Accessibility links

Breaking News

Belarus: Private Business Thrives In A Non-Business State

Brest, Belarus, 20 May 1998 (RFE/RL) -- The old processing machine emits a horrible racket as it cranks out potato chips.

Six workers coax the more than 45 year old contraption along as it mechanically peels the potatoes, cuts them into thick slices which drop into hot oil, then slowly lifts the finished crisps back out on a chain conveyer belt that lets the excess oil drip off.

Production manager Zhanna Golovko laughs when she recalls how shocked a 72-year-old German expert was when he saw the old equipment two years ago. He couldn't believe it still ran or even produced potato chips any more, she says.

But produce chips it does, and tasty ones at that. Because it is often kept going by the sheer will and inventiveness of the 167 people employed by the Rubikon company, it perhaps symbolizes the strength and resiliency of the small but extremely vital private business community that is not only surviving but growing in Belarus, the East European nation least interested in becoming market oriented.

In a recent two-day visit to Brest, Belarus' western-most city, our economics correspondent found private business people who almost seem stronger from their belief that they get no support or help from the government and must forge anything they achieve.

Nina Karpinchik, who is head of the Union of Entrepreneurs of Brest, says this message came through clearly when she and an international observer were held by police for five hours during the 1996 referendum in which President Alexander Lukashenka dissolved the elected parliament and took effective control of much of the country's economy.

That incident only spurred her determination, she says. Her group now boasts nearly 200 members and was able recently to push the government into delaying implementation of a tax on business cash flow instead of on profits. Such a tax, experts note, would kill new and struggling businesses.

Christina Land, a 64-year-old woman who owns one private restaurant, is part owner of a second, and is preparing to open a third, says there is a "feeling of apprehension" among the business people in Brest, but they don't want to believe that private business might ever be eliminated again by the government.

"We want the government and the local authorities to support us and help because we create something, we do things for the community," she says.

Brest in fact has profited handsomely from hosting the first small-scale privatization program put together by the International Finance Corporation (IFC) for Belarus in 1993. The first auction of municipal property and enterprises put six local businesses into private hands.

Now, three and a half years later, 30 auctions have sold 80 enterprises or properties, putting nearly three million dollars into local coffers. The proceeds from privatization in Brest have purchased public buses, built a hospital, a gas pipeline and are helping to refurbish streets, a public sauna and some residential buildings.

The IFC estimates that 315 new jobs have been created by privatization in Brest alone, that many shops and businesses have been renovated, an expanded range of goods and services is now available to customers, shopping hours have been extended and most importantly the quality of service has improved dramatically.

"The client is everything," says 50-year-old Valentina Muhotina, who started off attracting new business to her private barbershop by offering to loan video tapes to customers. "They attracted people who came here and learned about the barber shop and the services we offer and now they are clients," she says.

Her shop is not for the rich either, she says, keeping its prices competitive with a nearby state shop. But as far as she's concerned, the state shop doesn't come anywhere near her quality of products and services. "They cannot compete with this shop," she says.

The first deputy mayor of Brest, Vasily Haiko, admits the privatized shops forced the state-owned facilities to compete. "If they didn't make any renovations in their shops or its decorations, they would be sold," he says. "If it doesn't make a profit, then it will be sold off too."

But Haiko, who is in charge of economic matters for the city, doesn't think there is much noticeable difference between the public and private shops in Brest. "For common customers, it is no difference where to buy goods," he says. He acknowledges that there are three conditions for any shop -- it must offer a wide variety of goods, competitive prices and a service culture.

If shops owned by the state don't meet these requirements, they will be sold, he says. However, he asks, if a state owned shop is profitable "what's the point in its privatization?"

Haiko is proud of the fact that 77 percent of the enterprises in Brest are now privatized, although he includes many businesses which only changed their technical form of ownership and remain very much state run enterprises.

He also sees no reason that privately owned shops should be able to charge lower prices. The state doesn't regulate prices, he says, but "it is absurd when the price in a private shop is less than the price in a state-owned shop -- the situation cannot be like that." He does not elaborate.

But Christina Land, who also opened a meat market and food shop beside her "Pekin" Chinese restaurant, says her prices are 10 to 20 percent below state shops because she keeps her overhead down. She, her son and daughter in law provide the entire management for the restaurant and food shop while state enterprises are "overloaded" with layers of bureaucratic managers, she says.

"I don't think the government has a clear idea of what it's like to run a small business," she says, "you have to try it once to know." Land was the head of the state construction enterprise in Brest in the communist days, but quickly shifted to private business when the Soviet Union broke up.

It's her expertise in construction that helped her buy out a dreary old state cafeteria, gut the building and build a Chinese restaurant that would draw crowds anywhere in the world. The same goes for the Indian restaurant in which she is a partner and for the new European cuisine restaurant she hopes to open soon. She recently bought another former state facility for that restaurant, but she's had to knock the building down to its foundations and start over because it was so badly built.

Land had nothing but her expertise and drive when she started, so had to borrow from state banks at 22 percent interest, she says. Her enterprises are profitable now, she says, and employ 70 people in where fewer than 50 such jobs existed under state ownership.

Despite the obvious success of the private retail shops in Brest, as evidenced by the bright and cheerful look they present amidst the downtown's still rather dour appearance, not everyone thinks they're so great.

A woman clerk in state food store Svitanak, a few blocks from Land's shop, quickly shoved an old abacus under the counter when some foreign journalists approached to ask her opinion.

"Private shops are temporary," she said. "It's not secure and it's not protected and it's not stable."

The flies buzzed around open trays of ground meat and pork chops stacked on counters in the state shop, but the 47-year-old woman, who didn't give her name but said she had worked there since she was 18 years old, said people like the state shops.

"Even though the private shops might be cheaper, and the quality in the state stores might not be as good and the shops might not look as nice and attractive and as clean as the privatized ones," she said, "it's something we're used to and because it's part of our culture, our heritage, it's something we need to cherish and protect."

She doesn't buy much in private shops, she says, preferring to patronize the place she works or to use "connections" and people she knows on farms or in state supply houses to get her family's food.

Other state employees couldn't wait to get on their own. Alexander Paleiko was the 36-year-old manager of a 1,000 employee department of a state radio and television manufacturing plant when he and seven friends decided to become private business people.

They each put about 60 dollars into a capital fund and started doing wholesale trading and selling commercial information to other businesses, he says, eventually saving enough money to buy a state bakery in an auction. They then sold the building to a bank and leased it back from the bank, a normal western business practice that allows a new business to keep its operating capital liquid.

Baking bread was not a very profitable business, however, says Paleiko, so a couple of years ago they decided to switch to potato chips, a snack food no other company in Belarus was producing.

The equipment they bought was from the late 1940s and requires ten times the labor force to operate as more modern equipment. But it works, he says, and his Rubikon company has now added a second plant in Brest to produce its "Leo" brand potato chips.

By western standards, the machinery is from a museum, but "Leo" potato chips are delightfully thick, hand sorted, weighed and sealed in bags that can be purchased throughout Belarus and Russia in a variety of flavors -- barbecue, paprika, onion, bacon, in addition to salted.

Actually, 90 percent of the Leo potato chips produced in Brest are shipped to Russia -- there are no duties at the border and Russian rubles are so much more stable than Belarusian rubles that it is the only way the company can remain profitable, says Paleiko.

The chips sell well in Belarus too, partly because of local pride but mostly because the country's badly deteriorated foreign currency situation makes chips produced abroad -- even in Russia -- far too expensive for the average person.

Like Rubikon, the JV Santa Impex fish processing company in nearby Muhavets village, sells most of its salted or smoked herring in Russia and it's business is growing so rapidly it's looking to double the size of its plant soon.

Santa Impex is exempt from the state regulation that 76 percent of anything manufactured in Belarus must have come from Belarus, since the country is landlocked and must get its fish from Norway, Canada and the Baltic states.

But that kind of local content regulation, considered anti-business by most, doesn't seem to bother these business people much. At the Berghaus store in central Brest featuring fashionable women's clothes, footwear and cosmetics, quality control manager Tatiana Shalopyko says the law changes so frequently it's "very difficult" to keep up.

She says they do obey the local content law, pointing to smart women's clothes with the label of the Belarus-based "Caroline" clothing company showing prominently. But a visiting female journalist from Italy noted that the local "contribution" to the garments may have been the labels and not much else.

Berghaus, which continues to use the German company's name despite the fact that ties were cut several years ago, says its products range from very affordable to very expensive. And while it sells many middle income items, Shalopyko says it has no trouble finding customers for the expensive items as well.

Belarus President Lukashenka, while constantly talking about returning to the glory days in an economic union with Russia, continues to insist that Belarus can have a dual economy -- part central state run, part private.

The local business people of Brest seem to have taken that as a challenge, building a private economic base that would be impressive in any nation in transition. And to a person, they all say they won't give up despite the odds. That only makes them work harder.

Deputy mayor Haiko perhaps said it best: "Our task is to survive with our own means -- if we work better, we'll live better."