Belarus and Russia: Stagnating Together?
Earlier this year, Belarusian media published an interview with Belarusian oligarch Iuryi Chyzh. The businessman predicts problems with the Russian economy, supports the diversification of Belarusian enterprises and states that Russia is grabbing the biggest piece of the pie in the Customs Union.
Chyzh is right. Belarus remains too dependent on Russia economically: half of Belarus' trade is with Russia. The Kremlin controls the competitiveness of the Belarusian economy through its energy shipments, since without Russia`s energy subsidies Belarusian goods will quickly become too expensive.
The Kremlin further binds Belarus with its integration projects and imposes its own interests, keeping the Belarusian authorities on the energy needle. If Lukashenka`s regime fails to modernise its economy and diversify its markets, Belarus will stagnate together with Russia.
Iuryi Chyzh is one of the most influential businessmen in Belarus and has a close relationship with Lukashenka`s team. The European Union sees him as the regime`s purse and imposed economic sanctions against his companies back in 2011. That is why his statement favouring diversification from Russia is important, since it broke with the regime's typical pattern.
The under utilisation of Belarusian enterprises’ functional capacities happens mostly due to Belarus’ huge economic dependence on Russia. A worsening economic conditions in Russia significantly affects the Belarusian economy. The International Monetary Fund forecasts 2 per cent growth for the Russian economy in 2014.
Belarus` trade addiction with Russia may become a great threat to the financial stability of Belarus as the economic situation in Russia worsens. In 2012, Belarus sold to Russia tractors and tires, trucks and cars for more than $ 3bn. There have been no precise results for 2013 disclosed so far, but for sure they will be worse than in 2012. This year, Russia introduced a recycling tax on cars. The losses for Belarusian truck producers may allegedly have reached as much as $ 350m.
The Belarusian Ministry of Economy predicts the demand for industrial products will continue to decline. This is in large part due to the fact that half of the Belarusian trade remains a trade with Russia.
Oil products produced from the raw materials that Belarus receives from Russia remain a half of all Belarus' exports to the EU. The competitiveness of the rest of Belarus' exports is still in Russia’s hands, as Russia`s energy subsidies make Belarusian goods cheaper through lowered production costs. The Kremlin may potentially raise the price of natural gas for Belarus, which will automatically lead to a significant price increase of Belarusian goods. This would essentially signal the possible collapse of Belarusian exports to Russia and other countries.
How Russia Grabs the Biggest Piece of the Pie in the Customs Union
The project of the Union State launched almost 15 years ago laid tight economic integration but brought little convergence results. Kremlin`s institutional control over Belarusian economy has increased significantly in the recent years, with the accession of Belarus to the Customs Union. Two cases became good illustrations of how Russia forces its partners to adopt the Russian rules of the game.
Since 1 July 2011, the Kremlin forced Belarus to protect the Russian car industry and to raise import duties on cars, on average, by four times – to the level of Russia. Moreover, the vast majority of customs rates are de facto Russian and reflect Russia's national interest, not Belarus' or Kazakhstan's.
This year, 1 July 2014, Belarus will oblige local businesses to pass a complicated procedure of certification of goods that can lead to the bankruptcy of some enterprises. In practise this means that the businesses will be forced to give some of their goods for examination, after which the goods may not be suitable for sale.
Belarus does not get what it wants most – abolition of the 36% duty for oil products, made in Belarus and sold to third-party countries. In 2012 Belarus paid $ 3.8bn to Russia for these duties. Though both countries are in the Customs Union, the Kremlin does not cancel this duty for its struggling ally. Repealing this payment could solve a significant part of the economic problems in Belarus.
Though the Customs Union does not look very profitable for Belarus, Russia lifted a great number of the barriers facing Belarusian companies. The absence of economic wars, previously so frequent between the countries, proved precisely this point. Moreover, Belarus receives energy resources at low prices from Russia, and therefore has to put up with Kremlin`s grabbing of the biggest piece of the pie.
Economic Drift from Russia Remains Unlikely
If the state of the Russian resource based economy gets worse in 2014, Belarus will look attached to the sinking stone. Russia's position as a major investor in Belarus and an important player in the banking sector strengthens dependence of Belarus.
According to the National Statistical Committee Russia remains the main investor in Belarus, putting in about 50% of the investments. United Kingdom sits at the second place and Cyprus holds third – for countries that Russian businessmen like to register companies in.
According to Agata Wierzbowska-Miazga of the Centre for Eastern Studies from Poland, Russian banks have become the largest source of foreign currency loans for Belarusian companies. BPS-Sberbank, BelVEB, Belgazprombank belong to the largest commercial banks in Belarus. Russian businessmen control seven of the 31 banks in Belarus. All these banks bring in profits.
Thus, Belarusian dependence on Russia in the economic sphere remains so strong that it seems unlikely Lukashenka will start a real conflict with the Kremlin. However, the idea to diversify Belarusian exports is becoming rather popular among Belarusian officials as well. Belarusian diplomats had an active year improving ties developing countries in 2013 and will open new diplomatic missions in nine countries such as Qatar and Mexico.
However, the problem of Belarus is not just one of a desire to diversify its markets, but also about possibilities to do so. Many Belarusian enterprises look too obsolete. If the authorities fail to carry out the modernisation of enterprises and economic regulations, they will convict a great part of the enterprises to stagnate together with Russia.
However, Russia is in the World Trade Organisation and many Western businessmen continue to transfer technology and invest in Russia. The Belarusian economic situation remains much worse.
Belarusian Police Image, Bаrgaining for а Russian Air Force Base – Belarus Security Digest
On 5 December 2013, after a month of waiting, Aliaksandr Miazhujeu was appointed the State Secretary of the Security Council.
Top police officials continue to work on improving the police's image among the population and fight against negative incidents from occurring within the agency. In the context of budget constraints, the main emphasis in this struggle is being made through ideological appeals and various organisational levers.
Practical steps towards establishing a Russian air force base in Belarus have been made. However, this does not mean that the bargaining regarding this site is over.
Official Minsk has yet to achieve its goals.
Russia is becoming more and more interested in Belarus' military and industrial complex. The reason for this is both the technologies Belarus has and the decline of Russia's own culture of industrial manufacturing.
The Security Council of Belarus has a new boss
When speaking about the appointment of Major-General Aliaksandr Miazhujeu to the position of the State Secretary of the Security Council, we should focus on a number of key points.
First, the position of the Head of the Security Council was vacant for over a month. This is evidence of an unscheduled transfer of the former State Secretary Leanid Maltsau to the position of Chief of the Border Guards. It also points to the fact that Aliaksandr Lukashenka has a small substitutes' bench.
Secondly, over the last year Aliaksandr Miazhujeu was a member of the Chamber of Representatives and the head of the Commission on Defence. Traditionally, MP status has been a pre-retirement sinecure for the Belarusian nomenklatura.
This is already the second case when the Chamber of Representatives has "shared" its staff with the executive branch. On 14 November 2013, Aliaksandr Lukashenka appointed Uladzimir Krautsou, previously the Chairman of the Commission on the Economy, as Chairman of the Hrodna Region Executive Committee.
Apparently, the delay with the appointment was caused by the need to find a person who was not previously among the top nomenklatura. It was made in order to disavow allegations of a personnel crisis as well as to replenish the top management with new staff.
The position of Head of the Security Council is a technical one, rather than a political one. Under conditions where the State Secretary has to coordinate the work of several agencies with often conflicting interests, and taking into account the specifics of the decision-making process in our country, the position can be like running through a minefield. Especially when the demands of the political leadership to the security agencies are backed within only sparse monetary support.
In general, one should not expect any significant change in the work of the security agencies.
Ministry of Internal Affairs seeks to improve its image among the population
In 2013, 33.9% of population trusted the police (according to information put out by the Ministry of Internal Affairs itself). This figure remained stable over a rather long period of time. It means that working with the population to improve the police's image has yet to bring about the desired results.
Particular focus is being put on discipline and the rule of law among police officers and servicemen from the Internal Ministry troops. However, the agency prefers to maintain their silence about any results they may have, or may not have, achieved. Up to this point, publicly officials have only emphasised that the measures which have been taken have helped to reduce "some negative incidents" from occurring in their police work.
The Ministry of Internal Affairs recently issued order No. 424 which aimed at maintaining a healthy lifestyle among police officers and the servicemen from the Ministry's troops and members of their families. The documents set guidelines for minimising one's smoking and eradicating other bad habits, preventing any kind of deviant behaviour or addictions. They have also declared 2014 as the Year of a Healthy Lifestyle in the police agency.
At the same time, the agency's top management became concerned again with the state of corporate ethics. First of all, the question is of preventing information leaks about specific facts and incidents which show the negative side of the situation in the Ministry of Internal Affairs. Disclosure of negative information about the actions of the police force's leadership is considered to be especially unacceptable.
On the other hand, the Ministry's top officials asked the heads of field offices to hault the usage of verbal insults and abusive language towards their subordinates which has long been one of the main ways of managing rank-and-file police officers and exert influence on them. This struggle to improve morale and the general situation within the police force has already been going on for many years now, and judging by the fact that the same points have remained relevant all this time, the programme can be deemed inefficient.
The Ministry's top management sees strengthening the ideological foundations of its employees as crucial in shaping a culture of high professional standards, improving the moral and psychological climate, and promoting discipline and the rule of law in its police and military units as the main means by which they can overcome poor conduct in their ranks.
The top brass is particularly concerned with an increased in the number of incidences of defiance and even resistance on the part of the population to police on duty. Currently, society is dominated by generations of people which grew up during the post-Soviet era, an integral part of which was "romanticism" for the underworld and its associated morality and behaviour, nihilism for the law and penchant for violence. Obviously, the declining social status of a law-enforcement officer in the eyes of ordinary people will continue to drop in the future. Accordingly, one can expect more frequent cases of violent acts towards the police.
Bargaining around the Russian Air Force Base in Belarus continues
On 10 December 2013, the Belarusian authorities officially recognised the presence of an detachment (4 aircraft) of Russian fighters Su-27P in Belarus which are deployed at the air force base in Baranavichy (the 61th Belarusian Fighter Air Force and Aerial Defence Base). It is worth noting that it was announced only after the news had already been reported by independent media.
Russian Air Force crews will now be staying one month each on a rotational basis in Belarus to carry out joint combat duty flights in protecting Belurasian airspace. The Russian fighters are under Belarusian command and it is likely to stay this way until the agreement on the air force base is signed.
Instead of the Su-27SM3 fighters which were initially announced to be arriving, fighters of the "P" class were sent to Belarus. The Su-27P is a defence aircraft and, according to open sources, is not able to use air-to-surface weapons.
The Russian air force base was originally a tool of the Belarusian authorities for achieving three goals:
- guaranteeing political support from Moscow on the eve of the 2015 elections;
- getting larger financial support from Russia;
- taking issues tied to privatisation off the table.
However, judging by recent events (the maintaining of a remittance on export duties for petrol products in the Russian budget, the unclear prospects of achieving an optimal oil balance in 2014, continued demands for privatisation of some industrial assets by Russia), the last two points remain unfulfilled. This can explain the absence of any explicit enthusiasm from the Belarusian propaganda machine towards this event.
It is evident that the bargaining for the creation of a truly Russian air force base in Belarus continues and the overall situation remains uncertain. After having deployed the first element, Moscow, for image reasons, will be interested in pushing the air force base issue through and achieving its practical implementation. For Minsk this gives them a potential opportunity to ask for the highest possible price.
Russia tries to buy companies from Belarus' military and industrial complex
In December, the government of Belarus announced that preparatory work for the de facto sale to Russian investors of four enterprises (Integral, MZKT, MAZ and Peleng) which manufacture military and dual-use products would continue.
Admitting the Russians to the positions of management in these companies is the price which Belarus has to pay for lifting the existing restrictions on access for Belarusian companies from the military and industrial complex to Russian public procurement tenders (including those available within the framework of the State defence procurement). Moscow promised Lukashenka that they would lift these restrictions back in September 2012, right after his meeting with Vladimir Putin in Sochi.
According to the Belarusian leader, the countries' leadership has agreed that all Belarusian enterprises would be able to participate in tenders for the procurement of products for the Russian State defence sector on equal terms with Russian companies. However, some restrictions still remain, especially if a Russian manufacturer of similar products exists, even if the products are of lesser quality or more expensive.
The continued interest from Russia in picking up Belarusian companies in this sector may reflect at least two trends things.
First, Russia seeks to bring under its control the maximum number of components needed for the manufacturing of military-related items in order to minimise any potential political risks in future bilateral relations and to prevent Belarusian technology from being leaked to other countries, which primarily means China.
Second, despite all their best efforts and significant budget restrictions, Russia is technologically unable to create its own complete closed system of defence manufacturing that could completely replace Belarus' own defence and weapons manufacturing industry.
Another issue is the very real cultural decline of production in the Russian military and industrial complex. Fatal accidents such as the launch of the Proton vehicles, the crash of the Kazakh MiG-31 fighter jet which was repaired in Russia, and complaints with the quality of the Su-34 and Su-35 from the Russian military are facts too serious to ignore.
Andrei is the head of the “Belarus Security Blog” analytical project.