Belarus's private sector at a crossroads

On 7 September 2016 BEROC (Belarusian Economic Research and Outreach Center) held a seminar on private sector development in Belarus featuring presentations and debates from experts.

Peter Arushanyants, Director of the Department of Entrepreneurship at the Ministry of Economy of Belarus, has asserted that the government will do its best to promote the development of entrepreneurship in Belarus.

However, ​​representatives of small and medium businesses are more pessimistic about their prospects; many consider the existing barriers to business development insurmountable.

Self-reliance: forget about money

Speaking optimistically, Peter Arushanyants has claimed that the share of small and medium business in economic indicators accounts for 28 per cent and is set to reach 40 per cent in five years.

However, the actual figures contradict the above statement. Starting in 2012, the share of medium and micro enterprises in GDP has consistently fallen (see Figure 1).

The government representative has also highlighted the most significant problems for entrepreneurs in Belarus, including legal and financial barriers and high taxes.

According to experts at the International Finance Corporation (IFC), "legal barriers" implies the large number of necessary documents and stamps, the absence or lack of information about administrative and licencing procedures, the length of the process (more than three days), and the unnecessarily "high" level of decision-making (when decisions could be made by lower ranking officials).

The second barrier for entrepreneurs involves high interest rates on loans, sometimes reaching 30 per cent. The third problem mostly has to do with the instability of tax legislation, which increases uncertainty in the operating activities of small and medium companies.

According to Belstat, the share of employment in entrepreneurship has remained more or less static over the last seven years; this may indicate that entrepreneurship is not very appealing to Belarusians.

However, Peter Arushanyants has tried to convince the business community that the authorities are doing their best to promote commercial activity. Measures include the creation of a state body that will assess the regulatory impact of legal acts, further reduction of administrative barriers (currently 780), financial assistance, and possible two year holidays for newly established enterprises.

Women in business: get involved

BEROC Researcher Maryia Akulava discussed the gendered aspect of the private sector in Belarus in her presentation. The share of women among owners of private enterprises comes to about 44 per cent, which is on average 10 percentage points higher than in other transition countries (see Figure 2).​

Moreover, women's share in the number of top managers has reached 36 per cent, which is almost twice that of other transition states. According to Belarusian businesswomen, one of the main reasons for this substantial increase is the availability of free money for self-realization.

However, the Head of the International Finance Corporation (IFC) Representative Office for Belarus, Olga Shcherbina, has admitted that the number of women on the list of the top 200 entrepreneurs in Belarus is very small. Moreover, half of them represent citizens of other countries; the others are continuing the business of either their parents or spouses.

Thus, she concluded that Belarusian women still lack entrepreneurial initiative. In order to participate in big business they need special support and a centralised training program.

The business environment: surviving the storm

In light of the current economic recession in the country, sociologist at the IPM Research Center Darya Urban has identified four main internal barriers to development of small and medium private enterprises in Belarus.

These include low motivation and productivity of personnel, lack of cheap money, a low level of managerial flexibility, and poor marketing strategy. The external flaws include instability of the Belarusian ruble, high tax rates, high interest rates, and volatile legislation.

As a result, the level of entrepreneurial optimism has fallen. In 2015 more than 80 per cent of respondents believed that they would be able to ride out the "storm". However, today the number of "sea wolves" has dropped by 60 per cent.

Moreover, The Honorary Chairman of the Business Union of Entrepreneurs and Employers Georgy Badey is even more pessimistic about whether businesses will be able to survive all nine waves of economic turmoil.

According to him, the average annual growth rate of newly established small and medium enterprises decreased from 21 per cent in 2006-2010 to 5 per cent in following years (see Figure 3).

Finally, one of the biggest problems remains the geographical disparity of entrepreneurial activity: most entrepreneurs are based in Mink or large regional cities. Smaller cities and towns still suffer from a lack of entrepreneurial development.

Belarus's business takes place in the hypothetical centre of Europe. However, Europe's geographic heart is far from its economic one. Small and medium businesses are still in need of advice and economic support, hope for a simplification of administrative regulations, prefer to operate in big cities, and remain unsure about how to motivate the million and a half Belarusian taking part in commercial activity.

Aleh Mazol, 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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