The desire to replace imports with domestic products from the strategy of "substitution" in the new conditions has transformed into the principle of preserving national economic independence. This principle is one of the key vectors aimed at the development of the domestic real sector. Alexander Egorov, Chairman of the Management Board of JSC “Development Bank of the Republic of Belarus” told the journalist of the newspaper “Respublika” about the development of such projects, priority list for financing, and the criteria used to assess effectiveness.
Risk assessment
- Belarus is a country with an open economy. Exports amounted to 65 percent of GDP at the end of last year, imports - 59 percent. The country lacks many natural resources, so it is impossible to avoid foreign supplies or reduce them by a multiple for objective reasons. However, it is necessary to proceed from modern realities, when the world is divided into "friendly" and "unfriendly" partners. Therefore, it is necessary to maximize the substitution of import, which is critical both for the economy and for the functioning of society. And we should consider the problem of import-independence not only in the national context, but also in the framework of the Eurasian Economic Union. It should be understood that the most effective import-substituting enterprise is export-oriented, as it indicates the competitiveness of products on the open market. It is especially necessary to work actively towards the substitution of investment goods to strengthen technological sovereignty.
Import substitution is undoubtedly one of the priority areas of the Development Bank's work. And not only in terms of lending and project support. We pay great attention to the nature of projects: we scrupulously study possible directions of production development, their dynamics, in which markets the products will be sold, and analyze numerous other factors. This is necessary to create sustainable production facilities in the medium and long term. In recent years, many commodity markets have been subject to volatility. In a relatively short period of time a conjuncture is created where producers of one or another product get super high margins. At such times the organization of own production seems very attractive compared to imports. But the high demand passes, additional margin disappears, profitability returns to normal, and the project may turn out to be not as profitable as it seemed initially. One of the primary tasks of the Development Bank is to objectively assess the efficiency of projects. Including from the point of view of supplies to the domestic market.
The last three years have shown that even the most reliable partners at any moment, for various reasons, can refuse to cooperate and close their markets for our products. Of course, it is always possible to reorient to other directions, and this is what our enterprises do. But entering new markets, especially in force majeure conditions, is often associated with additional costs. Therefore, the key role in any investment project is to supply products to the domestic market. It levels all possible external shocks from the point of view of formation of stable demand for this or that product. If the company has not established relations with domestic consumers, the risks of falling demand on the external circuit increase. And they may sooner or later materialize. That is why the Development Bank pays close attention to the work with the domestic market when analyzing investment projects.
We have many items under which the country imports and exports goods. This is a kind of paradox: our companies spend efforts and resources to enter export markets, while we consume a significant amount of similar imported products. This brings risks for investment projects, as everything is put into one export basket. The domestic market needs are not taken into account.
According to the vector of integration
- An interdepartmental project group works on the basis of the Development Bank to select and examine business plans of promising import-substitution investment projects financed by an intergovernmental loan from the Russian Federation. The list of these projects is determined by the Belarusian Ministry of Industry and coordinated with colleagues in the Ministry of Industry and Trade of Russia. The key goal of the Development Bank as a member of the Interdepartmental Governmental Group is to assess the efficiency of projects from the point of view of repayment of credit resources at the expense of profit generated by the enterprise that receives the borrowed funds.
When assessing each project, we study and take into account the characteristics of the enterprise, the organization of its production processes, industry specifics, and other factors affecting the implementation of the project. Of course, we also consider the risks that we try to hedge as much as possible. For example, in order to reduce financial risks and ensure a deficit-free cash flow during project implementation, our specialists offered the enterprise a new form of working with its debts to the budget. It involves a preliminary assessment of the amount of payments to the budget at the stage of formation of the annual business plan and on the basis of planned cash flows.
We also worked on a comprehensive improvement of the business plan of one of the holdings to ensure a clear synchronization of production programs, stages of project implementation, product nomenclature and other business processes. As a result, a clearer and more transparent strategy for the holding company's development was formed, which allows us to further conduct an objective assessment of the feasibility of implementing certain investment projects at the holding company's enterprises.
Businesses were not left behind
- The issue of involving the SME segment, which forms almost one third of the country's GDP, in deepening the import-independence of Belarus has not been neglected. The Development Bank carries out targeted work to stimulate SMEs to produce import-substituting products, improve the foreign trade balance of Belarus and reduce the import intensity of the products produced in the country.
In order to provide financial support to such enterprises, the Program of Financial Support to SMEs, implemented jointly with partners (banks and leasing organizations), has developed such products as "Import Substitution Support" and "Stabilization".
The result of our work at the moment is the support of more than 260 import-substituting projects in various sectors: production of machinery and equipment, plastic, chemical, perfume and cosmetic products, sanitary and household goods, pharmaceuticals and many others. About 100 million of credit resources under attractive terms were allocated for these purposes.
JSC “Promagroleasing” has also developed a unique program "Strategic Decision" for enterprises producing import-substituting products. It involves purchase of machinery and equipment in leasing at interest rate equal to the refinancing rate for the period of up to five years without providing collateral for the fulfillment of obligations.
