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