The looking glass of the Belarusian "economic model".
Experts believe that debt overburden of Belarusian enterprises is caused by the economic model, based on debt financing rather than equity financing, Tatstsiana Manienak writes in the article for Belrynok.
Industrial enterprises have repaid a quarter more than they earned
As of January 1, 2019, the total debt of state-owned enterprises reached Br123.6 billion, which is Br2 billion more than the annual GDP of Belarus. At that, outstanding loans account for more than 60%. This means that enterprises have to spend most of their income on debt repayment.
In 2018, enterprises spent Br60.7 billion to repay their loans, which is 27.3% of total revenue or 58.3% of GVA.
Such startling figures were voiced by Zhanna Tarasevich, Director of the M.S. Kunyavskiy Business Union of Entrepreneurs and Employers (BUEE), at the XXV Congress of the Business Union on May 16. She added that those figures were even more disappointing in the industrial sector.
In 2018, industrial enterprises of Belarus spent Br39.8 billion to repay loans given an annual GVA of Br31.8 billion. This is Br8 billion or 25.4% more than they could earn. Compared with 2017, the growth of such debts, that is, in excess of earned ones, amounted to Br3.9 billion.
The Belarusian economy has been heading to such a dire result over the past few years. In 2011-2017, the average annual growth of overdue debt stock was 41.5%, including 64% of overdue debt on loans. In 2018, the rate slightly decreased: the total overdue debt stock amounted to 15.5%, including loans - 17.5%. However, the very trend of debt growth cannot but cause serious concern of the government.
The BUEE believes that this problem is caused mainly by a lack of sound macroeconomic and, above all, fiscal policy. The business union has repeatedly proposed solutions. However, it has not been possible to significantly reduce the tax burden on enterprises. This is also confirmed by the results of a recent survey held by the BUEE among the Union's enterprises. In particular, 82.3% of enterprises answered the question about the impact of the new edition of the Tax Code on their financial position: "neutral, will not significantly affect".
Enterprises should develop through equity rather than debt financing
The debt overburden of Belarusian enterprises is mainly stipulated by the specifics of the Belarusian economic model, the honorary president of the BUEE Heorhi Badzei said at the conference "Social dialogue and effective corporate governance as a factor of the sustainable environment" on May 16. "We used to think that everything should be public, including investments. This has led to this state of affairs. I am convinced that the new stage of development of the Belarusian economy should aim at the growth of equity rather than debt financing," he said.
But for enterprises to get a chance to develop with equity financing, they must take care of the introduction of corporate governance. "Investors can only come to the enterprises with effective management and the standards that are common in the civilized countries," Mr. Badzei says.
The world practice shows that corporate governance increases the investment attractiveness, and thus helps companies to attract long-term investors. It also allows them to reduce borrowing costs, because cost-sharing does not require payment of interest on loans. The introduction of corporate governance elements is one of the main conditions for companies to enter the international stock market. It also increases the market value of the company.
"Even at the highest level, we never talk about the value of companies, which is crucial for many investors. An investor should see how much has been invested and how much can be raised as a result of the growth of the company's value in the long run," Mr.Badzei says.
At the same time, he stresses that the state should change its approaches in order to introduce the practice of effective corporate governance at Belarusian enterprises.
In this regard, the expert recalls Decree No. 637. It was adopted to replenish the state budget. The approaches set out in the decree lead to absurd situations. And they discredit corporate governance in the JSC.
"I was lucky to attend the meeting at one of JSCs, where it was decided to charge dividends on the company's losses. I wondered what sources would serve to repay dividends. They said they would have to use credit resources. And the government representatives in this JSC become the conductor of such a decision," Mr. Badzei said.