Corruption scandals and modernization failures

High corruption among the regional authorities drastically reduces the modernization programme’s effectiveness. However, the scale of the announced modernization does not allow using the repressive mechanism in full to mobilize enterprises’ top managers.

Belarusian industrial enterprises’ structural modernization is to take place in 2014-2015. At this point, despite the rhetoric, there is no significant progress in the modernization process.

Woodworks industry modernization failure was publicly acknowledged. As a result, a series of criminal cases against directors at woodworking enterprises in Brest, Mogilev, Gomel regions were launched. Vitebsk Regional Committee Chairman Mr. Kosintsev was reprimanded “for the failure to ensure” proper operations at Vitebskdrev. The initiated criminal cases demonstrate that partially funds, allocated for the technical modernization at enterprises, was misappropriated and used for personal needs. Belarusian state enterprises managers often use such schemes to ensure additional incomes.

Roughly speaking, the government faces a choice: either to strengthen the repressive pressure on directors to increase control over the funds allocated for the modernization, or to lose about 30% of the funds allocated for the modernization due to corruption. Since the central government has very limited funding potential, it is likely to adhere to the first option. Simultaneously, in the Mogilev region alone, 69% of all regional enterprises are engaged in the modernization programme. Therefore, the increase in criminal cases against directors threatens the loyalty on the ground.

However, in the short-term, the criminal cases’ number will increase primarily in agriculture. In 2013 half of the modernization budget is allocated for the dairy facilities construction. On a large part, these projects’ implementation is not satisfactory. For example, in the Vitebsk region, which lags behind other regions in terms of dairy farms reconstruction, only 25 facilities were reconstructed (vs. planned 228 facilities).Orsha Linen Mill modernization was to be completed by late 2013, but now talks are about early 2016.

Most likely, the modernization failures will be debited to the grassroots level – enterprises’ directors and subcontractors. Simultaneously, State Control Committee regional structures will increase their influence.