Can Belarus Authorities Prevent the Decline of Textile Manufacturers?
On 4 December, Aliaksandr Lukashenka cancelled his visit to JSC Kamvol, a major textile manufacturer located in Minsk.
The president threatened to pay an unexpected visit to this state-owned enterprise in the future and denounced its attempts to cover up problems ahead of his scheduled visit.
Kamvol received more than € 100 mln in state subsidies in the last seven years, but has not finished a single year with profit. Kramvol's workforce shrank by half during that period.
The decline of the enterprise mirrors the fate of many such companies in Belarus. Successful during the Soviet period, Belarus's textile manufacturers are struggling and lose customers to foreign companies today. And yet these companies continue to be subsidised by the authorities despite their increasing unprofitability.
The Decline of a Soviet Giant
Founded in 1955, Kamvol flourished while Belarus remained in the Soviet Union. During that time, the enterprise produced up to 22 million metres of fabric per year. Today Kramvol produces 10 times less fabric and faces a real possibility of closing.
Between 2009 and 2014, the number of Kamvol's employees decreased by half, reaching 797 people. Considering the general depression in the economy, the company's workforce may have shrunk even more in 2015.
According to the Ministry of Finance, Kamvol finished 2014 with a net loss of €1 million. The only year, in which the losses were negligible, was 2011. That year Belarus instituted triple devaluation, decreasing the price of Belarusian goods on the world market.
During his visit, room temperature at the enterprise hovered around 0 degrees Celsius. Heating the company's space with 13-metre high ceilings was too expensive. The authorities also discovered that Kamvol's machines were worn off by 95%.
Enraged at the poor state of affairs, Lukashenka fired the plant's management and the leadership of the concern of the Belarusian light industry.
Even on the verge of bankruptcy, the company remains one of the largest manufacturers of fabric in the former Soviet Union. Kamvol also occupies a significant position in Belarus's light industry. At the same time, the company desperately needs to modernise in order to survive.
The Belarusian authorities have planned to modernise Kamvol for several years now. Lukashenka has repeatedly raised the issue with the company's management. On 4 December, after he had refused to visit the enterprise and claimed that its management had tried to whitewash Kamvol's problems, Lukashenka held another meeting on the status of the enterprise. He then announced an additional € 5 million in funding for the company.
In the last eight years Kamvol received more than € 100 million from the state. Yet the company remains unprofitable despite generous support.
state-run textile manufacturers remain in business, propped by governmental subsidies Read more
Kamvol struggles financially for the same reasons that many other textile manufacturers in the post-Soviet space are going out of business. These companies cannot compete with Asian or Turkish producers. For example, Ivanov textile plant in Russia went bankrupt in 2001.
Yet unlike similar companies in other post-Soviet states, two dozen of Belarusian state-run textile manufacturers remain in business, propped by governmental subsidies. Like Kamvol, these companies performed strongest when the Belarusian rouble was devaluated in 2011. What makes the current crisis different from that of 2011, however, is that the Russian economy is also shrinking. Moscow now lacks money for buying Belarusian textile products.
The whole textile manufacturing, which accounts for 3% of the Belarusian industrial production, is on the decline. If textile manufactures go bankrupt, thousands of people will lose their jobs. Liudzmila Chanchavik, a seamstress from Brest, told Belarus Digest that most textile manufactures lack customers. She said she worked only two days per week this year.
Lukashenka is Helpless
Saving Kamvol resembles the plot of film Groundhog Day. Dissatisfied with the enterprise, the government dismisses its management and increases subsidies to improve production. Kramvol invariably incurs losses, provoking a new round of dissatisfaction, followed by the reshuffling of management and financial inflows.
Lukashenka's promised surprise visit to Kamvol in 2016 will change nothing. The poor state of the company's affairs is common knowledge, and the solutions to Kramvol's problems remain out of reach.
A few years ago, the authorities proposed to develop a sheep breeding complex, in order to provide Kamvol with domestically produced raw material in the place of the wool imported from Russia. This plan has failed because creating a sheep breeding enterprise from scratch is costly and because Belarus lacks the meadows needed for grazing sheep.
The authorities have considered several other alternatives, such as attracting foreign direct investment or merging Kamvol with a successful weaving enterprise. In 2011 Turkish company De Textile declared readiness to invest in the company. But, like many foreign investors in Belarus, De Textile failed to come to an agreement with the Belarusian government.
A merger remains on the agenda, as it would allow to hide the Kamvol’s losses on paper. The government prepared a draft decree in 2014, but Lukashenka still is yet to sign it.
In reality, the Belarusian authorities can do little to reverse the decline of the moribund textile industry. Despite Lukashenka's personal engagement in the rescue operation and the large sums earmarked for the company, Kamvol will continue to falter.
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The new report on human rights in Belarus – the Human Rights Centre Viasna has released its monthly monitoring.
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Public Lectures and Conferences
Bruce Bucknell: Belarusian language may be the solution to the “Russian World” problem in Belarus – The British Ambassador delivered a public speech on the national identity within the frames of the Flying University project Urbi et Orbi. The lecture was held on 20 November and attracted about two hundred people. The video version is available
Four Scenarios of Development of Relations Between the EU and Russia: Where is the Place for Belarus? – On 25 November in Minsk, Friedrich Ebert Foundation (FES) presented four scenarios of development of relations between the EU, Russia and their common neighbours. The scenarios are built on the metaphor of the house. The first scenario describes the situation of overlapping interests but different values and is presented in the form of a block of flats. The second one contains common interests and values and, accordingly, is presented as a common house for a large family.
Criticising the State Isn’t Enough; We should Change the Discourse of Situation Perception – The real resistance is the production of one’s own civilization product, not just a criticism of the authorities on the part of the regime fighters, who are frozen in time. This is one of the findings of the conference “Political techniques in modern authoritarian regimes as a challenge to transformation” that took place on 27 November in Minsk. The organisers are the Centre for European Transformation with the support of the International Consortium EuroBelarus, and Heinrich Boell Foundation.
Letter From Minsk – Strategic Europe continues the second phase of its Capitals Series exploring how EU foreign policy is viewed by six countries in Europe’s Eastern neighbourhood. They have asked the contributors from each capital to give a candid assessment of the EU’s policies toward their country, with a ranking on a scale from “miserable” to “excellent.” Andrei Yahorau, the director of the Centre for European Transformation, a Belarusian independent think tank, speaks on behalf of Belarus.
Research and Monitoring
Human Rights Situation in Belarus: November 2015 – The Human Rights Centre Viasna has released its monthly monitoring on human rights situation in the country. In particular, November was marked by a continuation of the policy of ‘soft practises' observed earlier since August. During November, there were no new politically motivated cases, while a series of street protests took place without the intervention of law enforcement and without arrests of their organisers and participants.
The Shadow Economy in Belarus in a Regional Perspective – The BISS new research studies the public perception of the shadow economy and assesses the involvement of citizens in shady activities. The representative opinion poll conducted in May-June 2015 at the same time in Belarus, Lithuania, Latvia, Estonia, Poland, and Sweden. One of the findings shows that shadow employment in Belarus is the highest in comparison with other countries of the research, and can be estimated at 33% of GDP. The research was presented in the Amplituda TUT.by program.
The Global Competitiveness Index (GCI): Dynamics of the Belarus’ Position – CASE Belarus presents the study using a unique micro-data from the 2012 poll jointly run by the Ministry of Economy of Belarus and CASE Belarus. Belarus is not on the GCI list of the World Economic Forum so far. The project determines the potential place of Belarus in the GCI Report and provides recommendations for strengthening the competitiveness of the economy of Belarus based on the break-down of the potential score.
New licencing regulations in Belarus. Starting from 1 March 2016, the incense will be issued in Belarus in perpetuity. The new presidential decree also reduces a scope of paperwork and data submitted to obtain a incense.
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Monitoring of economic transformation. Since January 2016, IPM Research Centre in cooperation with TUT.BY and IPM Business School launches publication under the KEF new regular newsletter – "Monitoring of the Belarusian economic transformation and business confidence." The structure is based on the road map of reforms presented by the First Deputy Economy Minister of Belarus Alexander Zaborovsky at the recent KEF conference "Economy of Belarus: At a Tipping Point". According to the KEF newsletter
Lukashenka: It is necessary to move a little and strain. On 7 December at a meeting on the budget and monetary policy for 2016, president Alexander Lukashenka warned the government of the experiments in the economy. Lukashenka is confident that the Belarusian economy is absolutely competitive in terms of price and quality.
Belarus-EU visa facilitation agreement ready for signing. This statement was made by Gunnar Wiegand, Deputy Managing Director for Europe and Central Asia of the European External Action Service (EEAS) during a press conference under the EU official visit to Minsk on 9-10 December. The official also reported that EU set to double financial assistance to Belarus next year, allocating its funds for programmes aimed at building the country’s competitive capacity and creating new opportunities for economic and regional development.
Belarus Digest prepared this overview on the basis of materials provided by Pact. This digest attempts to give a richer picture of the recent political and civil society events in Belarus. It often goes beyond the hot stories already available in English-language media.