Consumption in stand-by mode, investments and trade – digest of the Belarusian economy

On 20 February 2017, Belstat, Belarus's official statistical agency, announced that the GDP has once again dropped by 0.5 per cent in January compared with the same month in 2016.

However, on 21 February 2017, Prime Minister of Belarus Alexey Kobyakov tried to mitigate the country's economic problems by claiming that Russia's oil cuts are the main cause of current economic woes.

Meanwhile, the real consequences of recession have led to a decrease in private consumption, lack of investments (especially foreign), and problems with trade diversification.

Consumption: a painful scenario

According to Belstat, in January 2017 the retail trade turnover in Belarus decreased by 4.6 per cent year on year, culminating in a record decline in private consumption over the past two years (see Figure 1). Experts attribute the fall in retail trade turnover with the economy's prolonged recession, which has in turn led to a reduction of the real monetary income of the population.

The Chairman of the Belarusian Union of Entrepreneurs, Alexander Kalinin, believes that this drop reflects a significant decline in the purchasing power of the population. Economist Yaroslav Romanchuk has explained the fall in income by the absence of efficient production and investments and a subsequent drop in sales, which has lowered wages.

As a result, the Swiss company Credit Suisse, in its global welfare report, placed Belarus in the group of poorest countries, with an income below $5,000 per person per year. However, it named the significant reduction of 'oil rent' as the main reason for Belarusians' increasing impoverishment. This, in turn, has been caused by the fall in oil prices worldwide and a reduction of oil supplies from Russia.

FDI: doubtful prospects

Meantime, the Belarusian authorities still consider China to be the country's main investment pillar in recent years, and try to encourage Beijing to participate more substantially in the privatisation of distressed industrial enterprises.

On 21 February 2017, First Deputy Chairman of the State Property Committee Alexey Vasilyev announced that China is considering investing in OJSCs such as Horizont, Vityaz, BATE, and Gomselmash as well as a total of 22 Belarusian state-owned enterprises (SOEs).

However, such prospects seem dubious, as, according to Alexey Vasilyev, the number of successful privatisation transactions in Belarus in 2016 was zero. This can be explained by the absence of privatisation proposals and hence a lack of interest from potential investors in the indebted enterprises offered.

State authorities have yet to draw up a list of profitable SOEs confirmed for compulsory privatisation. This process is still in its early stages, starting with a study of demand from potential investors. Additionally, the government is trying to find a way to improve the efficiency of management of state organisations by elaborating a new strategy for this purpose.

The new programme will define the principles of state policy in the field of SOE management, including the state's attitude towards state property. For example, the strategy will outline which enterprises are to remain the property of the republic and which are not, as well as what will happen to the stocks of privatised companies and the state's share in strategic enterprises.

A particularly interesting point concerns the proposition to sell up to 25 per cent of SOE shares on the stock market. The authorities think that the stock exchange could stir up the Belarusian market, which, in turn, could help them sell large blocks of shares at a higher price. However, these rushed attempts should have been completed twenty years ago.

Trade manoeuvres: lacking a long-term strategy

According to new data released by Belstat on 13 February 2017, the trade turnover between Belarus and Russia has dropped to its lowest point since 2009, when trade fell due to the global financial and economic crisis. Right now, the main cause lies in the unresolved oil and gas dispute between the two countries.

At the moment, it seems unlikely that Russia will agree to subsidise Belarus on previous terms. This is first and foremost because of its own economic problems (for example, growth of wage arrears, especially in the southern regions of the country), and secondly due to the need for economic reforms, which will consume additional financial resources.

As a result, revenues from petroleum product exports fell by 40 per cent in 2016 year on year. Export deliveries of Belarusian oil products have decreased in physical terms by 23 per cent and amounted to 13m tonnes (see Figure 2).

Additionally, the geographical structure has also changed, with Ukraine experiencing the largest increase – by one third, and the EU experiencing the largest decline – approximately by 33 per cent. Sales of the second most important Belarusian export, potash fertilisers, have also tumbled by 23 per cent compared to 2015.

Exports of agricultural and food products, Belarus's third most significant export item, have dropped as well. In previous year, exports came to $4.15bn, with almost 90 per cent going to Russia. However, due to constant bans from Rosselkhoznadzor, export growth of this trade item has not occurred either.

As a result, the authorities are trying to rectify two decades worth of one-sidedness in state external trade policy. However, the multi-vector trade policy remains mostly rhetorical. A recent example of this is the attempt to supposedly diversify imports of crude oil by trading with Iran. However, this is a questionable option for Belarusian refineries from a technological point of view.

Therefore, taken all together, the recession will make things difficult for Belarus. Economic hardships are being followed by decreased incomes, hesitant foreign investment, and badly implemented external trade policy.

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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