Belarus is set to modernise unprofitable factories even if investments do not payback

May 15, 2017 12:12

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.

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The Belarusian authorities have launched a discussion on the moratorium or abolition of the death penalty under the pressure of Belarusian human rights activists and international community. Apparently, the authorities are interested in monitoring public sentiments and response to the possible abolition of the capital punishment. The introduction of a moratorium on the death penalty would depend on the dynamics in Belarusian-European relations, efforts of the civil society organisations and Western capitals.

In Grodno last week, the possibility of abolishing the death penalty in Belarus or introducing a moratorium was discussed.

The Belarusian authorities are likely to continue to support the death penalty in Belarus. During his rule, President Lukashenka pardoned only one person, and courts sentenced to death more than 400 people since the early 1990s. Over the past year, Belarusian courts sentenced to death several persons and one person was executed.

There are no recent independent polls about people’s attitude about the death penalty in Belarus. Apparently, this issue is not a priority for the population. In many ways, public opinion about the abolition of the death penalty would depend on the tone of the state-owned media reports.

That said, the Belarusian Orthodox Church and the Roman-Catholic Church stand for the abolition of the capital punishment, however their efforts in this regard only limit to public statements about their stance. Simultaneously, the authorities could have influenced public opinion about the death penalty through a focused media campaign in the state media. As they did, for example, with the nuclear power plant construction in Astravets. Initially unpopular project of the NPP construction was broadly promoted in the state media, and eventually, according to independent pollsters, was accepted by most population.