Belarus' Model of Economic Development May Fail to Pass the 'Endurance Test'

The Belarusian authorities count on the country's economic growth without taking into account dangerous trends in the demographic situation and its consequences for the labour market. These conclusions appear in a study made by economists of the IPM Research Center, shared with Interfax-West news agency.

"Intentions of the Belarusian authorities to proceed with large-scale modernization of public enterprises imply that accumulation of capital which formed the basis of the expansionary policy is still deemed to be a major factor of the long-term growth", the study says.

Meanwhile, the economists point out that growth of the potential GDP slowed down in 2012 compared to mid-2010s, economic impact of investments decreased, and further extensive accumulation of production factors cannot serve as a basis of the GDP growth in the long-run period. These conclusions also appear in last-year analytical papers of the World Bank and forecasts of the Eurasian Development Bank as well as of a number of international financial institutes.

At the same time, the global financial and economic crisis of 2007-2009 and the currency crisis in Belarus in 2011 "raised the issue of limits of resources of the Belarusian economic policy model", the researchers point out.

According to them, the question is foremost of the risks which are already present in the country's labour market and caused by demographic problems and an increase in labour migration.

There will be no one to work?

The researchers point out that since 2005, the economic growth in the country was positively influenced by the demographic situation. At this particular time, people born in early 1980s, during the previous fertility peak, reached reproductive age. However, today the birth rate is significantly lower, while the death rate keeps up at a consistently high level: its decline was recorded only in 2012.

"Before 2007-2008, in the population structure there was a decrease of share of people in the under-working age and simultaneous growth of share of population in the working age. In the late 2000s, trends became even less favourable. Thus, along with population decline in Belarus, ageing of population began, which has negative impact on the labour market", the study says.

Relying upon the Belstat data, the researchers acknowledge that a decrease in economically active population was recorded in Belarus in 2011-2012. "A decline in employment is evidenced during the last two years. According to the Belstat data, at the end of 2012, the total decline against the maximum level of 2010 was 2%, or almost 100,000 people. If the current demographic trends remain unchanged, the situation in the labour market will worsen", the IPM economists forecast.

These forecasts are supported by a Belstat forecast, in accordance with which in 2020 the working-age population will decrease by 0.5 mln compared to 2012.

"Forecasts of the United Nations Population Department are even more pessimistic. In accordance with the middle scenario, Belarus is faced with a decline in population at the age of 15 to 59 from 6.4 to 5.7 mln during 2010-2020", the researchers say. Moreover, according to the UN, the situation will not improve before 2050.

Extent of Labour Migration

As noted in the study, the demographic situation is aggravated by the fact that they proceed from neutral assumptions of relative migration and suppose that migration flows will remain at the same level. "In the case of Belarus, there is a danger that such an assumption may be too optimistic", the experts believe.

The researchers remind that migration flows in Belarus intensified in 1990s when after the restoration of independence of ex-Soviet republics people began returning to their historic homeland. Later on, the extent of migration dramatically decreased, and already since 1996 the number of migrants never surpassed 20,000 people a year.

Besides, Belarus shows a positive migration balance. "However, an analysis of official documents shows that between 2000 and 2009, 254,000 people, or 2,5% of population who lived in Belarus at the beginning of 2000, and not 113,000 people, left the country", the study says.

The researchers also point out that no reliable data is available in Belarus about the number of Belarusian citizens who left the country to work abroad. "The official statistics isolate people working abroad. However, these figures include only those who went working abroad under an official contract. These statistics do not reckon in those who have seasonal employment nor those who do not register the fact of being employed abroad nor those who are employed unofficially", the experts say.

According to them, this problem is especially acute in the case of labour migration to Russia which does not have border control on its border with Belarus, and where all employment barriers were removed after the Common Economic Space was established.

"The extent of labour migration is difficult to estimate. Officially, according to statistics, about 4,000 Belarusians work abroad, which is at least one order of magnitude less than the actual value", the study notes. According to the census of 2009, 41,900 people worked outside of Belarus, including 37,700 who worked in Russia, which is by an order of magnitude less than the data received through the analysis of employment contracts concluded by the Belarusians abroad.

Why Do They Leave?

The Belarusians are actively considering employment opportunities abroad, as evidenced by a poll conducted by the Belarusian Institute for Strategic Studies (BISS) in 2009. The results of the poll show that 18.8% of respondents would like to leave the country, and many of those who were inclined to stay in the country took this decision only because they lacked money for emigration (12% of respondents). Other 6.4% of respondents were not sure that they would find jobs abroad.

"The main reason which prompts people to move to another country is a desire to improve their financial situation. This reason for a possible emigration from Belarus was cited by 81.8% of respondents wishing to emigrate ", the IPM experts say.

The researchers point out that after the crisis of 2011 these trends gathered momentum, and pretexts for emigration strengthened.

Russia continues to lead the way in the list of countries which are the most attractive for labour migrants. Thus, despite the fact that after the stabilization of the Belarusian economy in late 2011 the income gap for work in Belarus and Russia narrowed, Russia attracts Belarusian citizens by lack of language barrier and simple employment procedure.

The experts also point out that the labour outflow to Russia is more apparent in eastern regions of the country as well as in small towns.

Look Who Left

"However, one cannot assert that poverty pushes people to seek employment abroad. The most socially vulnerable groups in Belarus are unemployed and economically inactive population which cannot find jobs even in the country. The international labour migration is chosen by rather well-off city dwellers who in such a way receive additional income for improving their financial situation and not for combatting poverty", the experts stress.

The average age of labour migrants is now just over 37 years (economically active population - 39 years), and it is basically the same for all areas of labour migration. At the same time, those who go to Russia include young professionals as well as people of middle and older age, while EU countries attract skilled youth mostly.

Studies conducted by the IPM show that men dominate among those who go to Russia to earn money, and women amount to 9.4% only, while in other directions their share amounts to about one third. "Gender differences can be explained by differences in demand for workforce: probably, "traditionally male" professions are in higher demand in the Russian labour market", the researchers say.

The labour migration is simplified by the fact that some Belarusians can get the Pole's Card and go to work in Poland, for example. Some people have relatives in Russia, which facilitates their adaptation to a new job.

The experts also point out to usually higher level of education and skills of people going to work abroad. Almost a half of labour migrants from Belarus employed in Russia work in construction, about 30% are working in transport, retail trade and provision of other communal, social and personal services.

Impact on the Economy

The researchers note that the labour migration has an ambiguous effect on social policy in Belarus. On the one hand, the population has a short-term effect of additional income in the form of transfers from labour migrants. However, on the macro level, labour migration places additional burden on the Social Protection Fund as a part of contributions to pension benefits are lost.

While the amount of transfers from labour migration in 2011 is realistically estimated at 3.2% of GDP, the Belarusians are by no means inclined to invest these funds in new businessws or to make long-term savings in their bank accounts.

The researchers point out that Belarus faced a large scale labour outflow in 2011. It was felt most acutely in construction, health care and IT domain.

"In the medium term, Belarus, according to demographic projections, faces reduction in workforce. Thus, the need to resolve macroeconomic problems is complemented by the need to reform the social protection system and the labour market, without which the reform in other sectors will not be efficient enough", the researchers sum up.

In their opinion, we need not only changes in regulation of labour market (employment policy and wages) but also far-reaching reforms in the real sector: privatization and restructuring of public enterprises, improvement of business climate and liberalization of product markets.

The experts note that the recommendations made by the World Bank in the Country Economic Memorandum 2012 and some other documents are still relevant for the country. In particular, this concerns abolition of administrative control over wages and employment in public enterprises, improvement of social protection for unemployed and reform of the pension system.

The original article appeared in Russian on interfax.by.

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