Industry is slowing down: Council of Ministers forecast announced
Data on the social and economic development of the country for January – September 2021 indicate a gradual slowdown in the economy of the Republic of Belarus. The main reason for the loss of the previous dynamics is the slowdown in industrial production. If in 6 months of 2021 the Belarusian industry grew by 10.4%, then by the end of 9 months the growth rate slowed down to 7.9%. And this is not the limit – the government expects a decrease to 5.3% by the end of this year and to 3% by the end of the next. The future of the economy of Belarus is described in the review of the Economicheskaya gazeta newspaper.
The inevitable return to the average
The corresponding forecast was announced by Deputy Prime Minister Yuri Nazarov at a joint meeting of the House of Representatives and the Council of the Republic, where he made a report. Despite the expected decline, the Deputy Prime Minister described the dynamics of the development of the industrial complex as stable, drawing attention to the outstripping rates of industrial growth in comparison with strategic partners in the EAEU. As for this indicator, following the results of 8 months, Belarus surpassed the Russian Federation by 4.1 percentage points, Kazakhstan – by 6.2, Armenia – by 7.6. This is to say that the slowdown in industrial production is the characteristic not only of our country. A similar situation is developing in other countries where last year the industry faced the consequences of COVID-19, and in the first half of 2021 got an incentive in the form of a sharp recovery in demand.
In fact, the high growth rates of industrial production in the first half of the year can be explained by the convergence of two favourable factors – the low base of the last year and the favourable external economic environment. Thus, the increase in exports in January – August 2021 amounted to 32.2% compared to last year. At the same time, according to the National Statistics Committee of the Republic of Belarus (Belstat), the volume of commodity exports during this period increased by 15.6%, while average prices increased by 18%. Thus, more than half of the increase in foreign trade is associated with an increase in prices, and not the physical volume of supplies.
Naturally, as the influence of these favourable factors diminishes, the growth rates of industrial production will decline, which explains the expected slowdown in Belarusian industry. Forecasts with lower rates for 2022 can be explained by the high base of the current year: against the background of high values of previous years, it is much more difficult to show growth. However, even for growth by 3% next year, it is necessary to work hard – resolving this issue will not be easy.
New investment cycle amid a shortage of funds
One of the key characteristics of the industry which hinders its further development is its high capital intensity.
In his speech, Yuri Nazarov mentioned about 10 large industrial projects that are currently being implemented in the country or will be completed in the coming years. The current five-year plan provides for a launch in the production of new petrochemical products through the construction of a new ethylene-propylene unit at the Polymir plant. The government is counting on the participation of Chinese partners in the project, which may mean the implementation of the project according to the scheme of the Svetlogorsk pulp and board mill, i.e. construction of a plant by Chinese specialists with the purchase of Chinese equipment for a Chinese loan.
The protracted construction of a hydrocracking complex for heavy oil residues at the Mozyr oil refinery and a delayed coking unit at Naftan are nearing completion. It is possible that the allocation of credit funds to the Belarusian refineries is associated with the need to complete the construction of these facilities. Among the largest projects in the field of chemistry, Yuri Nazarov mentioned the construction of a new nitrogen complex and the modernization of the existing production facilities of JSC Grodno Azot. The government also expects the commissioning “in the coming years” of a complex on the basis of the Nezhinsky section of the Starobinskoye field with a capacity of up to 2 million tons.
Serious changes are planned in mechanical engineering. A draft decree on the creation of a state corporation for agricultural engineering has been prepared. It is proposed to combine the production, technological, commercial, human potential of agricultural engineering enterprises – holdings MTZ, Gomselmash, Minsk Motor Plant, Bobruiskagromash, Lidselmash. Within the framework of the corporation, it is planned to form production chains according to the principle of single-purpose product groups, to build sales not of individual goods but of systems of machines of a complete technological cycle (in fact, technologies).
“Formation of a unified production, technological and personnel discipline, implementation of a unified marketing policy and sales system, a unified sales network will reduce production costs, increase the share of Belarusian agricultural machinery on the world market and increase the capitalization of state assets”, the Deputy Prime Minister shared his vision of the future.
Taking into account the difficult material condition of many participants in the future corporation, it is planned to use mechanisms for their financial recovery, including through the Asset Management Agency. In other words, the state will again come to the aid of machine-building enterprises.
Foreign borrowings can be another source of financing for new industrial enterprises. They are counting on investments from European companies. Thus, in November, negotiations with a Norwegian investor are planned to set up a bleached chemical-thermomechanical pulp production facility at the site of Mogilevkhimvolokno OJSC.
Thus, according to the government’s plans, the sources of financing for the new investment cycle should be the sources that were used before – foreign investments, loans secured by the government, bank loans, financial assistance from the state, including in the form of reducing the debt burden due to financial recovery mechanisms.
However, the investment opportunities of the Belarusian economy in 2021 have seriously decreased. The negative dynamics of the current debt of legal entities on loans to banks indicates a reduction in lending to the real sector of the economy. In January – August 2021, investments of Belarusian enterprises in fixed assets decreased by 8.1% in real terms. Foreign direct investment on a net basis in the second quarter of 2021 decreased by USD 60 million. That is, from April till June 2021, the withdrawal of foreign investments exceeded their flow. These facts together indicate a slowdown in investment activity within the country and a decrease in the interest of foreign investors in our country, which raises doubts that the “new investment cycle” will be fully funded. However, work to increase investment attractiveness continues even in the current environment.
The projected slowdown in industrial production growth rates in Q4 2021 and throughout 2022 is associated with a return to average values after a decrease in the influence of favourable factors. Funding and sanctions remain the main problem of the Belarusian industry in the near and medium term. The development of industry, and consequently – the economy, depends on the government’s ability to resolve these two difficult issues.