Hrodna Region: the Land of Catholics and Smugglers
Belarus Digest starts a series of articles devoted to Belarusian regions. Most often only Minsk ends up in the focus of Western media. But around 80 percent of Belarusians live outside of Minsk. Each region has its own political, economic and cultural peculiarities. The series begins with Hrodna region and will also cover Brest, Vitsebsk, Homel and Mahiliou regions.
Hrodna region due to its specific culture and history, has always been the object of thorough attention of the authorities. It has the largest share of catholics in Belarus and was a part of Polish Republic until 1939, while eastern regions of Belarus entered the USSR already in 1922. The region showed strongest support of the nationalist candidate Zianon Paźniak in 1994 presidential elections, arguable the only relatively honest presidential elections in Belarus.
The West of Belarus
Hrodna region is situated in the western part of Belarus bordering Poland and Lithuania. It is the smallest of the six Belarusian regions in terms of population and territory. However, it has the largest percentage of Poles (21,5%) and around half of its population are Roman Catholics. Hrodna region also has one of the largest share of people speaking Belarusian at home (35%), second only to Minsk region (39%).
The regional centre, Hrodna city, is officially known since 1128 AD, when served the heart of princedom. Soon the territories of the region united with neighbouring parts of Lithuania to form a medieval state called the Great Duchy of Lithuania. Hrodna region has absorbed the mix of ethnic and confessional groups on the border of Slavic and Baltic languages, Orthodox and Roman Catholic Christianity with specks of Judaism and Islam.
From 1921 to 1939 the region was a part of Polish Republic, while eastern regions of Belarus entered the USSR in 1922 already. In Poland, Belarusians had quite hard conditions for national development, but on the other hand no severe repressions occurred here.
The 20 years of Polish rule had a significant influence on various aspects of life and identity of the people. A “westerner” remains an image of hard-working, non–drinking and more religious person compared to the “easterner”, more Sovietised and Russificated.
The Anti-Communist Region
For Soviet administration, population of Western Belarus presented “an unreliable element”, as they expressed more scepticism to Soviet rule. The same picture remained after USSR collapse.
In the first presidential elections, Hrodna region showed biggest support to the pro-Western nationalist candidate Zianon Paźniak. The results of subsequent election also showed that western Belarus supports democratic candidates clearly more that the east of the country. Lukashenka himself often publicly spoke of Hrodna as an “uneasy” region.
The map of Zianon Paźniak support in 1994 elections
Today, as in any other Belarusian region, the regime destroyed local political parties and NGOs. The only functioning NGO, Third Sector, remains the only spot of non-state civil activity.
The so called executive vertical, the hierarchical pyramid of executive bodies that persist from soviet times and subordinate to the president, presents the chief body of regional government. The heads of "the vertical", or governor, serves a major political figure in the region and Lukashenka personally appoints him from his reliable men.
The current governor, Siamion Šapira, has replaced his predecessor Uladzimir Saučanka in 2010. Saučanka was accused of “poor management”, which served an euphemism for all kinds of power abuse.
But being a friend and countryman of Lukashenka, he was simply removed from office and hidden for some time. Soon, however, he quietly emerged on the post of director of a state-owned agricultural enterprise. Simply put, Lukashenka forgave him and charged with a lower position.
At first, the public perceived new governor, Doctor of Economics Siamion Šapira as a more educated and liberal ruler, than his notorious predecessor. He tried to uphold this reputation by speaking of “importance of preservation of cultural heritage” and “tourism development” which appealed to Hrodna people. Subsequently, however, he did not give evidence of his better style of government. Recently Šapira completely destroyed his reputation by ordering to fire academics and rector of Hrodna university on political grounds.
The Land of Smugglers
Western Belarus appears less industrialised that eastern Belarus, and cannot boast a large number of big industrial plants. The biggest enterprise in the region is “Azot”, the producer of chemical fertilisers. The plant consumes the largest amount of natural gas in Belarus, and therefore poses a certain problem for the government. In recent years, the government often expressed their readiness to sell it, but did not select the new owner yet.
The region appears among the best agricultural producers of the republic because of more fertile lands and a better work ethics.
Hrodna region has perhaps the richest architectural legacy in Belarus. A number of mediaeval castles, dozens of old Catholic and Orthodox churches and much more smaller objects like gentry estates can be found here. Thus, it has a large tourism potential, but as a matter of fact tourist infrastructure remains extremely poor here because of awkward policy of the government in this field.
For common people of Hrodna region, border smuggling became a popular occupation after the collapse of the Soviet Union. The border that emerged between Belarus and its western neighbours, Poland and Lithuania, has become the main source of income for many people. Decades pass, but border smuggling remains a thriving industry.
People smuggle cigarettes and fuel from Belarus, where it is cheaper, and return with everything from clothes and products to electronics and tools. Although officially unemployed, these people lead a comfortable life and have income several times higher that their honest fellows working hard at factories.
Smugglers use various kinds of tricks to escape from border control. People hide the stuff in cars, buses and trains, on their body, in bags, balls and even cakes. The industry also experiences the influence of high-tech: many cases have been identified when people tried to float the cigarettes by river with GPS navigation devices.
Border smuggling became a distinct culture with its slang, legends and stories, and code of conduct. Thanks to Belarusians, you can often find illegal but cheap cigarettes in European streets.
This interesting feature of the local economy actually shows serious problems with regional development. The region that has a vast border with the EU fails to properly benefit from it because Belarus remains in isolation from the Western side. Little cooperation exists between local authorities, tourist movement and investments remain at a very modest level. People living in the Hrodna region are important stakeholders interested in rapprochement with the EU and should be treated as such.
How Belarus’ Bad Image Affects German Investments
The German-Belarusian trade balance reached an all-time high in 2012. However, many German experts regret that it stays far below its full potential – primarily because of bad image of Belarus as well as unfavourable investment conditions. German institutions and companies doing business in Belarus risk to be blamed of cooperating with a rogue state. However, the Belarusian economy needs foreign capital and know-how to modernise.
In its May edition, the German economic magazine Impulse suggests that the German-Belarusian Economic Club (Deutsch-Belarussischer Wirtschaftsclub) consults the Belarusian government and helps Lukashenka to improve the image of his country abroad. The author of the article, published on April 24th this year, describes the German-Belarusian Economic Council as “entertaining close contacts with the Belarusian government.”
Founded in 1994, the club acts to represent its 90 members’ interests in Belarus – among them companies like Bosch and Siemens. Dr Klaus Baier acts as chairman of the club which is member of the Consultative Council for Foreign Investment to the Belarusian Government – a fact that leads IMPULSE to the conclusion that the club must have influence on the decision-making process in Belarus.
German-Belarusian trade balance below its potential
The question of acceptability of doing business with a non-democratic state has been discussed in Germany shortly after the former chancellor Gerhard Schröder started working for Gazprom’s North-Stream pipeline. The ongoing debate illustrates the German struggle to find a coherent position in its foreign economic policy. A hesitating chancellor, Angela Merkel neither finds clear words nor distinct actions concerning the export of weapons or the treatment of undemocratic states at the doorstep of the European Union.
The German government along with all EU member states, after the crush down of the 2010 parliamentary elections, has contented itself with banning high ranking Belarusian officials from entering the EU. While high-level contacts on a political level remain frozen, the economic relations are still developing.
In 2012, the German-Belarusian bilateral trade found itself at a ten year high of $4.4 bln. The Belarusian ambassador to Berlin, Andrej Giro, underlines that the trade volume has quintupled to this record high during the last decade. However, the trade balance is relatively low for Germany, which is one of the leading export nations. As a comparison: The German trade balance with its most important partner, France, amounted to $161 bln.
Therefore, German experts point out that the potential of bilateral economic relations remains unexhausted. They underline that the image of the country plays an role for economic growths as it plays a crucial role in attracting foreign direct investment.
Main problems for German investors in Belarus
What are the main problems for German enterprises in Belarus? According to a survey among German businessmen conducted by the German-Belarusian economic representations in Belarus last year, the main problems are:
- unpredictability of the Belarusian economic policy
- lack of transparency as far as economic and political decisions are concerned
- lack of openness of tenders
- taxation policy of the Belarusian state
- legal guarantees
- low flexibility in employment legislation
- lack of economic freedom
- high degree of bureaucratisation
- system of regulation of foreign currency
- state regulation of price system
- gap between the declaration on the political level and the attitude towards foreign investors by low and midlevel clerks: They give the impression that foreign entrepreneurs are disturbing them with their concerns.
While most entrepreneurs think that taxation in Belarus remains arbitrary and that the state intervenes in individual tax decisions, some things have improved during the last years. After some reforms, the Belarusian tax system is now more investor friendly: the corporation tax rate has decreased from 24 to 18%, more expenses have become tax-deducible and the state has created tax incentives growing economic branches like the IT branch. Moreover, the German businessmen named further positive aspects of Belarus as a country for investment according:
- advantageous geographic position
- good quality of transport infrastructure
- well-educated workforce
- relatively low wage level
- close relations to oil/petrol exporting countries
- relative political stability
- low criminal rates.
Obviously, good reasons to invest in Belarus exist and the German-Belarusian business community looks back to some success stories of German investments. In 2012, 360 enterprises had a German contribution of capital. Belarus especially tries strives to attract companies in those branches where Germany holds the position of market leader in order to profit from the expertise. Modernization of Belarusian enterprises and the gain of know how strengthen the competitiveness of Belarusian export products.
For this reason, the project launched by the German company Remondis is crucial for Belarus: it aims at establishing a cycle waste management system in Belarus. The successful implementation of this project would mean that the system of waste management in Belarus will be more efficient and eco-friendly.
The Belarusian economy and society both urgently need similar projects in order to modernise the country and to ensure a good living standard in the country. However, as Daniel Krutzinna, managing director of the Department for Investment Eterinterest based in Minsk, Belarus has missed the chance to attract German investment in the sector of engine building and supply of automobile manufacturers in the past years.
German investors avoid Belarus for image reasons
Krutzinna points out, that investors avoid Belarus on account of the domineering role the Belarusian state plays in the economy. They prefer Russia where everybody knows that some industries – such as energy supply – belong to the state, while other industries stay unregulated by the state. The Belarusian state, however, sends no clear signals to potential investors, who consequently fear that the state might decide to interfere with their business.
Belarus, Krutzinna underlines, is suffering from its bad reputation, based on the above-mentioned reasons. Not only Krutzinna, but also the German ambassador to Belarus, Wolfram Maas, underlines that the image of Belarus plays a crucial role in its low attractiveness to German investors. He advises that Belarus should use the positive image of successful Belarusian sportsmen and women like Victoria Azarenka and Daria Domracheva to improve the country’s image.
Klaus Baier supports this: ”The bad image of the country harms the population and the investors.” As a representative of the interest of German companies in Belarus, he is therefore certainly right to point out that Belarus should work on its image In order to attract foreign direct investment.
However, apart from reforming the tax system and relying on attractive sportswomen as image makers, the Belarusian leadership should think about substantial reforms of its legal system and decision making process in order to attract investors and to capitalise on the country's strengths.