Can't Sell Those Belarusian Goods

UNCLAS MINSK 000277

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON PGOV BO
SUBJECT: Can't Sell Those Belarusian Goods


1. Summary: Many Belarusian companies, especially those owned by
the state (which controls 80% of economic activity),are having
problems selling the goods they produce. In February Belarusian
warehouses were holding goods totaling 52.9% of average monthly
production, worth over USD one billion. To try and limit over
production, the Council of Ministers ordered state-owned
enterprises to lower the amount of over-stocks they possess, but
without specifying how this would be done. At the same time, the
GOB expects its companies to increase production. In order to
fulfill its five-year plans, the GOB orders its companies to
increase production, while not providing sales or profit targets.
If trade with Russia continues to fall in 2006, over-stocks are
likely to become a more serious problem. End summary.


2. The Ministry of Statistics announced in October that the value
of overstocked goods sitting in Belarusian warehouses rose 20.6% in
the first nine months of 2005, to a total of BYR 2.135 trillion
[USD 993 million]. Belarusian companies, mostly state-owned, had
an average of 55.7% of their monthly production sitting unsold as
of October, down from 65.8% in June. Some categories of Belarusian
goods were particularly unmarketable, such as clocks/watches (11.8
months' production in storage),wool fabrics (4.4 months),washing
machines (4 months),linen fabrics (3.7 months),metallurgical
machinery (3.2 months),radios (2.9 months),and cotton fabrics (2
months). Certain Belarusian state bodies were particularly unable
to sell their production. The worst performer was the State
Committee on Military Production, with 235.4% of its average
monthly production sitting in storage. Other low performers were:
Bellegprom (light industry, 148%),Belmestprom (souvenirs and
handicrafts, 172.1%),the Ministry of Internal Affairs (121.7%),
and Belbiofarm (pharmaceuticals, 115.5%).


3. The share of production remaining unsold dropped through the end
of the year to 52.9% of monthly production as of February 1
(although this was up 12.5% from January 1),but was up in dollar
terms to BYR 2.316 trillion [USD 1.078 billion]. Belarusian state
companies had the following goods sitting in storage awaiting a
buyer: 20,000 refrigerators and freezers, 28,800 tires, 20,700 tons
of chemical fibers, 98,000 televisions, 500 trucks, 19,700 tons of
mineral fertilizers, 22,600 tons of sugar, and 2,600 tractors. In
January unsold goods totaled 52.9% of average monthly production in
the fuel industry, 53.1% in the chemical and petrochemical
industries, 94.3% in the machine-building and metalworking
industries, 69.4% in the lumber and paper industry, 74.6% in
construction, 140.6% in light industry and 45.1% in the food
processing industry.


4. To try and rectify this problem, on February 28 the Council of
Ministers issued Resolution 307, which mandates reductions in the
amount of over-stocked goods state-owned companies are allowed to
possess. The resolution does not say how these companies are to
reduce their over-production, particularly as each year the GOB
demands production increases. The Ministry of Economy subsequently
suggested that companies reduce stockpiles by, "making competitive
goods, developing efficient sales networks abroad, advertising, and
selling stockpiled goods at reduced prices."


5. While the Presidential Administration controls a large part of
the economy, many other state agencies control economic entities.
According to the Council of Ministers' resolution, the following
state agencies must reduce their accumulated overstocks by:

Allowed Overstock
(as a percentage of monthly production)
March June September December
Overall 66% 63% 61% 57%
Ministry of Industry 95 87 84 80
Min. of Agriculture 38 45 45 36
Min. of Construction 92 75 68 63
Min. of Internal Affairs 125 125 120 120
Min. of Trade 60 59 58 57
Min. of Transport 95 92 87 85
Min. of Finance 63 60 57 53
State Aviation Comm. 75 73 71 70
Min. of Forestry 40 38 35 35
Belarusian Railroads 50 48 48 42
Belkoopsouz 60 59 58 57
Local Governments 68 64 63 61

Individual Concerns:
Belneftikhim (petroleum) 30 27 29 27
Bellesbumprom (lumber) 84 87 80 72
Bellegprom (light 135 130 125 120
industry)
Belmestprom (local 155 145 135 125
crafts, souvenirs)
Belbiofarm 100 115 110 95
(pharmecuticals)
Belgospischeprom (food) 110 100 95 88

[Note: State concerns act as mini-ministries, regulating and in
many cases controlling production in certain fields.]


6. Comment: The GOB continues to consolidate its control, and in
most cases direct ownership, over the Belarusian economy. Every
year the GOB trumpets its rising production as proof the economy is
growing, and issues production targets for industry to meet. The
GOB rarely talks about sales or profit. These high levels of over-
stocks confirm what Post has heard anecdotally, that many
Belarusian goods remain without buyers. Belarusian exports to
Russia, its main trading partner, fell by roughly 10% in 2005,
meaning Belarusian firms are likely to see declining sales and
increasing overstocks this year. [Note: Belarus' trade with the EU
did rise in 2005, but this is largely the result of higher oil and
potash prices, and does not reflect an increase in export of
manufactured goods.] As Belarus continues to fail to attract
investment and to modernize its industry, its goods become less
competitive. Lukashenko may believe the myth that his economy is
healthy and growing, but with each year it slips further behind.


KROL