Vitebsk region enterprise managers are monitoring the currency basket more closely than ever before

Heads of enterprises in the Vitebsk region are paying closer attention to the currency basket than ever before. The current exchange rate of the Russian ruble is disappointing and presents surprises daily, and just last month it dropped to its lowest point this year. Yet, Russia still remains the main market for our producers' products, and such devaluation of the currency in which most export supplies are settled causes serious damage to the economy. What to do in this situation? How to find new markets, not lose existing ones, and at the same time prevent export-oriented enterprises tied to Russia from incurring losses? These questions are being asked at both the government and regional levels, and business leaders, regardless of their ownership forms, are also seeking answers. These issues are on the agenda of the Vitebsk Regional Executive Committee's Economy Committee. This and more in a conversation with Konstantin Cherny, Deputy Chairman of the Committee, Head of the Investment Policy and Foreign Economic Relations Department.

– Konstantin Eduardovich, what are the export results for the Vitebsk region for the first half of 2015?

– For six months, foreign trade turnover amounted to 2.4 billion dollars, with a reduction in export sales by almost 40% and import sales by 24%. The reasons for this situation were predictable as early as September 2014 and are related to the fall in the Russian ruble's exchange rate against the dollar. The Russian Federation market is the main one for the absolute majority of goods and services of the region's enterprises, and the Russian ruble is the primary currency for settlements between economic entities, accounting for almost 67% of all transactions between enterprises.

– What hinders reorientation to other markets?

– Work in this area is actively underway; today, products from the Vitebsk region are shipped to 76 countries. However, it is necessary to assess potential trade problems. We must understand that reorienting to other CIS markets is not an immediate or simple task, as these republics are experiencing a significant depreciation of their local currencies against the US dollar, and the procedures for exporting currency abroad have been tightened. As for far-abroad countries, due to the crisis, there has been a significant drop in prices for similar goods, which makes our products simply uncompetitive. Moreover, each country has its own product quality certificates and requirements, so exporters need to actively work in this area. Meanwhile, the Russian market remains the most accessible for Belarusian goods in terms of unified standards, technical regulations, certificates, and trade rules, and despite the decline, it is still one of the most attractive in terms of prices.

– What is the cost of our presence in the Russian market under the current conditions?

– As a result, we are falling short of the value indicator by about 30%, although in physical terms, we are shipping most goods in the same volumes and even more. By changing the supply structure, we are ensuring a value increase in sales of butter by 9.3% (price fell by 37.5%), poultry meat – 1.5 times (price decreased by 25.3%), cheese and curd – also 1.5 times (by 14.5%). A similar situation exists with prices for construction materials, plastic packaging, wood products, and garment and textile products. The difference in supply volume in physical and value terms for most products today reaches 15-28 percentage points.

– In other words, to be competitive, we must lower prices. Is there an opportunity to reduce the cost of production?

– Yes, one of the solutions is to reduce production costs. It should be understood that this includes not only the cost of raw materials but also fuel and energy, and financial components. Furthermore, this can be achieved by optimizing delivery logistics, selecting specific product groups for production that have special consumer properties. In principle, there is nothing new in this; such an approach is widely used abroad today. We should work on the product range, look for our "unique selling proposition," for example, diversify the line with healthy food products, products for diabetics, children, with beneficial additives, and so on. Think about the technology and the appearance of the packaging. Economic crises will contribute to this.

– Which enterprises managed to adapt to the difficult conditions and proved to be more agile?

– Primarily private enterprises, as they did not harbor illusions that the Russian ruble exchange rate would recover and instead focused on finding the lost 30% due to the exchange rate drop: they improved production, sought cheaper raw materials, new markets, and so on. As a result, for the first half of the year, the financial export indicators are quite stable for enterprises such as "Belvest," "Rubikon," "Simurg," "VIK – Animal Health," and "LLK-Naftan." This also applies to some enterprises of communal or republican ownership – OJSC "Verkhnedvinsk Dairy and Canning Plant," "Monolit," "Krasny Borets," and "Vitebskiye Kovry."

– Konstantin Eduardovich, realistically assessing the situation, what are the prospects for enterprises in the Vitebsk region regarding export diversification?

– This year, the Vitebsk region began supplying its products to India, Israel, Saudi Arabia, the Republic of Korea, and Cameroon. Sales volumes increased in 26 states. Due to export diversification, supplies to Australia and Uzbekistan increased 3.8 times, to Romania and the USA – 2 times, to Austria – 1.6 times, to Armenia – 11.4 times, to Bulgaria and Latvia – 1.3 times, to Germany – 2.6 times, to Italy – 1.5 times, to Singapore – 10.7 times, to France – 1.7 times. Enterprises of the Vitebsk region have restored contacts with Kyrgyzstan, Azerbaijan, Uzbekistan, Georgia, Lithuania, Poland, the United Arab Emirates, and Mongolia, to which supplies of dry milk, whey, lubricant additives, door leaves, and veterinary drugs have been organized. In order to diversify sales markets, the regional executive committee has organized interaction with all foreign institutions of the republic, with the foreign diplomatic corps, and interregional contacts with the regions of Russia (Pskov, Chelyabinsk, Rostov, Yekaterinburg, Kaluga, Lipetsk, Smolensk, Moscow), Slovakia, Poland, Latvia, and the Czech Republic have been intensified.

– Is this one of the ways to save the region's economy?

– Undoubtedly. The importance of the Russian market was discussed above, but it is difficult to survive today without entering additional sales markets. Especially since it is necessary to earn foreign currency for modernization and increasing the competitiveness of products. This is the task of every enterprise, regardless of its focus. Being just an importer today is a dead end. You can hold on for some time at the expense of others, and then the entire business can be wound down. Therefore, the regional executive committee is constantly working to find options for industrial cooperation, organize new production facilities, and supports import substitution and innovation projects. State support for export projects is available through risk insurance, repayment of part of the loan interest, and participation in joint programs with the same Russian partners. And here we are clearly not working hard enough. If we want to maintain our market position, we need well-thought-out high-tech, if you will, breakthrough projects in almost all industries. The activities of any enterprise should be focused on producing a competitive product, taking into account all mechanisms of financial support, marketing, technological modernization, production certification, and involvement of individual technological processes in production cooperation.

– The issue of intensifying the export of services as one of the sources of income is increasingly being raised at the country's leadership level. Is Vitebsk region using this resource?

– Regarding service exports, we are currently 22.5% short of last year's level. There are objective reasons for this: a 26.8% decrease in transportation services and a 56.6% decrease in tourism services due to reduced transportation between Russia and the European Union, and a decline in the number of Russian tourists. However, we are growing thanks to construction services (growth rate of 113%) and business services (105%), primarily due to providing services to foreign companies for the construction of factories, shopping centers, and access roads using Belarusian equipment, as well as design and construction organizations. The positive balance of services for the first half of the year amounted to 19.3 million dollars. This means there are prospects in this area as well. Today, the task before all of us is to utilize all available reserves.

Olga Maslovskaya. Photo by Dmitry Osipov, "Vitebskiye vesti".