State set to support machinery despite its losses

April 22, 2016 19:15

The President has approved the state programme aiming to provide financial support for large machine-building enterprises, such as MAZ, BelAZ, Gomselmash and MTZ. The Belarusian machinery is in critical state due to its high dependence on the Russian market. The state’s financial support would enable these enterprises to keep going at least until the presidential elections without having to conduct mass layoffs. Meanwhile, the state’s only development strategy is linked with hopes to preserve the Russian market. 

In January – May 2015, machinery production declined by 29.2% with the decline rate increasing each month. Stocks in mechanical engineering, including vehicles production, account for 35% of all stocks in the industry, or USD 870 million. The key industrial enterprises – BELaz, MTZ, Gomselmash have become loss-making with MAZ performing the worst by late 2014. As of May 1st, the total losses of the industry exceeded BYR 900 billion and the share of loss-making enterprises exceeded 40%. 

The current state of affairs has occurred due to poor diversification of exports amid limited possibilities to reorient production for other markets. For the domestic market, the existing production capacities are redundant. Over 60% of MAZ exports depend on the Russian market situation, which amid sanctions has halved compared with 2014. Performance of MTZ and Gomselmash depends on the amount of subsidies allocated to agriculture by the Russian government. In 2015, due to a budget deficit, Russian agriculture is under subsidised. 

In the given circumstances, the best option would be to reduce the production output to match the sales levels. BelAZ has halved dump trucks production, MAZ has reduced trucks production by 2.2 times and Gomselmash has decreased the production of combine harvesters by almost six times. These substantial reductions in production require proportionate staff cuts. However, in the view of the upcoming presidential elections, the country’s leadership is not ready for such significant labour cuts due to the overall social and economic situation in the country and the lack of additional jobs in the economy. The state will keep the workers at the cost of further loss-making by large enterprises and will compensate these losses through budgetary loans and subsidies. However, shortly after the elections, large industries would have to consider downsizing, otherwise recovery would not be feasible in the short and medium term.

The unhealthy financial situation in the Belarusian engineering is due to export orientation on the Russian market and the overall stagnation in the Russian economy. Industrial enterprises however will keep the workers so as the state would compensate these losses in order to keep social tension at bay.