Economy Recuperates but Slower than Forcasted – Digest of Belarusian Economy
While economic growth seems to be recuperating in January and February, it remains below the wishful forecasts of the government.
At the same time, the situation with current account balance continues to be the pressing matter, as the government is looking for the money both to repay the debts and to finance its modernization projects.
The economic policy is once again trying to accommodate both the stagnating real sector and the need for macroeconomic stabilisation necessary to attract foreign funds.
GDP and The Real Sector
In January 2013 the year-on-year GDP growth was at the level of 103.1 per cent. It is significantly below the official forecast of 8.5 per cent for 2013. Compared to the same period of last year the slowdown in growth took place in most economic activities.
The ban on exports of solvents and thinners, reduced export of potash and some deterioration in terms of oil deliveries from Russia explain the negative dynamics in manufacturing.
In January 2013, growth in the inventories of finished goods in stock accompanied output growth. If at the beginning of January 2013 the stock of inventories in manufacturing industry was equal to 52.8% of average monthly industrial production, and on February 1, 2013 it grew to 79.1%.
In the first months of 2013, the companies, according to the National Bank report, report reduction in volume of production and demand. At the same time demand for loans increases, and the liquidity-constrained banking system can not meet this demand.
Incomes, Savings and Consumer Market
In January 2013, an average wage decreased in nominal and real terms relative to December 2012. Average nominal wage amounted to 4368 thousand rubles (505 U.S. dollars), while last month it was 4741.3 thousand rubles (552.2 U.S. dollars). At the beginning of the year decline in revenue in general and population wages in particular had seasonal nature. Traditionally, wages grow at the end of each year due to bonuses and other additional payments.
A similar dynamic is also typical for consumer market. In January 2013 compared to the same period of previous year the retail trade turnover increased by 20.3%. At the same time, the reduction of the indicator relative to December 2012 was 21.9%. Retail trade boom in New Year and Christmas time stimulates the rise in consumer demand.
However, at the beginning of the next year businesses slow down and consumption declines. In January 2013 a decline of wages and consumption took place against the household deposit growth in national and foreign currencies. High degree of confidence to the banking system and income growth in previous periods stimulated the growth of household deposits, but also contributed to the decline in consumption.
Monetary System and Exchange Rate
In January 2013, the banking system was experiencing the lack of ruble liquidity. Credit growth at the second half of 2012 and decline of real sector deposits in national currency in January 2013 have predetermined the shortage of ruble resources. Some factors, i.e. slowdown in production sector and reduction of sales, explain the reduction of ruble resources at the accounts of enterprises.
Because of problems with liquidity in January and early February 2013 the interest rates on interbank market reached the level of 37-38% per annum. National Bank was forced to carry out a number of operations in order to maintain short-term liquidity of commercial banks.
As a result, the lack of resources has been eliminated from the second decade of February. Interest rates at the interbank market declined to 19-20% per annum. Moreover, since the second half of February, there was a surplus of Belarusian rubles at the banking system.
The situation at the currency market can be characterised as relatively stable. In January-February 2013, the fluctuations of Belarusian ruble were more of opportunistic nature and ranged from 8570-8680 rubles per U.S. dollar. One of the negative factors on currency market was the excess demand for foreign currency from the enterprises in January 2013. The net demand on foreign currency at this segment of currency market has developed as the result of reduction of foreign revenue.
At the currency market for population the excess demand on foreign currency compared to supply has been observed since the middle of 2012. Incomes growth and weak confidence to Belarusian ruble are the main reasons of the increased currency demand.
In February 2013, the Government has been considering the possibility to allow lending in foreign currency. However, the National Bank decided that this measure is untimely.
2013 and 2014 are the years when Belarus will have to make major payments on foreign debt. The amounts to be paid in 2013 and 2014 are equal to USD 1.7 bn and USD 1.4 bn. There are three possible ways to attract additional financing, which are eurobonds, privatization and FDI, and foreign loans.
Because of the economic crisis of 2011, in 2012 Belarus was not able to attract foreign capital through Eurobonds. Yields of 2015 and 2018 Belarusian Eurobonds were highly volatile throughout the last year. However, wise policy implemented by the authorities and National Bank, focused on macroeconomic stability together with punctual repayment of external liabilities, had a positive impact on the quotes of placed notes.
As a result, in the middle of February yields declined. Active preparation to the next issue of Belarusian Eurobonds started at the end of 2012. In November, a road show in Singapore and Hong Kong was organised with support of Russian banks “VTB Capital” and “Sberbank CIB”. In February, a similar event occurred in Europe. The placement of the next issue (worth around USD 700-900 mln) is expected to occur in March 2013.
Privatisation and Foreign Direct Investment
Among other sources of external financing, foreign loans and privatisation continue to be the most important one. At the end of January Belarus received the 4th tranche of USD 440 mln of EvrAzES loan. In 2012, despite obtaining 3rd and 4th tranches, Belarus was not able to fulfil the requirements of state assets privatisation at amount of at least USD 2.5 bln.
Therefore, results of negotiations on allocation of 5th and 6th tranches will depend on success of privatisation process. According to the agreement, Belarus will have to sell at least USD 2.5 bln of state assets to obtain the rest of the loan.
However, there are threats of a slowdown in privatisation process in the nearest future. The law “On Amendments to the Law on Privatisation of State Property and Transformation of State Enterprises into Joint Stock Companies” will most probably come into force in April 2013 and will revive the golden share institute, which was cancelled in 2008. This law brings changes to the management of the enterprises. It assumes appointment of state representatives even in joint stock companies without government ownership shares.
In joint stock companies, which were privatised or created on the base of rental companies, the governors will appoint state representative who will protect rights of the citizens/minority shareholders. State representatives will obtain the right to attend general meetings and represent votes of minority shareholders as well as to impose ban on decisions of general meeting of shareholders.
This law will have a negative impact on investors’ interest in Belarusian state assets or assets with minority shareholders, as their property rights would not be protected. Therefore, we can expect low demand on small and mediums state-owned enterprises. The only privatisation that one can realistically expect is the privatisation of big government enterprises by Russian corporations affiliated with Russian government.
Anastasia Luzgina and Maryia Akulava, BEROC
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC) – a Minsk-based economic think tank.
Lukashenka Tours South-East Asia
On 22 March Belarus state leader completed his visit to Singapore where he was trying to find new markets. He spent a week in Indonesia and Singapore, together with a delegation of 80 people.
The state of the Belarusian economy is deteriorating, relations with the West and Russia remain complicated, the death of friends like Hugo Chavez and contradictions with Ahmadinejad made the Belarusian leadership to look for new partners.
The Belarusian authorities want to become a noticeable player in the South-East and to attract new money to the Belarusian economy. The ultimate goal is to find new trading opportunities matching those with Russia and the EU. Belarus signed contracts for $400 million.
For the three days of the visit to Indonesia, Lukashenka lobbied increase of mutual goods turnover by two-three times for the upcoming years. President of Indonesia Susilo Bambang Yudhoyono promised to consider the opportunities of investments in Belarus and accepted the invitation to visit Minsk for further negotiations.
The Belarusian delegation did not gain great success in Singapore. Although the parties did sign an agreement to set up one joint company, official Minsk wanted to get more in the form of investments. The Asian tiger has enough economic weight to become a noticeable player in Belarus. However, it does not hurry to do so, although the regime offers a piece of Belarusian state property that the Russians want so much – a minority stock of Belaruskali, one of the world's largest producers of potash.
The visit to the South-East Asia took place after the failed trip to St. Petersburg. Alexander Lukashenka was hoping to get from Vladimir Putin a $ 2 billion loan. The Russian Minister of Finance Anton Siluanov replied simply and ingeniously: “If Belarus carries out privatisation for $ 2.5 billion, there will be no need for a loan”.
The Russian refusal inspired the Belarusian state leader. Ruling politicians realise the importance of development of relations with countries outside of Europe. Due to such contacts, the Belarusian authorities gain international legitimacy and find partners who do not demand further integration or respect of human rights.
On 18 March, Lukashenka arrived to Indonesia for the first time in the history of relations with this country. On the one hand, the relations between the countries do not develop as quickly as the Belarusian authorities would like. In 2012, the goods turnover between Belarus and Indonesia amounted only to $132,2 million. Alongside with that, the Belarusian export still remains undiversified. Belarus shipped almost exclusively potassium fertilisers and tires to Indonesia.
On the other hand, Belarusian authorities can expect rapid start in the mutual trade. Belarus signed contracts for $400 million for the three days of the visit. According to Belta news agency apart from the traditional potassium fertilisers, Indonesia will get about 500 tipper trucks and 600 tractors manufactured in Belarus in the nearest years. Belarus also plans to earn about $150 million on shipment of milk products.
Indonesian President Susilo Bambang Yudhoyono announced that a group of businessmen would visit Minsk in the nearest future, and he would come to Belarus personally for further negotiations afterwards. Lukashenka mentioned cooperation in the military sphere separately. According to the new information provided by the Stockholm International Peace Research Institute, Belarus occupies place # 20 among the biggest exporters of weapons in 2008-2012.
The Belarusian authorities had been preparing this visit for several years. According to Lukashenka, the goods turnover is likely to grow by two-three times in the next several years. If official Minsk manages to open several joint-stock companies with Indonesia, it will become a great break-through for the Belarusian economy. In political sense, these contacts have little importance as the countries are located too far away from each other, and their spheres of interest at the international arena stay too different.
Success in the relations with Indonesia seems less important than the prospect of cooperation with Singapore.
The current state of the economic relations strives to the minimum: the goods turnover in 2012 made $26,5 mln, Singapore invested in Belarus only $730,000 for a year. The Belarusian authorities realise that Belarusian products cannot be competitive in Singapore. The regime hopes to set up joint companies (for example, in the IT sphere) or direct investments into the Belarusian economy.
During the Belarusian-Singaporean business forum the parties agreed to set up a joint company for production auto parts and fittings. As for the direct investments, Singapore has taken no decision so far. The speaker of the Singaporean Parliament will visit Belarus in the near future to see the Belarusian enterprises.
Also, Lukashenka met with President of the “Riyada Group” holding company, a member of the Bahrain royal family, one of the most influential women of the Arabian world Shaikha Dheya bint Ebrahim Al Khalifa. The parties agreed to set up a joint company in Amman and about shipment of the Belarusian goods to the Arabian countries.
Multiple-Vector of the Regime as a Guarantee for Belarus’ Independence
The regime deeply appreciates the relations with countries located far away from Belarus, countries which have quite different, but not contradictory political interests with Belarus. The Belarusian authorities want contacts with South America, Asia or Middle East to become a security cushion in case of deterioration of relations with Russia and the European Union.
When Lukashenka headed for the South-East Asia, the Belarusians started joking that the state leader “disclosed his multiple-vector nature”. The Belarusian authorities often use the concept of “multiple-vector nature” to underline importance of development of relations with all the countries of the world. Translated from the official Minsk’s language, it means creating a counterbalance to Russia.
Although in reality only the West can replace Russia for Belarus, the Belarusian authorities continue to look for new partners. The contacts with Indonesia or Singapore look a drop in a sea in comparison with the agreements with Russia or the European Union. However these relations create appearance of the regime’s independence and stabilise its positions in the negotiations with Moscow or Brussels.