Can Russia compensate Belarus losses from Western sanctions?
On 12–13 April 2022, Alexander Lukashenka paid a working visit to Russia’s Far East. This was his third trip to the neighbouring country this year. According to Russian media, talks taking place between Lukashenka and Russian President Vladimir Putin unexpectedly transformed into a substantive discussion around sanctions. As fresh statistics and new deals show, to withstand Western pressure, the Belarusian regime, far from collapsing, increasingly relies on Moscow. But it results in undermining Belarusian statehood and making the country pliable to Putin’s demands in his war with Ukraine.
Rapid rise in Belarus-Russia trade
Speaking during his recent visit Lukashenka said, “I am glad that these sanctions were imposed on us. Finally, we have begun to cooperate with Russia in the way we should have been cooperating for a long time.” Slightly earlier, at a 9 April Belarusian Security Council meeting, Lukashenka set forth his general vision by saying, “With the departure of Western companies from the markets of the Union State of Belarus and Russia, large niches have been vacated that we need to fill.”
Isolation from the West after August 2020 had already led Belarus to refocus on Russia. Trade between Belarus and Russia in 2021 exceeded $40bn (135 per cent in comparison with 2020). That is a remarkable figure because analysts predicted just 10 per cent growth, to $34bn of annual trade volume, after economic data for the first half-year were published.
Last year, state statistics committee Belstat stopped publishing many statistics on exports and imports. But it is safe to assume growth has been driven by the consequences of increasing Western sanctions. Media also reported of Belarusian firms responding to Western sanctions by turning to Russia. For example, BelAZ exchanged the US engines on its trucks for Russian ones.
Trade with Russia will keep growing this year. Harsher Western sanctions on Belarus and the collapse of trade with Ukraine (Belarus’ second-largest economic partner) have produced knock-on effects. Minsk has lost commercial opportunities in multiple areas. At the same time, there are new opportunities in Russian markets due to the rupture in commercial links between Russia and the West.
The Belarusian government hopes to benefit from the increasing access of Belarusian firms to Russian public procurement. In May, Russia’s Finance Ministry will initiate proceedings to empower five Belarusian banks to issue guarantees for suppliers willing to participate in Russian government procurements. This will simplify participation in Russian state orders for Belarusian suppliers. During the recent Far-East visit, Lukashenka lobbied for Belarusian participation in the construction of Russia’s new spaceport near Blagoveshchensk. The purpose of the spaceport is to diminish Moscow’s dependence on the former Soviet Baikonur Cosmodrome in Kazakhstan.
More important news was announced after the Lukashenka-Putin summit. An agreement is in the works between Russia and Belarus to set up a single electricity market, which would launch in 2024. Such an agreement will help Minsk to export excess electricity from Belarus’ nuclear power plant—built with a Russian loan—to Russia.
After investing heavily in energy, Minsk found itself in dire straits when meaningful economic ties with all neighbouring countries except Russia became disrupted. Belarus itself does not need additional energy. The country in 2020, even without a working nuclear power plant (NPP), had an energy surplus: generation amounted to 38.68bn kWh, with a consumption of 33.2bn kWh, and a relatively stable internal demand for electricity.
Minsk built an NPP for two reasons. First, it sought to reduce dependence on Russian gas. Throughout the 2010s, Minsk quarrelled with Gazprom. The second reason it built an NPP was to export energy. Lithuania has opposed the project from the very beginning. The first 1.2 GW nuclear power unit of the Russian-built NPP in Belarus was put into commercial operation in July 2021, and the second will go online by the end of 2022. But in recent months all prospects for export in the foreseeable future have evaporated.
Minimal export opportunities
Another important point discussed at the Putin-Lukashenka talks involves oil deals: Russia announced its willingness to support Belarusian refineries. They are the most advanced in the region but have suddenly lost their regional market access.
Although Minsk signed contracts with Russian oil suppliers for 2022 on better terms than in previous years, the EU in June 2021 introduced sanctions against Belarusian oil and chemical exports. Belarusian petrochemical products cannot be exported via traditional routes. Anticipating troubles, the Belarusian government planned only 12.5m tons of crude oil would be refined this year. To compare, Belarusian refineries usually refine about 17–18m tons a year.
What helps the Belarusian authorities to keep the country running is getting gas from Russia at a fixed price of $128.5 per 1,000 cubic metres, which is a fraction of world market prices. Presidential Administration Deputy Head and former Economy Minister Dzmitry Krutoy earlier commented that Belarus considers gas agreements with Russia as a resource to compensate for losses incurred by sanctions and as a source of competitive advantage.
A history of troubled relations
Good relations between Minsk and Moscow are not taken for granted, and the Belarusian leadership is perfectly aware of this. When asked in jest whether Lukashenka himself would like to journey into outer space, he responded in kind, “I would like to! I used to think that my older brother might send me there and never bring me back. Now, I don’t think so anymore.”
Lukashenka’s reply alludes to the complicated history between Minsk and Moscow. For example, on 13 January, President Putin held an open, friendly meeting with Dmitri Mazepin, owner of Uralkhim, a major potash producer and the key competitor of Belarus’ potash company Belaruskali. Recent allegations were made that Uralkhim had financed political projects aimed at toppling Lukashenka. Russian newspaper Kommersant reported, “We can safely assume that Uralkhim owner [Dmitri Mazepin] financed the Belarusian opposition with the blessing of the Russian president.”
The new political economy of the Belarusian regime—with Belarus’ external economic relations being either limited to Russia or done through Russia—has been a predictable consequence of the 2020 post-election crisis in Belarus and the deterioration between Belarus and the West that followed. The government can preserve the current political situation in Belarus for as long as Putin backs it because of severed ties with all but Russia. That, obviously, harms the development prospects of a nation that can tap on Russian resources but has been largely cut off from the rest of the world.
Lukashenka’s Chinese options
On 26 October, prominent Chinese government expert on post-Soviet states Wang Xiaoquan warned that an escalation of Western sanctions against Belarus could disrupt China-EU transit routes. Paradoxically, Belarusian President Alexander Lukashenka needs to improve relations with the EU in order to advance his partnership with Beijing.
Contrary to stereotypes, China has provided Belarus with some new technologies and capital in recent years. In some cases, this cooperation has even strengthened Minsk’s foreign policy positions elsewhere, above all in conflicts with Russia. However, China has replaced neither Russia nor the West as a Belarusian partner. Moreover, China’s commitment to its Belarusian partner remains questionable despite persistent speculation over Chinese support for Lukashenka.
Going to Beijing for technology
In the face of recurrent problems in acquiring new technologies from Russia, the Belarusian government in recent years has turned to Beijing. This has benefited Belarusian space and military missile programmes, as well as numerous projects in the automotive industry. For example, Belarus managed to launch its first satellite, Belintersat-1, in January 2016 after the Export-Import Bank of China provided $258.6m of almost $300m of the project costs. Belintersat-1 was conceived as a commercial venture. However, already in March 2019 the Belarusian government began to notice that the satellite had failed to generate the expected revenue, and asked Beijing to cancel the debt. Last week, Belarusian oppositional media reported that China had refused to forgive Minsk an outstanding $233m in debt.
Later, in October 2018, the second satellite, constructed by Belarus State University for research purposes, was also launched into space with Chinese help. On 31 August 2020, Lukashenka signed an executive order concerning the launch of the second satellite, to be constructed by Belarus State University in 2021. Although no details concerning the launch have been published, most probably it will be done with Chinese help too.
The automotive industry provides more ubiquitous examples of Belarus trying to rely on China to achieve more economic sustainability as an independent nation. A joint venture between Belarusian MAZ and Shaanxi Fast Gear- the latter belonging to China’s Weichai corporation – has now completed construction of production facilities for manufacturing gearboxes for trucks and buses. The construction of the factory, whose products will replace Russian gearboxes, started as recently as August 2019.
Another successful case provides BelGee, a joint-venture with Chinese Geely, which manufactures cars. Since 2017 it has sold about 40,000 cars (including 10,520 in January-July 2020). Almost half of them have been exported to Russia. In an interview with AV.by in August, director of BelGee Hienadz’ Sviderski gave assurances that from 2018, the factory had been generating profits while also repaying the loan: BelGee manufacturing was built almost entirely from a $250m Chinese loan. According to Sviderski, the localisation of production has now reached more than 50%.
There is, however, one important caveat to this success story. BelGee, which last year became the fourth most popular brand in Belarus, enjoys unique conditions created by the government. The latter made clear in no uncertain terms its intention to implement this project by appointing Sviderski, even without relieving him of his position as Deputy Minister of Industry. To promote sales, the government forced banks to provide special loans for purchasing these cars. At the same time, the government has increased the import tariffs for second-hand cars.
Chinese money helping against Putin?
Belarus needs not only technological support but also money, especially as its isolation from the West has been increasingly compounded in recent years by tensions with Moscow. The most remarkable case of Beijing rescuing Minsk occurred last December. Back then, at the peak of the tensions between Minsk and Moscow over Putin’s new Russia-Belarus integration demands, China urgently provided a 0.5$bn loan to Belarus and granted Belarusian firms more access to its markets.
Besides loans, China has increased its technical and economic assistance, although the scale and final application of this remain unclear. On 30 June 2020, Belarusian Deputy Prime Minister and former ambassador to Beijing Mikalai Snapkou said:
In the up eight years up to 2015, we received in total about $130m of this kind of assistance. Since 2015, after the meeting of our leaders, we have received $130m each year in assistance. It goes to social housing, hostels, infrastructure… In total, the absorbed and implemented technical and economic aid from China exceeds half a billion dollars. Taking into account the projected facilities, within 3-4 years, it will be $800m.
The question is whether the Chinese money is used to address the real needs of the country, or instead is spent on prestigious projects with little use for national development, such as international sports events. Indeed, this past summer China started building a football stadium and swimming pool for international competitions in Minsk, each at an estimated cost of around $120m according to forex signals Telegram reports.
In addition, Beijing frequently provides money on the condition that Belarus buys goods and services from Chinese firms. Minsk has already encountered such poor quality of work from Chinese subcontractors that it had to dismiss them. The case of the Svetlahorsk cellulose factory proves that. Initially, the Belarusian government had commissioned a Chinese corporation to construct the plant, but after it failed to deliver, Belarus in 2018 moved to build it on its own. A similar scenario took place with the construction of a paper factory in Dobrush, also in 2018: after delays and failures, the Belarusian government took the contract away from a Chinese subcontractor and gave it to an Austrian firm.
An exaggerated friendship
This demonstrates the contradictory nature of Belarus-China relations which is mostly ignored. Both supporters and critics of Lukashenka tend to exaggerate the degree of support that Beijing is willing to provide him with. The problem is that they mostly rely on Belarusian state media or Lukashenka’s own words in judging how close the Belarusian regime is to Beijing.
Furthermore, the Belarusian authorities are trying to create an impression of closeness, for example, by handling the Chinese ambassador to Minsk at least as respectfully as the Russian envoy. On 24 September, Lukashenka awarded Ambassador Jui Jimin with an order and discussed Belarusian domestic politics in great detail. The Belarusian president asked the ambassador to convey to Xi Jinping, “my good old friend, the kindest words of gratitude for the support he has always provided, especially recently. He was the first to congratulate me on my victory in the elections.“ Xi Jinping indeed congratulated Lukashenka on 10 August, the next day after the contested Belarusian presidential election, although not before Putin.
However, there is little evidence from the Chinese side for these claims by the current Belarusian leadership regarding Belarus’ closeness to Beijing. As Zhang Xin, a research fellow at the Centre for Russian Studies at Shanghai’s East China Normal University recently told Nikkei news outlet, “Beijing is unlikely to go out of its way to prop up the besieged Belarusian leader,” say in form of new investments or loans “just to support Lukashenko as a leader.” The logic is clear: for China, relations with Russia or the EU weigh more than those with Belarus.
To sum up, although Belarus constantly articulates its will to develop relations with China as a strategic choice, the role of this partnership should not be exaggerated. Its political aspects are analysed only on the basis of the claims by current Belarusian leadership which is inclined to exaggerate its proximity to Beijing.
The economic side of the relationship seem contradictory. To date, Belarusian projects with China have failed to compensate for the problems in Belarus’ relations with the West. Moreover, Beijing demonstrates no eagerness to side with Minsk in its conflicts with the EU.