Belarus’ Model of Economic Development May Fail to Pass the ‘Endurance Test’
The Belarusian authorities count on the country's economic growth without taking into account dangerous trends in the demographic situation and its consequences for the labour market. These conclusions appear in a study made by economists of the IPM Research Center, shared with Interfax-West news agency.
"Intentions of the Belarusian authorities to proceed with large-scale modernization of public enterprises imply that accumulation of capital which formed the basis of the expansionary policy is still deemed to be a major factor of the long-term growth", the study says.
Meanwhile, the economists point out that growth of the potential GDP slowed down in 2012 compared to mid-2010s, economic impact of investments decreased, and further extensive accumulation of production factors cannot serve as a basis of the GDP growth in the long-run period. These conclusions also appear in last-year analytical papers of the World Bank and forecasts of the Eurasian Development Bank as well as of a number of international financial institutes.
At the same time, the global financial and economic crisis of 2007-2009 and the currency crisis in Belarus in 2011 "raised the issue of limits of resources of the Belarusian economic policy model", the researchers point out.
According to them, the question is foremost of the risks which are already present in the country's labour market and caused by demographic problems and an increase in labour migration.
There will be no one to work?
The researchers point out that since 2005, the economic growth in the country was positively influenced by the demographic situation. At this particular time, people born in early 1980s, during the previous fertility peak, reached reproductive age. However, today the birth rate is significantly lower, while the death rate keeps up at a consistently high level: its decline was recorded only in 2012.
"Before 2007-2008, in the population structure there was a decrease of share of people in the under-working age and simultaneous growth of share of population in the working age. In the late 2000s, trends became even less favourable. Thus, along with population decline in Belarus, ageing of population began, which has negative impact on the labour market", the study says.
Relying upon the Belstat data, the researchers acknowledge that a decrease in economically active population was recorded in Belarus in 2011-2012. "A decline in employment is evidenced during the last two years. According to the Belstat data, at the end of 2012, the total decline against the maximum level of 2010 was 2%, or almost 100,000 people. If the current demographic trends remain unchanged, the situation in the labour market will worsen", the IPM economists forecast.
These forecasts are supported by a Belstat forecast, in accordance with which in 2020 the working-age population will decrease by 0.5 mln compared to 2012.
"Forecasts of the United Nations Population Department are even more pessimistic. In accordance with the middle scenario, Belarus is faced with a decline in population at the age of 15 to 59 from 6.4 to 5.7 mln during 2010-2020", the researchers say. Moreover, according to the UN, the situation will not improve before 2050.
Extent of Labour Migration
As noted in the study, the demographic situation is aggravated by the fact that they proceed from neutral assumptions of relative migration and suppose that migration flows will remain at the same level. "In the case of Belarus, there is a danger that such an assumption may be too optimistic", the experts believe.
The researchers remind that migration flows in Belarus intensified in 1990s when after the restoration of independence of ex-Soviet republics people began returning to their historic homeland. Later on, the extent of migration dramatically decreased, and already since 1996 the number of migrants never surpassed 20,000 people a year.
Besides, Belarus shows a positive migration balance. "However, an analysis of official documents shows that between 2000 and 2009, 254,000 people, or 2,5% of population who lived in Belarus at the beginning of 2000, and not 113,000 people, left the country", the study says.
The researchers also point out that no reliable data is available in Belarus about the number of Belarusian citizens who left the country to work abroad. "The official statistics isolate people working abroad. However, these figures include only those who went working abroad under an official contract. These statistics do not reckon in those who have seasonal employment nor those who do not register the fact of being employed abroad nor those who are employed unofficially", the experts say.
According to them, this problem is especially acute in the case of labour migration to Russia which does not have border control on its border with Belarus, and where all employment barriers were removed after the Common Economic Space was established.
"The extent of labour migration is difficult to estimate. Officially, according to statistics, about 4,000 Belarusians work abroad, which is at least one order of magnitude less than the actual value", the study notes. According to the census of 2009, 41,900 people worked outside of Belarus, including 37,700 who worked in Russia, which is by an order of magnitude less than the data received through the analysis of employment contracts concluded by the Belarusians abroad.
Why Do They Leave?
The Belarusians are actively considering employment opportunities abroad, as evidenced by a poll conducted by the Belarusian Institute for Strategic Studies (BISS) in 2009. The results of the poll show that 18.8% of respondents would like to leave the country, and many of those who were inclined to stay in the country took this decision only because they lacked money for emigration (12% of respondents). Other 6.4% of respondents were not sure that they would find jobs abroad.
"The main reason which prompts people to move to another country is a desire to improve their financial situation. This reason for a possible emigration from Belarus was cited by 81.8% of respondents wishing to emigrate ", the IPM experts say.
The researchers point out that after the crisis of 2011 these trends gathered momentum, and pretexts for emigration strengthened.
Russia continues to lead the way in the list of countries which are the most attractive for labour migrants. Thus, despite the fact that after the stabilization of the Belarusian economy in late 2011 the income gap for work in Belarus and Russia narrowed, Russia attracts Belarusian citizens by lack of language barrier and simple employment procedure.
The experts also point out that the labour outflow to Russia is more apparent in eastern regions of the country as well as in small towns.
Look Who Left
"However, one cannot assert that poverty pushes people to seek employment abroad. The most socially vulnerable groups in Belarus are unemployed and economically inactive population which cannot find jobs even in the country. The international labour migration is chosen by rather well-off city dwellers who in such a way receive additional income for improving their financial situation and not for combatting poverty", the experts stress.
The average age of labour migrants is now just over 37 years (economically active population – 39 years), and it is basically the same for all areas of labour migration. At the same time, those who go to Russia include young professionals as well as people of middle and older age, while EU countries attract skilled youth mostly.
Studies conducted by the IPM show that men dominate among those who go to Russia to earn money, and women amount to 9.4% only, while in other directions their share amounts to about one third. "Gender differences can be explained by differences in demand for workforce: probably, "traditionally male" professions are in higher demand in the Russian labour market", the researchers say.
The labour migration is simplified by the fact that some Belarusians can get the Pole's Card and go to work in Poland, for example. Some people have relatives in Russia, which facilitates their adaptation to a new job.
The experts also point out to usually higher level of education and skills of people going to work abroad. Almost a half of labour migrants from Belarus employed in Russia work in construction, about 30% are working in transport, retail trade and provision of other communal, social and personal services.
Impact on the Economy
The researchers note that the labour migration has an ambiguous effect on social policy in Belarus. On the one hand, the population has a short-term effect of additional income in the form of transfers from labour migrants. However, on the macro level, labour migration places additional burden on the Social Protection Fund as a part of contributions to pension benefits are lost.
While the amount of transfers from labour migration in 2011 is realistically estimated at 3.2% of GDP, the Belarusians are by no means inclined to invest these funds in new businessws or to make long-term savings in their bank accounts.
The researchers point out that Belarus faced a large scale labour outflow in 2011. It was felt most acutely in construction, health care and IT domain.
"In the medium term, Belarus, according to demographic projections, faces reduction in workforce. Thus, the need to resolve macroeconomic problems is complemented by the need to reform the social protection system and the labour market, without which the reform in other sectors will not be efficient enough", the researchers sum up.
In their opinion, we need not only changes in regulation of labour market (employment policy and wages) but also far-reaching reforms in the real sector: privatization and restructuring of public enterprises, improvement of business climate and liberalization of product markets.
The experts note that the recommendations made by the World Bank in the Country Economic Memorandum 2012 and some other documents are still relevant for the country. In particular, this concerns abolition of administrative control over wages and employment in public enterprises, improvement of social protection for unemployed and reform of the pension system.
The original article appeared in Russian on interfax.by.
Is Time on the Side of the Belarusian Regime?
Last week Alexander Lukashenka declared his interest in good relations with Western countries.
His statement came against the backdrop of active contacts between Belarusian officials and their European counterparts in the past two months. Involved in these meetings were a director of a department of the EU External Action Service, a delegation of the Council of Europe, representatives of the Lithuanian foreign ministry, a delegation from the Swedish foreign ministry, and a Czech foreign minister.
Two weeks ago, Lukashenka said at a meeting with US experts that Belarus seeks “normal” relations with Washington, as well. Though all these developments are far from a breakthrough in relations with the West – frozen after 2010 – they demonstrate that the Belarusian government is aware that it cannot just stick to Moscow. At the same time it does not display any haste in improving its relations with the West. It hopes that the time is on its side in the international arena.
No Democracy for a Nickel
Sure, the prospects for a genuine rapprochement between Belarus and the West currently look bleak. The interests of all parties apparently do not require the urgent mending of fences. The Belarusian regime feels secure with its Russian protection and assistance. The European politicians who tried to strike a deal with Lukashenka in 2008-2010 are not likely to risk it again. The European Union has more important problems to sort out and is quite happy to just demonstratively punish the ugly, yet rather harmless (for Europeans), dictatorship in Belarus.
Having tried to democratise Belarus and bring it closer to Europe in 2008-2010, the EU never offered Minsk a serious deal capable of changing the situation in the country. After all, Belarus needs to compensate for the possible loss of enormous Russian subsidies in the potential aftermath of eliminating the existing model of relations with Moscow which has been so fundamental to the existing regime.
European politicians failed because they ignored basic the political economy of Belarusian state Read more
To change this reality, extensive and expensive modernisation is needed. Yet European politicians wanted to do it on the cheap. Of course they ,because they ignored the basic political economy of Belarusian state.
So, the EU began to fight against the Belarusian regime using isolation, threats and restrictive measures. Cutting links with Minsk, the West played into the hands of Moscow and Lukashenka. The isolation brought the regime closer to Russia and did not threaten its existence. On the contrary, it drastically diminished opportunities for political alternatives to Lukashenka to emerge among the Belarusian nomenclatura and business community allied with the state.
Removal of the current regime cannot be achieved without changing the political economy of the nation. Currently there is very little hope for such changes. Yury Drakakhrust of Radio Liberty quoted an anonymous Western diplomat who said while “your modernisation costs big money, the defence of democratic values costs nothing.”
The EU continues to condemn Minsk and demand the release of political prisoners yet is not ready to seriously invest in changes. Thus, last year the Polish-based Belsat TV – the only TV project supporting the opponents of Lukashenka – had to suspend its operations for weeks as much of its 2012 annual budget for broadcasting had been spent before the year ended.
Of course, two EU members – Lithuania and Poland – will always have interests in neighbouring Belarus, yet they are by far not the most relevant actors in the EU's foreign policy. Other EU countries, and all major EU members, have no interest in a small post-Soviet country lacking any major assets like oil or gas, a country that is not threatening anyone in its own neighbourhood.
However, a country which is not important today may become important tomorrow. In better times for Russian-Western relations, the West could neglect Belarus by dealing just with Russia. Worsening relations with Russia will increase the geopolitical significance of the region and of Belarus. The deterioration of these relations has been evident in recent years and this tendency will likely continue given the increasingly authoritarian methods of the Kremlin.
It was Russian aggression in the Caucasus in 2008 which brought Western politicians round to the idea of negotiating with the Belarusian strongman. He knows it, and anticipates a new change in the current geopolitical reality. Moreover, if this time the confrontation between Russia and the West lasts longer, Lukashenka could become for the West something like Ceausescu of Communist Romania in the time of the Cold War, i.e., a man with dubious views and background, yet who is indispensable for geopolitical reasons.
Putin's efforts to establish the Eurasian Union in the post-Soviet world by 2015 are just adding to a series of collisions between Moscow and the West in the Middle East and on ever recurring questions of human rights and democracy in Russia itself. Actually, Western countries may have to accept not just Lukashenka. The EU has also to deal with the increasingly authoritarian Ukraine run by Viktor Yanukovich who may join Lukashenka in his defiance of democracy.
Dangerous Russian Ally
The hopes of the Belarusian ruler for a new confrontation between Russia and the West make him seek contacts with the EU without giving in to European demands concerning liberalisation and release of political prisoners. At the moment he is using contacts with the EU merely as leverage in negotiations with Russia. For the Belarusian ruling elite is clear that, though Russia is their main sponsor, they shall beware of the Kremlin.
Foreign Minister Uladzimir Makey once said that there is a brutal “jungle law” in the international environment surrounding Belarus. Some commentators were quick to interpret it as a reference to the Western pressure on the regime, yet there are signs that Belarusian officials consider relations with Russia in similar terms.
At a meeting with experts representing the Jamestown Foundation, an American think tank, Lukashenka emphasised the contradictions in Russian-Belarusian relations. He stated that Russia had changed its imperial thinking, yet Belarusians were vigilant and constantly defended their independence. He brought up an example of a “forceful attempt [by Russia] to introduce a common currency” which had been defeated.
This understanding is a positive development which created a precondition for a new age in Belarusian relations with the West. Just a dozen years ago, the Belarusian ruling establishment did not see the country outside the Russian realm at all. Yet no government in Minsk – neither authoritarian nor democratic – can introduce significant changes in foreign alignment of the country without changes in its political economy, i.e., freeing the economy from its total dependence on Russian energy subsidies.
Only when this strong dependence on Moscow has been overcome can Belarusians change their country and build a functioning democracy. Belarusian independence and democracy require serious investments and risky deals. And these investments and risk-taking initiatives by the West can materialise when Belarus becomes more important due to changes in its geopolitical situation.
Seiarhei is a researcher at Berlin's Humboldt University and a fellow at the Belarusian Institute of Strategic Studies