It is a common knowledge that Belarus' economy is dependent on the manufacturing sector. This is the largest sector, the largest debtor, the largest contributor to GDP and a generator of structural problems. The government channeled its assistance into large state enterprises, while other companies received nothing but output targets they were required to meet. The manufacturing sector's performance in the first quarter proved that the government was wasting its time. Instead of restructuring the industry, it keeps on redistributing funds through the budget.
Industrial output rose by 13.5 percent in the first quarter from the same period last year whereas the target was 5.6 percent. The largest upturn occurred in the fuel industry (23.3 percent) with output of the two oil refineries increasing by 29.5 percent. A significant rise is reported in equipment manufacturing and metal turning (16.7 percent) and the building materials industry (13.5 percent). A rise of 4.3 percent is reported in the textile and clothing industry. Production of nitrogen and potash fertilizers fell by 4.6 and 9.4 percent, respectively.
An analysis of the statistics ministry's data shows that the development of many sectors slowed after reaching its peak during the current business cycle. For instance, growth in ferrous metallurgy slowed to 12.4 percent in Q1 2005 from 48.1 percent in Q1 2004. The same trends are observed in the logging, pulp and paper, textile, chemical and petrochemical industries.
Industrial output growth was mainly attributable to a rise in the production of fuel, ferrous metal products and equipment. Since the latter is heavily subsidized and enjoys various concessions, one can say that our industry and the economy as a whole depends on raw commodities. Unlike other countries, which use oil revenues to diversify industries and encourage high technologies, the Belarusian government's approach remains the same - to redistribute funds in favor of industrial giants.
The textile and clothing industry reported the largest inventories, which exceeded the average monthly output by 135 percent. In equipment manufacturing and metal turning, unsold stocks surpassed the average monthly output by more than 100 percent. Thousands of enterprises are feared to be operating only to boost their inventories regardless of a limited demand for their products and their desperate financial position. But they cannot cut back production because they must meet the government-set targets.
The manufacturing sector's revenues increased by 29.9 percent in the first two months, whereas the IPPI rose by 8.2 percent in the same period. The profitability rate dropped to 15.7 percent in January-February from 16.3 percent in the same period last year. Against the backdrop of high profitability of the fuel industry (34.1 percent), there has been a decline in profitability in ferrous metallurgy (from 31.9 to 17.8 percent), the chemical and petrochemical industry (from 38.3 to 24 percent) and the logging, pulp and paper industry (from 11.6 to 7.5 percent). The declining trend has been observed in the building materials industry, while the food industry saw its profitability rate rise from 5.2 to 9.3 percent.
On the whole, 58.9 percent of the enterprises reported a profitability rate of less than 10 percent. The proportion of such enterprises is higher in the chemical and petrochemical industry (61 percent) and the building materials industry (73 percent).
A gap has been rising between the fuel sector and subsidized industries on the one hand and tens of thousands of enterprises in other industries. The latter are struggling to remain afloat under the burden of high taxes, the lack of investment, outdated technologies and administrative interference in management. Managers in these sectors are growing more and more discontent with the economic policies of the Council of Ministers and the Presidential Administration. Meanwhile, bureaucrats have become more skillful in preparing glamorous reports. They do not seem to be willing to notice and address the growing problems at the micro-level.

Table 1 Industrial growth in Belarus in Q1 (2004-2006)

Source: Ministry of Statistics, 2004-2006