BELARUS NEWS AND ANALYSIS

DATE:

18/11/2008

Grodno: City in the west that faces the east

By Jan Cienski in Grodno

Vladimir Zuhovitskiy's Zov-LenEvromebel makes flat-pack kitchen furniture in a modern factory just 19km from the Polish border, but it sends almost all of its exports east to Russia and not west to the European Union.

"We are producing mainly for Russia," says Mr Zuhovitskiy, who started his current holding of 18 companies with just three people during the economic reforms of Mikhail Gorbachev in 1991.

Other companies in Grodno, a city of 320,000 wedged near the borders with Poland and Lithuania, tell a similar story.

Neman glass works, a glassware factory with traditions dating back to 1883, exports 70 per cent of its production, two-thirds of which is sent to Russia.

"It's very hard to break into west European markets," says Zoe Novickaya, head of marketing for the state-owned company that employs 4,000 and is located 100km east of Grodno.

That focus on the east despite the geographical proximity of the west used to make sense. While western markets have established brands and experienced retailers, both Russia and Belarus had to build modern economies from scratch following the collapse of the USSR in 1992, which made Russia a logical destination for Belarusian exports.

Cross-border contacts have shrivelled following Poland and Lithuania's accession to the EU and the open border Schengen zone increased the cost of visas for Belarusians. Many communities on both sides of the border made a living smuggling cigarettes, alcohol and gasoline into the EU, but that trade has dried up.

But now that Belarus is being squeezed by Russia's demand for higher payments for natural gas, Belarus is showing interest in building contacts with the west and taking advantage of Grodno's closeness to the EU.

Grodno's foreign investment zone, one of six in the country, is trying to attract foreign investors to take advantage of the region's educated labour force, good roads and cheap wages. Mr Zuhovistkiy pays his workers about $700 a month, less than skilled workers make in Poland.

So far the zone has had middling success, pulling in 44 companies with a combined investment of $102m since it was founded in 2002, most of them with a significant proportion of Belarusian capital.

Many of the companies are quite small, like Bigan, a sausage-casing maker that sends most of its production to Belarus as part of an import substitution programme that allows companies that reduce the need for imports to get the same tax breaks as exporters.

Vasiliy Golovach, director and part owner, says he already sells some casings in Poland.

"The goal is to export to Europe. Our labour is cheaper, our materials are cheaper, but our quality is the same," he says while showing off new painting equipment that allows him to paint multi-coloured logos on to the plastic sausage cases whirring through his machinery.

Mr Golovach says some of potential partners in the west have been surprised both by his country of origin and by the fact that his company is private and not state-owned, like most of Belarusia's larger firms.

"It's very important for us to be treated seriously abroad," he says. "At the moment they are surprised that we have a private company."

Part of Grodno's problem in attracting investors is that it is little-known in the outside world. Poles are familiar with the city because it was part of Poland before the war and is still home to a large Polish minority, but Polish investment has been paltry. Otherwise, tourists are infrequent, and the city only has two modern hotels.

The Belarusian government programme of improving ties with the EU and burnishing its tattered image could quickly produce results in a place like Grodno, which has been cut off from its natural region as Belarus has hewed to a neo-Soviet path while its neighbours joined the EU.

"The opening will really help us," says Mr Zuhovitskiy. "We are no worse than IKEA and we should do well in Europe."

Source:

http://www.ft.com/cms/s/0/49672560-b431-11dd-8e35-0000779fd18c.html

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