BELARUS NEWS AND ANALYSIS

DATE:

18/11/2008

MTZ: Tractor giant pulls weight

By Geoff Smith

There is a swagger about the Minsk Tractor Works (MTZ) these days: the giant sign above the gate proclaiming the October Revolution gleams as never before, while a second plaque portraying Lenin has the communist leader's chin jutting out with even more than its usual assertiveness.

This is a survival story. MTZ is perhaps the only non-military mass-manufacturer in the former Soviet Union that can still claim to have a 10 per cent global market share for its products, largely a result of its 88 per cent share of the market for tractors in the Commonwealth of Independent States.

MTZ has survived with a minimum of structural reform. The company is still legally a state enterprise, not a joint-stock company To say it has relied on traditional values would be an understatement. Gennady Svidersky, deputy minister for industry, compares MTZ's no-frills technology to the T-34 tank, which, he points out "also got the job done", despite not being the fanciest product on the shelf.

Such financial information as there is indicates that it has the familiar problem of adding value. The 52,000 employees of John Deere, the US tractor maker, generated $21bn in revenue last year, while MTZ's 30,000 generated scarcely $1.5bn. Chief executive Alexander Pukhovoy estimates that 2008 net profit will be around $146m, on revenue of $1.86bn. But Dmitry Schastniy, marketing director for the "far abroad" (countries outside the former Soviet Union), bridles at suggestions that foreign partners might help. "At the moment, we are not trying to attract an investor. That is not our task," he says.

Production, which peaked at 102,000 vehicles in 1988, fell to 23,000 by 2002, most traded in barter schemes for Russian oil, gas and other raw materials. By 2007, output had rebounded to 63,000. MTZ plans to reach 70,000 this year and 75,000 in 2008. And whereas the 1988 record was only achieved by long production runs of only two tractors, today the company turns out more than 60 models.

As with much recent CIS history, MTZ's recovery can be traced to the six-year rally in commodities that gradually restored liquidity to the former Soviet Union. As the rally spread from oil to agriculture, demand soared to the point where some Russian customers were paying up to 90 days in advance for Belarus tractors. Exports to Russia rose by 40 per cent in 2007, and by 75 per cent year-on-year in the first nine months of 2008, according to company data.

"We didn't 'survive', we worked hard and patiently under the aegis of our president," is Mr Schastniy's summary. The recovery he attributes to the efforts of a new general director, who renounced the use of barter, developed under previous managers.

MTZ's former director Mikhail Leonov was jailed for 10 years for embezzlement and abuse of office in 2002 in a general purge of senior industrial figures whom President Alexander Lukashenko felt had not displayed enough loyalty in the previous year's election campaign. Mr Leonov, who had criticised Mr Lukashenko's refusal to privatise the plant and liberalise the economy, had reportedly declined an invitation from opposition groups to run against him. Unlike many purely political opposition figures released this year, Leonov remains in jail.

MTZ's fortunes are also a lesson in the importance of market access. The contrast with Poland's Ursus, once its rival in the Comecon bloc, could not be starker. As Poland embraced the European Union, Ursus lost key markets and was taken over last year by Turkey's Uzel Holding.

Belarus' customs union with Russia gives it access to a huge market, allowing MTZ to sell its goods freely, and enjoy protection from tariffs of 5-15 per cent on imported tractors.

However, there are clouds on the horizon. An industry lobby for Russian agricultural machinery makers, Soyuzagromash, complains Belarus discriminates against its members in procurement tenders, and is quietly lobbying Moscow for retaliation. Also, western manufacturers have steadily developed their distribution in Russia. Meanwhile, Kamaz, Russia's largest truck-maker, has announced plans to build tractors.

Mr Schastniy says MTZ intends to react by making its most powerful models, equipped with a 212 horsepower engine from Germany's Deutz, available in Russia next year, and will increase the share of higher-powered models as a proportion of total output.

Source:

http://www.ft.com/cms/s/0/4f03f638-b431-11dd-8e35-0000779fd18c.html

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