This publication continues a series of articles about the current economic experiment at Ukrainian mining and metal-making enterprises, which was launched in our magazine (issue 12 of the year 2000). Vadim Gurov and Nikolay Kravchenko, members of the Ukra
EXPERIMENT TO CONTINUE IN INDUSTRIAL POLICY-MAKING
EXPERIMENT TO CONTINUE IN INDUSTRIAL POLICY-MAKING
This publication continues a series of articles about
the current economic experiment at Ukrainian mining and metal-making enterprises, which
was launched in our magazine (issue 12 of the year 2000). Vadim Gurov and Nikolay
Kravchenko, members of the Ukrainian parliament, discuss the problems of industrial
policy-making proceeding from the results of the experiment.
- The Law of Ukraine “On the economic experiment at
Ukrainian mining and metal-making enterprises” was passed primarily owing to your
efforts and participation. As an author of this initiative, are you satisfied with the
results?
- I am pleased to say that bare facts witness in favor of
the experiment. They indicate a stable production growth in the industry over the past one
and a half years. In the first eight months of 2000, the country’s output of cast iron
added 112% in comparison with the 1999’ corresponding period, steel output grew by 116%,
while output of rolled metal products featured a 116% augmentation. In the first six
months of 2000, export revenues augmented by 35%. Both favorable situation on the global
market and the experiment’s results produced a positive effect on enterprises’
financial state. In particular, current assets increased 1.7 times, whereas the share of
barter transactions dropped 2.7 times (down to 12.9%). The total deductions to the state
budget increased by 76%.
To be more specific, let me take enterprises of Krivoy Rog
for an example. Seven local enterprises participate in the experiment. First of all, these
are Krivoy Rog State Ore Mining and Metallurgical Works “Krivorozhstal” and six
enterprises that form State JSC Ukrrudprom, namely, State Iron Ore Works and OJSCs
Inguletsky Ore Mining and Concentrating Works (OMCW), Central OMCW, Yuzhny OMCW, Severny
OMCW, and “Sukhaya Balka”.
Starting from the dawning of the experiment, these
enterprises have significantly improved their performance. For instance, commodity
production of Ukrrudprom enterprises reached UAH (Ukrainian hryvnyas) 851 mln. in the
third quarter of 2000, which was UAH 195.7 mln. higher than in 1999. In the same period,
Krivorozhstal augmented its production by UAH 366.5 mln. to reach UAH 1,271.5 bln.
In order to manufacture produce worth UAH 1.0, Ukrrudprom
companies spend UAH 0.78, whereas Krivorozhstal spends UAH 0.68.
The portion of payments made by money means also went up in
the third quarter of 2000 (Ukrrudprom +37.6% against the corresponding 1999’ period to
reach 71.7% and Krivorozhstal +31.5% to reach 97.8%).
Beginning with January 2000, Krivorozhstal has been paying
for all the current expenses (including money payments for gas and electric energy) and
making budget deductions on time.
In the third quarter only, the enterprise deducted UAH 83.5
mln. to the state budget, as compared with UAH 34.0 mln. over the entire 1999. The wages
indebtedness was repaid in full. Moreover, in 2000, the average wages added 56.8%.
These facts testify that the Law is efficient.
- Indeed, the facts speak for themselves. However, it looks
like not everybody is convinced. Attempts have been made to cease the experiment. What are
the reasons behind these actions?
- I see the current deficient state of the national
industrial policy as the key reason for this situation.
Ukraine is both agricultural and industrial country. On the
average, its industry yields 63.5% of the GDP, employs 52% of all the capable-of-working
population, and provides 45% of the budgetary deductions. However, the executive branch
fails to pursue well-balanced industrial policy. The resulting negative factors are
irrational management of the property, absence of innovation projects, the growing rate of
energy and material consumption for the production needs, and problems with the energy
sector. These factors, in turn, lead to lower competitive capacity of the national
product.
I suppose that the abolition of the Ministry for Industrial
Policy of Ukraine was a mistake that actually made the process of industrial reforming
uncontrollable. In no way should the State be allowed to interfere with private business,
but it must exercise control over economic reforms.
In addition, we urgently need a body to manage the
investment policy, coordinate inter-industrial cooperation and create the adequate foreign
economic strategy. I do not believe that the State Committee on Industrial Policy is
capable of dealing with all these issues, because it is highly difficult for the head of
the committee to implement decisions without being a member of the Cabinet of Ministers
dealing with budgetary appropriations. This is why, I stand for the renewal of the
position of Vice-Prime-Minister on Industry. This will create prerequisites for resolving
many of the existing problems. For example, it may alter the attitude of the executive
branch towards the economic experiment, which has clearly shown the advantages of the new
taxation system. Namely, it is capable of improving production along with providing
increased deductions to the budget.
- By the way, is the parliament intending to enforce this
taxation scheme in the new Tax Code?
- As far as I know, this scheme will not be implemented in
the new code. However, I think that the suggested taxation scheme will further be
discussed, because in July 2000, the Supreme Council voted in favor of expanding the
experiment to other industries. There are many advocates of changes to be made in the
existing taxation system and we all have to strive in order to make the Tax Code new not
only by name but rather in essence.
- Having a significant strategic potential, the experiment,
obviously, indicates in which ways the reform in the mining and metal-making industry
ought to proceed. How do you see the future of the Ukrainian metal industry?
- There still is a wide range of problems that require
urgent solutions, first of all, as regards the structure of production and, especially,
export policy. The share of semis and raw materials is still very high in total export
supplies (37% in 2000).
Ukrainian metal industry is lagging behind its foreign
competitors in terms of technology. For example, open-hearth steel still accounts for 48%
of the total steel output, which is more than ninefold higher than the average worldwide
figure. On the contrary, continuously cast steel accounts for only 19% in Ukraine, which
is 4.5 times lower than in the world on average.
The rate of energy and material consumption is going up.
Inputs of coke and energy resources for production needs are many times higher than the
standards adopted by developed countries. On the average, in order to manufacture a unit
of produce, Ukraine spends twice as much energy as Russia does and 12 times more than the
USA does.
Excessive production capacities are another important
problem. The experiment will single out hopelessly weak enterprises and those that employ
outdated management methods. Only economically efficient enterprises will survive.