Belarus is set to modernise unprofitable factories even if investments do not payback
The Orsha tool factory modernisation requires some USD 65 million. Due to chronic unprofitability, the factory has no own resources for modernisation. Amid the lack of interest from foreign investors, the state is set to modernise the factory at own cost in order to ensure workplaces for workers in the region. Meanwhile, even after modernisation, the factory is unlikely to repay.
According to an estimate, modernisation of the Orsha Tool Plant would require some USD 65 million with a payback within 12.8 years. After modernisation, 70% of the enterprise's products would be sold on the Russian market, and 30% on the domestic market – in order to reduce imports currently worth some USD 30 million. The initial modernisation plan envisaged that USD 46 million would come from a foreign investor and the rest from the state.
The Orsha Tool Plant requires modernisation due to its financial performance. For several years the plant has been loss-making. In 2016, losses totalled BYN 1.3 million. In 2016, the plant employed 384 workers, which was 88 workers less than in 2015. The plant’s accounts have been arrested due to overdue accounts payable. Laid off workers face difficulties in finding new jobs due to the fact that almost one third of enterprises in the region are loss-making. Overall, Orsha region is the most loss-making in the Vitebsk Oblast.
The Orsha Tool Plant modernisation project is aiming to solve the most acute problem for the government – ensuring full employment in the regions. Most investors are put off the project due to its narrow market-orientation (only Russia and Belarus) and the long payback period. The investment climate in Belarus is unstable and project investment rules could change during the implementation process. In addition, in the long run, the BYN exchange rate could fluctuate due to the instability of currencies on the main prospective sales markets, which could significantly increase the payback period and make the entire project unprofitable. In the given circumstances, the state is likely to carry out the modernisation at own cost. In addition, due to automatization of production, the Orsha Plant is unlikely to offer a significant number of new jobs, and retraining would be required for employees. Moreover, such an approach could lead to an increase in the tax burden on successful enterprises and deteriorate their competitiveness.
Overall, the Belarusian state continues to fund modernisation of non-competitive enterprises. Such projects are unlikely to find investors abroad due to their low commercial appeal. The state would allocate budgetary funds for such modernisation and in the meanwhile is likely to step up the tax burden on successful enterprises or lower social obligations vis-à-vis the population.
Amid budgetary cuts on social protection, the Belarusian public sector is experiencing a management crisis and a balance shift in the state resource redistribution system. The authorities are forced to revise their most unpopular decisions during the implementation due to the pressure from affected social groups. The state is unlikely to oppose to some civil society and opposition organisations in strengthening their role in society in order to retain touch with the population and to be able to respond to the most harsh criticism of state initiatives.
The Architecture and Construction Ministry has acknowledged that the decree No 585 on assistance to large and young families in building and buying housing was prematurely rescinded.
The authorities are often forced to revise their decisions on curtailing social assistance to different social groups during their implementation, without preliminary impact assessment and feedback from the population, so as they lead to the growth in social tension. Due to the centralised decision making, languishing state resources and the lack of public debate as a balancing instrument in issues related to social protection, the state administration is losing control of the population.
Perhaps, the compensatory mechanisms of the state apparatus lack the time to adjust to dwindling state resources for supporting the existing social model, even in a reduced form. The authorities have completely or partially paralysed operations of independent public institutions and representative bodies, through which they could monitor public moods and receive feedback from the population, such as local councils, the parliament, political parties and NGOs. Last year, under the pressure of the authorities, the last independent institute for measuring public sentiment, IISEPS, suspended operations.
President Lukashenka’s self-removal from the decision-making on current socio-economic issues, also could have affected the state apparatus’ operations. The president has always been very sensitive about adopting unpopular decisions which could lower his popular support, hence demanded a careful preliminary assessment of such decisions. However, recently, especially after the introduction of the tax on social dependants, the president has mainly focused on the foreign policy agenda.
Hence, a lacuna has formed in the state decision-making after the president reduced participation in the current socio-economic policy formation, which leads to an increase in manifestations of dysfunction in the public administration.