Belarusian Machine Building: Once a Nation's Pride, Now a Burden?

In Soviet times, machine building was a driver of economic growth in Belarus. It is not so today.

According to the Ministry of Finance, the Belarusian Automobile Plant, the Minsk Automobile Plant and the Minsk Tractor Plant lost $76m over a nine month period in 2014.

The decline in the industry has influenced the whole country. The state's economy suffers losses not only in the machine building sector itself, but also across the industries associated with machine building.

Wages of factory workers have been cut almost in half in 2014. And Belarusian diplomats have had their own share of embarrassment when Belarusian machines break down during presentations and ceremonies.

Belarus has no choice but to abandon its focus on the shrinking Russian market. The idea of privatising these enterprises by Western company may yet emerge among Belarusian decision makers. Keeping these enterprises in the state's hands costs too much and their privatisation by China or Iran, as previous projects show, may bring frugal results.

The Machine Building Crisis

Machine building, which was developed in Belarus after the Second World War, has long been considered the gem of Belarusian industry. The Minsk Automobile Plant has become one of the largest manufacturers in Eastern Europe manufacturers of heavy vehicles, buses and trolley buses.

Since its establishment the Minsk Tractor Plant has produced more than three million tractors. For many countries the "Belarus" tractor remains a well-recognised national brand. The Belarusian Automobile Plant makes some of the biggest dump trucks in the world.

Recently published statistics from the Ministry of Finance showed that now Belarusian mechanical engineering is having a serious problem. After the third quarter of 2014, the three giants - the Belarusian Automobile Plant, Minsk Tractor Plant, and Minsk Automobile Plant - have all become leaders in terms of sheer losses among all enterprises in Belarus.

The companies have filled warehouses and lowered there production. The production of dump trucks dropped by more than a third over 11 months in 2014 when compared with the same period in 2013. Reserves exceeded the average monthly production by more than four times. A Minsk Automobile Plant employee, who works in the busiest manufacturing bus lines, said to the TUT.by web-site that previously they made monthly 120 buses, now only 60-80.

Most Losing Companies of Belarus in 2014
Belarusian Automobile Plant ~ $ 30m
Minsk Tractor Plant ~ $ 23.5m
Minsk Automobile Plant ~ $ 22.2m

But now these losses are damaging the Belarusian economy, as their partner enterprises have no orders coming in. Employees at these plants now typically work four days a week and there was an extended New Year holiday at the Minsk Automobile Plant that lasted from 1 to 12 January.

Contrary to the former populist policy of the government, at this point wages cannot grow faster than the efficiency of the enterprises. As trade union activist Henadz Fiadynich says, if in spring 2014 the painters at the Minsk Automobile Plant earned about $700 in the spring, now they are earning $420. It is not much of a surprise that companies no longer pay workers any bonuses.

Why Belarusian Machinery Appears to be in Decline

In December the Minsk Tractor Plant and Minsk Automobile Plant got new directors, but these new individuals can hardly solve the structural problems of the enterprises. The Belarusian industry simply lacks sufficient funds for the development of new technologies.

Thus, the quality of the products are declining. The Belarusian Ambassador to France Pavel Latushka stated in 2014 that, "we have situations when our machines breaks down during presentations and what could be the credibility of such a product?”

Belarusian enterprises have failed to develop a successful marketing strategy. On top of the fact that there is no money to build maintenance garages throughout the world, the enterprises even lack enough sales offices outside the country to sell what they do have.

Valiancin Lopan, a PR manager who previously worked for the Minsk Automobile Plant, commented to Belarus Digest that the focus on the Russian market is to date a serious mistake on the part of Belarusian machine builders. According to a representative of the Minsk Tractor Plant in Russia, in the first half of 2014 product sales decreased by 11%. The other manufacturing giants may have losses even greater than this.

However, the demand in the Russian market has declined not only because of the crisis, but also due to competition. Many companies like Volvo, John Deere Rus, CAT, Komatsu, Terex have assembly plants in Russia.

Earlier, machines from the Minsk Automobile Plant was popular in developing countries because of their simplicity - the workers could fix the engines themselves. Now, engines are more advanced and full of electronic devices, and as a result Belarusian goods have lost their advantage.

Additionally, Belarusian enterprises have traditional problems associated with an authoritarian economic control model. Plants often supply their equipment to state-owned enterprises for free, public managers are afraid to be proactive and cannot pay enough money for innovation. Valiancin Lopan says that some engineers can innovate, but they want a lot of money for it.

What Can Help

Financial analyst Siarhei Chaly told Belarus Digest that Belarusian machine-building enterprises badly need strategic investors. And it seems that Lukashenka's regime does not trust either the Chinese or Iranians, whose enterprises in Belarus so far have yielded little in economic success.

For instance, over a five year period the Iranian company Samand produced about a thousand cars which were mainly sold to state organisations. Ford, which manufactured cars in Belarus in the '90s, did the same amount of sales in a year. The authorities closed both, as the enterprises did not meet the expectations of the regime in terms of their sales figures.

At present, searching for a Western investor does not look today as unrealistic as it used to as the survival of Belarusian machine building depends on whether or not it can find one. Peter Spuhler, owner of Swiss train car-maker Stadler Rail, is doing business in Belarus successfully and has had no issues with the authorities.

Belarusian companies should develop new markets outside of the former Soviet Union. This is hardly possible in the case of Western countries, but the focus should be on the developing world. Valiancin Lopan told Belarus Digest that machine builders should open offices in those countries with strong export potential and these offices should be run by the employee of the enterprises as usual dealers are bad at dealing with sales.

In the end, the Belarusian machinery industry can learn much from their successful colleagues. The Minsk Wheel Tractor Plant, maybe one of the most roboticised of enterprises in Belarus, entered the list of top 10 profitable enterprises recently. In December, its head Vitaly Vouk was promoted to the post of Minister of Industry of Belarus.

Belarusian machine building has a long history and great potential. The only question if there is enough will among the authorities to reform it.

Ryhor Astapenia is a Development Director at the Ostrogorski Centre, and editor-in-chief of Belarusian internet magazine Idea.

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