Opinion: Belarusan officials are interested in the process of modernisation, rather than its result

Sooner or later the authorities will be forced to initiate real modernisation, which should go far beyond buying new equipment, reasons Ryhor Astapenia.

On 20 December, Deputy Prime Minister Piotr Prakapovich announced the need to accelerate modernisation of Belarus. 

According to him, it was necessary to carry out not only technical modernisation, but also economic modernisation, including improvement of public administration system. 

But what Prakapovich's speech actually proved was that modernisation of Belarusan enterprises failed. The state invested over $1bn in cement and woodworking industry, but businesses still making only losses.

At the same time some Belarusan companies cooperate with developed countries and update new technologies in their enterprises successfully. These examples serve as a good lesson for today's leaders of Belarus.

The authorities adopted a number of modernisation programmes during 19 years, they started talking about it much more since 2012. Belarusan economist Leanid Zlotnikau links it with the reduction in revenues from the export of solvents.

Although the authorities state that modernisation goes beyond modernising equipment, in reality they are not ready to change their management style. On the one hand, they waste resources on huge projects.  On the other hand, they do not even want to prepare adequate business plans. 

Many Belarusan officials are interested in the process of modernisation, rather than its result. 

Plenty of expensive cement

Over the past years, the authorities have modernised four cement plants in Belarus. That was worth about $ 1.2bn. China gave a conditioned loan to finance new equipment and specialists who carried out the modernisation of enterprises. Introduction of new capacities at cement factories has been postponed for two years, which in effect led to a $0.5bn loss for Belarus.

Before investing money, the authorities failed to take into account possible market changes and how competitive their own products would be. The cost of the Belarusan cement remained too high. Belarusan officials wanted to make these plants export-oriented, but the Belarusan cement appeared to be more expensive than Russian.

The authorities have to sell their cement at lower prices to offload their stockpiles. All modernised cement plants remain unprofitable.

Other challenges of modernisation

Modernisation defeat in the woodworking industry became a part of many anecdotes in Belarus. Over six years, the state invested more than $1.3bn to modernise the woodworking industry. Last year, Lukashenka even introduced compulsory work on woodworking enterprises. No employee of the nine companies in the industry could resign without the permission of his superiors.

A month ago, Alexander Lukashenka once again visited Barysaudreu, a woodworking company in Minsk region. He was shocked by the lack of results. Barysaudreu, as most other enterprises in the sector, not only failed to become more competitive, but even to undertake a modernisation. Mastydreu, another enterprise in the industry, was unable to start planned production since 2010.

Many other firms have similar problems. Mikhail Miasnikovich, prime minister of Belarus, said that "20 percent of companies cannot cope with the modernisation and another 37% are modernising with a lag." On the one hand, the Lukashenka's regime waste money on other major projects. 

Integral, the largest manufacturer of microelectronic components in Central and Eastern Europe, is also in decline, as the authorities failed to modernise the enterprise. Alexander Abukhovich, an economist who worked on Integral, explains that the company needed about $2bn to modernise, but the state allocated only $284m: “That does not even reduce the backlog as competitors modernise even faster.”

This January, Belarus Ministry of Finance published financial reports of Belarusan enterprises of the first three quarters of 2013. According to their data, Belarusan companies succeed primarily in areas related to raw materials.

Why process is more important than result

Failures of modernisation projects have roots in the economy dominated by public sector. Responsibility for improving enterprise capacities remain divided between many officials who try to pass it on someone else, usually directors of the companies.

But directors have little interest in the long-term success of state firms. Thus, the government have no tools to motivate directors of enterprises, except criminal liability for the failure of modernisation.

Siarhei Chaly, Belarusan economist, explains that nobody cares about the final result of the modernisation, but many people want to earn on the modernisation process: suppliers, builders "there is a large number of people, who do not earn on project profitability, but its expensiveness."

The more expensive the project, the better for its implementers.

Opportunity for Belarusan enterprises

Many Belarusan officials are surprised that major modernisation projects failed to yield the desired results. They believe that the purchase of new equipment immediately means revenue growth. The result indicates that the Belarusan enterprises still require specialists good in strategic planning, marketing, quality control and other areas not  related to equipment itself.

However, not all Belarusan companies went this way. Horizont, a manufacturer of TV sets and household appliances, invited Japanese engineers to modernise the enterprise. The engineers are still in Minsk introducing new technologies. As a result, Horizont produced 530,000 TV sets last year, and most of them not under its own brand, but Toshiba or Sharp.

Belarusan Automobile Plant, one of the world's largest manufacturers of dump trucks, established a subsidiary company in Germany to build out contacts with producers from the European Union. The company looks for new technologies and opportunities to modernise Belarusan mechanical engineering.

Looking at these examples, Belarusan officials understand the need to have links with more developed countries to reform. In such conditions, cooperation with the West and initiatives such as the European Dialogue on Modernisation with Belarus became the things the country's leaders need today.

The authorities often try to reinvent the wheel and find their own unique methods of modernisation.  But sooner or later they will be forced to initiate real modernisation, which should go far beyond buying new equipment.  

Originally published at BelarusDigest