Belarus’ woodwork industry could be modernized, but only by private investors
Following Lukashenko’s visit to the Borisov woodworks last week, the company’s management and regional administration head have resigned.
The government has chosen the woodwork industry as a promising avenue for modernization. Although additional funds have failed to improve the industry’s financial performance, woodwork remains a promising industry for modernization which could be carried out by private investors. However Belarus’ government wants to remain the key player.
About 39% of Belarus is covered with forests, i.e. it has enough natural resources for woodworking. Exports of wood and products made of wood in 2012 exceeded USD 500 million and Belarus has a good potential for import substitution at circa USD 200 million per year (calculation is based on 2012 data). Belarus imported circa USD 100 million worth of woodchip boards in 2012 and in the future it aims to replace these imports entirely with domestic products.
The exact amounts allocated for the woodworking industry modernization are difficult to calculate, but Belarus has imported woodwork equipment worth at least USD 500 million. Some modernization loans date back to 2008-2009 and have not been repaid in full until now. The industry’s financial situation is critical: woodworking has been making profits only in May 2013. Compared with 2012, industry’s loss-making in 2013 increased by 2.4 times. New production lines have been launched, but imports of woodchip boards have not reduced.
In addition, there is a huge difference between how private and state woodworks develop. In Smorgon region, the privately-owned Kronospan woodworks is expanding according to a development plan, it produces goods for exports and for domestic consumption, and does not require constant monitoring by the head of state. State-owned woodworks companies are not developing so well. In general, state-owned woodworks have failed to implement modernization: imported technical equipment does not meet the technical requirements and is often stored outdoors. The only positive exception is Ivatsevichi woodworks, which has strengthened its exports on the Russian market.
Recent practices show that the state is unable to carry out effective modernization at state-owned woodworks due to the lack of incentives. Private enterprises can be successful, but that only shows the inefficiency of state ownership in this industry, which is unacceptable for the authorities.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.