Woodprocessing as an example of the country"s unused opportunities

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April 22, 2016 18:22

On November 30th, woodworking industry’s modernization was declared a failure.

Belarus has significant forest resources, but the share of woodworking industry in the country’s economy is minor. The industry has the potential to gain influence inside the country, but organizational factors weaken the industry’s competitiveness.

Forests cover 38.8% of Belarus. However, the use of forest resources in the Belarusian economy is negligible. Manufacture of wood and wood production make up 1.2% in the Belarusian industry. Woodwork industry exports make 0.7% of the total Belarusian exports. Return on sales was 6.8% in January-September 2012 and 17.5% of the industry are unprofitable.

Woodworking industry modernization programme was designed to improve the situation. Organizational factors disrupted meeting of all the programmes’ deadlines at Bellesbudprom concern.

Top-management staff rotation principle in the industry is unclear. Director of a successful company (Ivatsevichidrev) was dismissed despite the obvious improvement in financial indicators at the enterprise, and director of a company experiencing obvious financial problems (Borisovdrev) nonetheless runs the enterprise.

Instead of solving organizational problems, the government shifts responsibility on the employees. Woodworking industry employees have the lowest wages in the country. To solve these problems, Alexander Lukashenko proposed to introduce a ban on staff dismissal from the enterprises to undergo modernization and simultaneously to increase their wages. Source of wages’ growth was not named.

Thus, woodworking industry has a potential, which hypothetically could be implemented. But it is hardly possible without solving the organizational issues which relate to interaction between the wood processing and construction industries in terms of construction period reduction and enterprises’ modernization.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.

According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.

The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.

Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.

The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.

Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.

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