Cement industry is in need of diversification following its modernisation
On August 16 president Lukashenko demanded that new factories for manufacturing of reinforced concrete construction and imitation stone founded on the basis of the Belarusian cement plant launch production by November 2014.
Modernisation of cement industry which utilised about USD 1.2 bn, has not met export expectations of the government. Because of falling demand and managerial errors in the course of modernisation the plans to boost export had to be curtailed in terms of the volume of goods by more than three times. In such a situation an attempt is being made to launch production of new export goods.
Belarusian authorities try to partly offset the decline in revenues from traditional export items by way of organising new export production. Two such projects were presented to president Lukashenko on August 16 during his visit to ‘Kritshevtsementoshifer’, a subsidiary of ‘Kritshevtsement’ JSC. We are speaking about the launch of manufacturing of reinforced concrete construction and imitation stone founded on the basis of the Belarusian cement factory (which cost USD 50 mln and USD 38 mln, respectively). The president approved the projects mentioning that they are going to ‘be of great help to export’ under the condition when cement sale ‘has slowed down’.
Yet following the results of recent modernisation of cement industry which cost some USD 1.2 bn (whereas USD 530 mln – the tied loan of the Exim Bank of China), the production volume of cement in Belarus was meant to double. It should have reached 10 mln tons in 2013, of which 5 mln tons were meant for export. Export revenues on this item were planned to reach USD 400 mln in 2013. Yet because of the drop in foreign and domestic demand observed since the second half of 2012 the plans had to be modified. The volume of production will not exceed 6.1 mln tons this year, the volume of export will not exceed 1.5 mln tons.
Nevertheless, problems of the industry are related not only to the deterioration of the market conditions but managerial errors, too, committed while choosing the mode of modernisation. The intention of the government to simultaneously improve the investment statistics and ‘save money’ on technologies failed altogether: Chinese equipment purchased with the Chinese loan showed its poor quality as early as at the stage of assembly and fettling. And this is one of the reasons behind the postponement of the planned yield of 10 mln tons of cement until 2015.
And yet another important goal of modernisation has not been reached – improvement of energy efficiency of the industry by way of decreasing volumes of consumption of the Russian gas (Chinese technologies were intended to replace it by coal). As a confirmation, the head of the Russian holding ‘Eurocement Group’ Mikhail Skorokhod paid a visit to the Belarusian cement factory and ‘Kritshevtsementoshifer’ on August 14. The governor of the Mogilev region Petr Rudnik who accompanied the businessman voiced his proposal to establish partnership in terms of operation of new capacities to decrease the prime cost of production and use alternative types of fuel. The head of the holding promised to help Belarusian colleagues. The conditions of this assistance have not been disclosed.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.