The Ministry of Trade uses funds accumulating in its innovation fund to meet unrelated expenses. The example is indicative of how government agencies manage their finances. Money from targeted funds is often channeled to companies with links to officials.
The trade ministry's innovation fund accumulates a tax of 0.25 percent of the cost of goods and services collected from thousands of companies. Its revenues totaled 5.5 billion rubles and expenditures 5.46 billion rubels in 2005. An ordinary person associates the word "innovation" with research, development, the introduction of new technologies and patent registration. Although the trade ministry has never been at the cutting edge of innovation, it could have spent the money on new marketing solutions, packaging technologies and retail chain development.
But it did not. The ministry considers the replacement of window frames and doors at offices of Belyuvelirtarh, an authority running a chain of state jewelry stores, an important form of innovation. Other forms of innovation, as perceived by the ministry, include rag stitching, the purchase of a van, sawmill equipment and the manufacture of coffins. The company in the town of Verkhnyadzvinsk that received money from the fund should use the slogan "The World's Most Innovative Coffins" to advertise its products.
About 13 percent of the total expenditures went for promoting e-commerce. Officials follow world trends and exploit their knowledge to obtain budgetary grants. The ministry spent about $327,000 to develop and introduce e-commerce software only to find out that no one needs it in Belarus.
The innovation tax is collected from wholesalers and retailers operating under the authority of governmental agencies, local authorities, the National Academy of Sciences or affiliated with organizations directly accountable to the government. The 2006 revenues of the fund were slated at 5.5 billion rubels, whereas actual revenues totaled 5.4 billion in the first six month of the year. While commercial companies are struggling for every percentage point of profit, bureaucrats do not even think of the possibility of revoking the tax.
Bureaucrats get paid to analyze the condition of sectors of their responsibility and share their conclusions with companies and taxpayers. Alas, the results of their work are closed for public scrutiny in Belarus. The trade ministry's practices suggest that innovation funds of other agencies are managed in the same way. The overall revenues of agencies' innovation funds are slated at 1.44 trillion rubels with trade ministry accounting for just 0.4 percent of that amount.
It appears that agencies use innovation funds on a large scale to selectively subsidize companies, probably with links to the government. Ministries and concerns have turned into large holding companies that often abuse their dominant position on the market.