Belarusian Economy in Summer: Threats for Doing Business

Events that unfolded in June brought about new challenges for the development of the business environment in Belarus. Possible changes to the law on privatisation will impact the attractiveness of state assets and raise concerns regarding the level of property rights protection.

New requirements for goods certification will create severe additional pressure on entrepreneurship. Together with fluctuations in the currency market, an uncertain situation is developing from the perspective of private business.

Threats for Privatisation

The Belarusian Parliament approved, after its first reading, amendments to the draft law on Privatisation of State Property and Transformation of State Enterprises into Joint Stock Companies. It includes additional regulations to the legal statuses of joint companies that were the result of privatisation and other certain innovations in management.

According to the authorities this law aims at improving legislation in terms of possessory control and protection of rights of minority shareholders (citizens of Belarus, who own less than 2% of shares) as well as protecting the rights of Belarus as a nation.

The bill is galvanising the so-called "golden share", which existed in Belarus from 1998 till 2008, when the President abolished it. The acceptance of these amendments during the second reading of the draft law, expected to occur in September-October 2013, will probably have a negative impact and decrease the interest of potential investors in assets, where at least some part belongs to state.

In case this document will come into force, the authorities will obtain a right to vote at meetings of joint stock companies by votes of minority shareholders. Moreover, the bill assumes the possibility to appoint state agents to take part in these privatised joint-stock companies, where share of the state equals to zero. In addition, it will be possible for state agents to suspend the decisions of shareholders meeting in case these decisions conflict with public safety and/or welfare and would bring damage to the environment.

Taking into account the quite difficult situation with the attraction of foreign investments into the economy, this bill might make it even worse. No large deals have occurred since the beginning of 2013. With the state having the right to take part in the voting process and suspend decisions of stakeholders’ meeting, it is clear that it will likely increase the level of corruption and non-transparency of doing business in the economy. This will further negatively affect Belarusian attractiveness compared with neighbouring countries.

Entrepreneurs Unhappy

A one-day strike of entrepreneurs from all over Belarus occurred at the end of June. During a forum of entrepreneurs they made the decision to carry out this strike due to the new technical regulations that oblige entrepreneurs, who operate in the Customs Union market, to certify all consumer goods produced by light industry and label them with a unified conformity mark. This procedure, however, is very expensive for individual entrepreneurs and can bankrupt their businesses.

The authorities planned for these regulations to come into force by 1 August 2013 for wholesale dealers and by 1 November 2013 for retail dealers. However, the reaction by entrepreneurs has forced the authorities to allow the sale of goods without the required certification till 1 July 2014. For their part, the entrepreneurs have to provide mandatory notifications about the absence of certificate and to terminate a contract of sale in case of their nonconformity with the quality standards established in the technical regulations.

Implementation of this regulation will negatively affect business environment in the country and may result in the enlargement of the shadow economy together with a growth in the level of unemployment. The introduction of new technical regulations looks less harmful for business in the cases of Russia and Kazakhstan, which also follow these rules.

Being exempt from the need to certify specific goods applies only to entrepreneurs who imported goods from other members of Custom Union and can prove it with the required documentation. However, entrepreneurs in other members of Custom Union do not take these requirements seriously and are avoiding them. As a result, Belarusian entrepreneurs, who buy goods for sale in Russia and Kazakhstan, cannot prove the quality of these products and will have to bear additional costs.

Therefore, implementation of these technical regulations only in Belarus increases the risks of entrepreneurs’ indignation and possible future strikes. Clearly, it is necessary to enforce and follow a rule in all three countries, or otherwise it could lead to the destruction of Belarusian small business.

Volatility of Exchange Rate

During the last months certain changes occurred in the currency market. USD grew significantly vs. BYR (Belarusian Rouble), reached its maximum since the beginning of 2013 and caused uncertainty and concern among the population. 

However, the situation in external markets and deterioration of the economic situation in Belarus is the primary reason for this volatile environment. The Russian rouble was devaluated against the US dollar, causing changes in exchange rates. This also led to the reduction of RUB exchange rate with the BYR.

The exchange rate of BYR against these other currencies proves the statement that these fluctuations occurred due to the situation abroad and that national currency is still showing rather stable dynamics. However, due to close relations with Russia, Belarus will possibly have to slightly devaluate its’ currency in order not to lose its competitive positions in strategic Russian market. Therefore, the monetary authorities will have to take measures in order to reduce the devaluation expectations and avoid bank panic, which can negatively affect stability of Belarusian currency.

Maryia Akulava, Belarusian Economic Research and Outreach Center (BEROC)

This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)

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