly demon­strated the ob­vi­ous: while re­plac­ing im­ported brand-name hi-tech ap­pli­ances and elec­tron­ics is in­deed dif­fi­cult and un­nec­es­sary, the pre­dom­i­nance of im­ported ket­tles, cook­ing pots, linoleum and sim­i­lar goods on the Be­laru­sian mar­ket is hard to ex­plain. Why can they not be made at home? Is it re­ally bet­ter to buy them abroad than to pro­duce them lo­cally?

stand up to their name as the share of im­ported raw ma­te­ri­als was as high as 80%. Some­times mis­takes in es­ti­mates were to blame. Thus, one im­port sub­sti­tu­tion project (con­struc­tion of a champignon grow­ing fac­tory) did not see the light due to the fact the Pol­ish part­ner failed to sub­mit the de­sign doc­u­men­ta­tion in time.

To­day, the first thing to be con­sid­ered when a new of­fer to launch im­port sub­sti­tu­tion pro­duc­tion is sub­mit­ted is the share of im­ported raw ma­te­ri­als as well as the pos­si­bil­ity to re­place im­ported com­po­nents with the do­mes­tic ones. The ex­port ca­pac­ity is be­ing con­sid­ered as well (ex­ports have to ac­count for at least 65% of all the out­put).

When con­sid­er­ing start­ing as­sem­bling goods from for­eign com­po­nents (which can be quite fea­si­ble, too) their com­pet­i­tive­ness as com­pared with sim­i­lar goods on for­eign mar­kets is be­ing con­sid­ered. Be­fore giv­ing the green light to this or that im­port sub­sti­tu­tion project it is nec­es­sary to make sure that the goods made in Be­larus will be com­pet­i­tive and de­manded abroad, Alexan­der Ru­sanov says.

First Time in Be­larus and Else­where

This year Grodno Oblast plans to pro­duce over $272 mil­lion worth of im­port sub­sti­tu­tion goods. Their ex­ports are ex­pected to gen­er­ate more than $57 mil­lion.

Ac­cord­ing to the re­gional au­thor­i­ties, the lo­cal im­port sub­sti­tu­tion pro­gram for 2012 is first of all aimed at re­duc­ing im­ports of con­sumer goods (pork, dry build­ing mixes, canned veg­eta­bles, juices, fruit drinks, etc).

A to­tal of 26 ma­jor im­port sub­sti­tu­tion projects will be car­ried out in the oblast this year with $58 mil­lion worth of to­tal pro­duc­tion and $28 mil­lion worth of ex­ports. This goal is quite am­bi­tious. Last year Grodno Oblast im­ple­mented the same num­ber of projects, how­ever their to­tal ex­ports did not ex­ceed $10 mil­lion.

Promis­ing im­port sub­sti­tu­tion pro­duc­tion fa­cil­i­ties will ap­pear vir­tu­ally ev­ery­where in the re­gion. Thus, Volkovysk Dis­trict will launch pro­duc­tion of vinyl chlo-

ride poly­mer pipes and hoses for the ma­chine-en­gi­neer­ing sec­tor and for house­hold pur­poses (Ar­makan). This year the com­pany will pro­duce $1.7 mil­lion worth of im­port sub­sti­tu­tion prod­ucts and start ex­port­ing. Volkovysk-based Bel­lakt will be the first com­pany in Be­larus to launch pro­duc­tion of hy­poal­ler­genic dry baby for­mula, a 100% im­port sub­sti­tu­tion project.

The big­gest project in terms of size and eco­nomic im­por­tance is pro­duc­tion of dis­pos­able in­jec­tion sy­ringes and nee­dles in Lida Dis­trict. In 2012, Medaks-m will pro­duce over $7 mil­lion worth of im­port sub­sti­tu­tion goods ( some of them have never been made in Be­larus be­fore) and boost ex­ports to reach $5 mil­lion. By the way, the new pri­vate com­pany re­ceived a sub­sidy to cre­ate new jobs, which is one of the ways the state sup­ports im­port sub­sti­tu­tion pro­duc­ers.

Bel­green­line, a res­i­dent com­pany of the Grod­noin­vest free eco­nomic zone, will launch a $2.2 mil­lion pro­duc­tion of wet wipes this year. Their ex­ports are es­ti­mated to gen­er­ate $1.7 mil­lion.

Although Grodno Oblast has been home to many kitchen fur­ni­ture pro­duc­ers for a long time, many kitchen ap­pli­ances (for in­stance, kitchen sinks) have been bought abroad. In 2012, ZOV Stone will par­tially solve the prob­lem by launch­ing pro­duc­tion of kitchen sinks worth $3.7 mil­lion. The com­pany will ex­port $2.6 mil­lion worth of prod­ucts this year.

Speak­ing about im­port sub­sti­tu­tion in the re­gion, one can­not fail to men­tion a project to build a wood­work­ing com­pany in Smor­gon Dis­trict im­ple­mented by the Aus­trian-based Kronospan Hold­ings East Limited. The com­pany will pro­duce lam­i­nated chip boards and medium den­sity fiber­boards as well as ori­ented strand boards, a brand new prod­uct for Be­larus. This year it plans to pro­duce $18 mil­lion worth of im­port sub­sti­tu­tion goods and ex­port al­most all of them. By the way, di­rect for­eign in­vest­ments are chan­neled into this project. This year alone the Aus­trian group will in­vest $20 mil­lion in pro­duc­tion.

Ac­cord­ing to Deputy Chair­man of the Grodno Oblast Ex­ec­u­tive Com­mit­tee Alexan­der Ru­sanov, im­port sub­sti­tu­tion projects have been grow­ing more pop­u­lar among do­mes­tic pro­duc­ers as well. Thus, Grodno To­bacco Fac­tory Ne­man is about to launch the pro­duc­tion of new brand of cig­a­rettes, Grodno Glass Fac­tory is launch­ing pro­duc­tionof med­i­cal­pack­ag­ing,belta­paz in­tends to re­place im­ported turn­ing chucks with the do­mes­tic ones. Im­port sub­sti­tu­tion projects are un­der­way at Ra­dio­volna, Belkard and other com­pa­nies.

Lo­cal com­pa­nies will also pro­duce un­der­sup­plied goods, such as canned veg­eta­bles, ketchup, juices, mod­i­fied potato starch, me­tal cab­i­nets, nets, dry spies, etc. Even small ship­ments of this im­port sub­sti­tu­tion goods help save for­eign cur­rency and cre­ate new jobs.

Driv­ing Force

Suc­cess sto­ries in set­ting up im­port sub­sti­tu­tion pro­duc­tions demon­strate the ad­van­tages they bring: high ex­port ca­pac­ity, per­ma­nent in­flow of for­eign cur­rency funds, eco­nomic sus­tain­abil­ity.

How­ever not many busi­ness­men de­cide to im­ple­ment an im­port sub­sti­tu­tion project. It is much eas­ier to fol­low a well-trod­den path than to launch the pro­duc­tion of a brand new prod­uct and pro­mote it on the mar­ket.

What are the in­cen­tives that en­cour­age busi­ness­men to set up im­port sub­sti­tu­tion pro­duc­tions? Un­der the ini­tia­tive of the Econ­omy Com­mit­tee of the Grodno Oblast Ex­ec­u­tive Com­mit­tee a data­base of promis­ing in­vest­ment ac­tiv­i­ties, rental op­por­tu­ni­ties and real es­tate on sale was set up to at­tract po­ten­tial in­vestors. It also in­forms them that im­port sub­sti­tu­tion projects as one of the state pri­or­i­ties are el­i­gi­ble to sub­si­dies and other perks from the Oblast Ex­ec­u­tive Com­mit­tee with­out be­ing put on a wait­ing list.

These mea­sures are aimed to in­volve first of all the pri­vate sec­tor to im­port sub­sti­tu­tion projects. The re­gional ad­min­is­tra­tion also be­lieves it is nec­es­sary to of­fer ben­e­fits at the na­tional level, such as spe­cial tax­a­tion regime for pro­duc­ers of im­port sub­sti­tu­tion goods.

To­day res­i­dents of free eco­nomic zones en­joy sig­nif­i­cant pref­er­ences and the Grod­noin­vest ad­min­is­tra­tion places a great em­pha­sis on at­trac­tion of in­vest­ments for ex­por­to­ri­ented pro­duc­tion.

So far 19 res­i­dent com­pa­nies of the Grodno free eco­nomic zone have been pro­duc­ing im­port sub­sti­tu­tion goods. In 2011, they made Br714 bil­lion worth of goods (an in­crease of 60% from 2010), hence hav­ing helped save $52 mil­lion.

Nonethe­less, the Grodno Oblast Ex­ec­u­tive Com­mit­tee be­lieves it is not enough. More­over, FEZ ef­forts to boost ex­ports were not very im­pres­sive as more than one third of its res­i­dents were not ex­port­ing abroad in 2011. There­fore the FEZ ad­min­is­tra­tion is tasked with in­ten­si­fy­ing its im­port sub­sti­tu­tion ef­forts.

Grod­noin­vest has a host of in­ter­est­ing and suc­cess­ful projects. For in­stance, Med­vat­pharm, a res­i­dent of the free eco­nomic zone, launched pro­duc­tion of med­i­cal cot­ton some years ago and has been the only pro­ducer of this im­port sub­sti­tu­tion prod­uct in Be­larus ever since. Re­cently the com­pany has started pro­duc­tion of flax cot­ton and is work­ing to launch pro­duc­tion of other med­i­cal and san­i­tary items, in­clud­ing such pop­u­lar im­ports as di­a­pers.

By the way, the first lot of Be­laru­sian di­a­pers was made some years ago. How­ever, it was never sold as re­tail­ers pre­ferred to use their well-es­tab­lished ties with for­eign pro­duc­ers and sell im­ported prod­ucts. It took the com­pany a lot of time and ef­forts to prove the high qual­ity of the Be­laru­sian prod­uct. But it was worth it, now Med­vat­pharm has man­aged to find its niche on the do­mes­tic mar­ket by of­fer­ing con­sumers high qual­ity goods at af­ford­able prices.

The State Con­trol Com­mit­tee (SCC) of Grodno Oblast re­spon­si­ble for su­per­vi­sion of the im­port sub­sti­tu­tion pro­gram out­lined the fol­low­ing ar­eas as the most promis­ing for the re­gion. First of all, im­ports should be re­placed by the goods made from lo­cal raw ma­te­ri­als, such as agri­cul­tural prod­ucts, wooden goods, etc.

At the same time it is im­por­tant to ef­fec­tively pro­mote these goods on the mar­ket. For in­stance, an agri­cul­tural co­op­er­a­tive named af­ter V.I. Kremko in Grodno Dis­trict launched pro­duc­tion of frozen veg­eta­bles and berries un­der the brand name of Svezhedar. How­ever, in­spec­tors have failed to find any of these goods in lo­cal gro­cery stores. Yet, they found a lot of sim­i­lar im­ported goods (50% to 100%).

Sec­ond, we can start as­sem­bling in­ter­na­tional brand-name prod­ucts which can be­come a good ex­port so­lu­tion as 90% of these goods will go to the global mar­ket. Af­ter all, Be­larus used to be the as­sem­bling shop of the USSR for a rea­son. The main thing here is to en­sure high qual­ity of goods as­sem­bling them from a ba­sic set of com­po­nents with the max­i­mum use of do­mes­tic parts.

An­other promis­ing area, ac­cord­ing to the lo­cal State Con­trol Com­mit­tee, is the de­vel­op­ment of ex­port ser­vices (for in­stance, en­gi­neer­ing and for­ward­ing greatly de­manded by for­eign com­pa­nies) and in­no­va­tion im­port sub­sti­tu­tion. There are some promis­ing sci­en­tific projects in the re­gion but their value is of­ten un­der­es­ti­mated as they do not of­fer a short-term pay­off, yet they can be very fruit­ful in the long run.

Grodno To­bacco Fac­tory Ne­man in part­ner­ship with Ja­pan To­bacco In­ter­na­tional has launched a new line to pro­duce su­per

slims cig­a­rettes

Zov-lenevromebel has been op­er­at­ing in Be­larus for 15 years al­ready. The high qual­ity and a wide as­sort­ment of the com­pany’s prod­ucts were rec­og­nized in many coun­tries

With a view to re­duc­ing food

im­ports, the Kremko agri­cul­tural

co­op­er­a­tive, Grodno Dis­trict, has opened a shop

floor to process fruit, veg­eta­bles and

berries

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