On 24 January the Eurasian Development Bank released an interesting report on the prospects of Eurasian economic integration. The report presented the findings of a research project conducted by a group of Russian and Ukrainian economists under the aegis of the Eurasian Development Bank, the main mission of which is to facilitate integration of post-Soviet economies. One of the report's conclusions is that Belarus will be the main beneficiary of the newly formed Single Economic Space and subsequent stages of the Eurasian integration.

Even without discussing in detail the report's research methodology, there are too many ifs in it. It is very unlikely that the incumbent Belarusian leadership will be able to make full use of opportunities that the Single Economic Space can offer. The reality is that instead of working on a coherent long-term strategy and creating a business-friendly environment, Belarusian authorities usually focus on gaining short-term subsidies and other economic preferences from Russia. 

Report's Optimistic Forecasts

The report is remarkable for a comprehensive analysis of numerous scenarios of the Eurasian integration. The analysis goes beyond the existing format of the Single Economic Space of Belarus, Kazakhstan and Russia and also deals with the prospects of Ukraine joining the club.

Four out of six report's scenarios foresee some form of Ukraine's participation in the integration process. Thus, an important goal of the study is to demonstrate and quantify the benefits for Ukraine if it prefers the Eurasian integration to the European Union Free Trade Zone. 

However, the researchers come to the conclusion that it is Belarus which will benefit most of all:

by virtue of the prevailing economic structure, the primary thrusts of foreign-trade ties, and economies of scale, the greatest effects are observed in Belarus.

According to their calculations, the Belarus GDP will annually gain up to 15% by 2030. In absolute numbers the gain is estimated at USD 14 billion a year (in 2010 prices) by 2030 or about USD 170 billion over the period 2011-2030. For the other countries the gains are estimated at a lower level. Kazakhstan will annually gain 3,4% of the GDP by 2030, Russia – 1,9% and Ukraine (if it becomes a fully-fledged part of the SES) – 6-7%.

The report also says that Belarusian exports to the rest of the Single Economic Space will account for 35% of the cumulative volume of its national GDP. However, this figure does not look very attractive as in 2011 Belarusian exports to Russia and Kazakhstan only amounted to approximately the same slice of the GDP (if the latter is calculated at the market exchange rate).

The report also predicts that without Ukraine the cumulative GDP of the Single Economic Space will gain more than USD 900 billion over the period 2011-2030. And if Ukraine joins the cumulative gain will exceed USD 1,1 trillion.

Wishful Thinking? 

So the picture drawn by the study of Belarus’s future in the Single Economic Space looks shimmering and bright. It is not surprising, therefore, that the Belarusian official media reported the research findings with a great deal of excitement.

However, the text of the study itself and some additional analysis cast numerous doubts as to the potential of the Single Economic Space. 

The authors of the study emphasize that the findings of their research can only be correct "if all the declarations that were made in the previous years will be turned into real actions." In other words, if the states will not break their commitments to build a functioning common economic space with no behind-the-scenes barriers for free movement of goods, services, capital and labor force.

The report also expects the states to adjust their macroeconomic policies  in accordance with international agreements, get used to free market competition and accept the coordinating role of the supranational Eurasian Economic Commission. The latter task is particularly problematic for the authoritarian states that form the Single Economic Space.

For Belarus the declared rules literally mean that the so-called ‘Belarusian economic model’ (a predominantly administrative economy where the state’s share is about 80% and only some elements of market economy exist) has to be left on the ash heap of history. There is no way in which the government can continue its administrative regulation of the economy and simultaneously remain faithful to the Single Economic Space agreements. The Belarusian leadership is very unlikely to give up such practices. This will deprive the regime of a great deal of political clout and expose the economy to multiple uncertainties with the potential of political repercussions.

Real Prospects in the Single Economic Space

This is not to say that Belarus cannot in principle gain from the Single Economic Space. The reality is that the incumbent government is clearly not ready to adhere to the ‘roadmap’ of the Eurasian integration. It is focused on the short-term benefits, such as discounted gas and oil prices, loans and good export contracts for state enterprises. But it does not think much about long-term opportunities and strategies. Not yet, at least. The authorities’ attitudes towards Belarusian business clearly indicate that.

Although the government promised certain positive improvements to the taxation system, already in January the government shocked business with new decisions. For example, it resurrected an ecological tax and introduced a two and half fold increase in taxation of individual entrepreneurs. Importantly, it was done in violation of last year’s liberalization Directive No. 4. Needless to say, there were no prior consultations with business associations. These decisions were interpreted by Belarusian and foreign entrepreneurs as new signs of poor prospects for doing business in Belarus.

Thus, it is very doubtful that Belarusian gains from the Single Economic Space can be nearly as high as calculated in the Eurasian Development Bank’s report. However, Belarus can gain significantly  in the long term if its authorities become more business-friendly and give up their populist social and economic policies.