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The piling stocks problem is to be solved through trade

April 22, 2016 18:28

The draft law on state regulation of trade will allow local authorities to intervene in commodity markets, including illiquid products.

Fulfillment of government’s industrial production plans results in piling stocks at warehouses. The government intends to force the illiquid goods trade. If this approach is legalized, enterprises will be able to improve their reporting indices and industries will partially share the overproduction costs with the trading companies.

Since early 2013 the country’s stocks increased by 33.7% or by BYR 7.5 trillion, making it BYR 29.7 trillion. One of the main reasons behind growing stocks is the quantitative reporting in the goods production, regardless of the current economic situation. Some enterprises did not sell their products and were sending them to warehouses. Industrial production parameters have been adjusted to show better performance, while industries put pressure on local authorities to assist in the sales of illiquid products they have produced.

The draft law “On state regulation of retail and food service in the Republic of Belarus” contains a paragraph, allowing for broad interpretations and permitting the local governments to force retailers to sell goods regardless of the demand. Additional effect from these regulations would be the temporarily reduced stocks due to their transfer to the retail and wholesale trade.

In the regions, this mechanism is already at work. If legalized, these practices will become more widespread in trying to fight the piling stocks at warehouses. The established modus operandi is economically inefficient: overstated industrial production – stocks’ growth – administrative means to clear warehouses. In the end, trade will be the one to blame.

Instead of improving retailer’s efficiency to supply popular goods or adjusting production plans to produce more high-liquidity goods, the government is using a mechanism, which aims to meet the GDP growth targets using any means, even to the detriment of the financial situation in industry and trade.

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