Ever narrower access to the sea undermines Belarusian sovereignty
On Thursday, Lithuania announced that its Klaipeda port had recorded the highest ever annual volume of shipments. This occurred thanks to Belarusian firms’ growing use of Klaipeda despite Moscow’s pressure which demands of Belarus to boycott the Baltic states’ ports.
Officially, the Belarusian government and businesses report that they start exporting oil products via Russian ports. Yet, while Minsk tells what Moscow it likes to hear, it continues with business as usual.
Minsk giving in to Moscow?
On 20 December, Belarus’s Deputy Prime Minister Uladzimir Syamashka “forecast” that in 2018 Belarus would export up to one million tons of oil products via Russian ports. These exports would be rerouted away from Baltic states’ ports.
Indeed, on 8 December, Ihar Lyashenka the head of Belnaftakhim (BNK), a Belarusian state company that sells oil products, announced that his firm was beginning to export oil products via Russian ports. The first deal on 72,000 tons should have been finalised in December-January. The formal character of his statement was underlined by the fact that his comments were made at the meeting of the Council of Ministers of the Union state of Belarus and Russia.
The actual volume of the deal is negligible, and even the plans to export one million tons a year via Russia fail to impress. For comparison, last year – even after its respective exports had shrunk by about 15 percent – Belarus exported almost a million tons of oil products each month. There is another interesting detail: Russia lacks the technical capacity to reroute even half of these export volumes. The director of commercial issues for the Russian railways, Aleksei Shilo, told TASS news agency on 19 October that his firm can transport about five million tons of Belarusian oil products per year.
The Kremlin’s campaign to impose a blockade on Baltic ports is stalling. Last August, Russian president Putin personally demanded that the transit of Belarusian oil products be rerouted away from the Baltic states to Russian ports. He suggested that this could be done by imposing such logistical demands on Minsk through supply contracts for Russian oil deliveries to Belarus. Previously, beginning in 2016, Moscow had attempted to achieve the same goal by offering Belarus ever bigger discounts on transportation of their export cargo via railways. These efforts failed.
Belarus’s Deputy Prime Minister Uladzimir Syamashka told the media that Minsk had signed all oil contracts with Russia for the period until 2025, and that they cannot be amended.
At the end of September, however, the acting director of the Belarusian oil company BNK, Siarhei Hryb, announced that Belarus was ready to ship its oil products to foreign customers via Russian ports if it were not for lack of economic feasibility. As TUT.by reported, transhipment operations for one ton of oil products via Baltic states’ ports costs six to eight US dollars, while using Russian ports as suggested by the Kremlin pushes the cost to $12-18.
No business just politics
Minsk may have its own reasons to send some cargo via Russia to make a point in relations with its Baltic neighbours. Belorusy i rynok, the economic daily newspaper, observed that Minsk’s decision to export some products via Russian ports could have not only economic but also political reasons. After all, Lithuania objects to Belarus’s nuclear power plant construction project and works to put pressure on Minsk everywhere.
Belarusian presence at Lithuania’s Klaipeda port provides Minsk with some leverage over Vilnius. Indeed, although for some years Russia has been reducing the volume of cargo it transports via the Baltic states, Klaipeda thrives. Thanks mostly to Belarusian exports of potash and oil products in 2016 its port achieved a record level of cargo transhipment – 40.14 million tons, and in 2017 it broke that record again by transporting more than 43 million tons.
The official share of Belarusian cargo in the Klaipeda port, according to Belarus’s ambassador to Vilnius, Alyaksandr Karol, constantly exceeded 30 percent during the past five years. According to other estimates, in particular those published by the Russian news agency Regnum, the share of the cargo linked to Belarusian firms and shipped via Klaipeda might reach 70 percent.
Yet such intensive use of Klaipeda makes Minsk more vulnerable too. In an interview to the Vilnius-based Litovski Kuryer daily on 13 December, Ambassador Karol complained: “We sadly notice the statements of Lithuanian politicians and heads of government agencies on the undesirability of cooperation with Belarus, as well as their recommendations [to Lithuanian firms] regarding ‘more careful choice of business partners and suppliers.’”
Belarusians come as Russians leave
On 5 November, analysing Moscow’s attempts to lure and drive Belarusian firms away from the Baltic states’ ports, the popular Belarusian independent internet portal, TUT.by, interpreted these moves as part of a broader Kremlin reaction to Belarus’s growing presence in Lithuanian and Latvian ports.
It started with Belaruskali, the national potash company, buying a 30-percent share in a terminal of Klaipeda port in 2013. The firm has kept this ownership share and invested further. Last September, Belaruskali‘s director Ivan Halavaty announced that Belaruskali could now export all products it needed to ship by sea via its own Klaipeda terminal.
Another attempt to improve access to the sea for Belarusian businesses can be seen in Belarusian oil company BNK’s decision to work with the Latvian port in Riga. Yet in 2016, Naftan, the Belarusian oil refinery, signed a contract with BNK to export annually in 2018−2022 of at least one million tons of petroleum distillates via the facilities of the Latvian WT OIL Terminal. Both the Belarusian and Latvian firms involved in the deal kept silent about it, though the information was revealed in one of Naftan‘s annual reports.
Minsk reviews its plans on Ukrainian and Polish ports
Minsk’s efforts to find alternative options for access to the sea via Ukraine and Poland stalled although the reasons remain unclear. On 4 January, the Belarusian government decided to close its consulate in the Ukrainian port city of Odesa. The consulate, opened in March 2011, coincided with Minsk’s efforts to find alternative sources of oil import and decrease dependence on Russia which relied on the use of the port in Odesa. Ironically, it was on his way to a meeting with his Ukrainian counterpart, Pavlo Klimkin, in Odesa in August 2015 that Belarusian foreign minister Uladzimir Makey announced Minsk’s interest in increasing shipments of Belarusian cargo via Ukranian ports.
In a related development, on 18 January, foreign minister Makey revealed Minsk’s plans to close its consulate in the Polish port city of Gdansk. In recent years the Belarusian government has studied the opportunities for using Gdansk port and also by developing an international route via rivers between Black and Baltic seas.
Hence, land-locked Belarus is struggling not only with the Kremlin’s plans to starve Russia’s regional opponents into bankruptcy. There are problems in Belarus’s relations with regional countries which have nothing to do with Russia. As a result, Minsk shelves, for now, its plans concerning Ukrainian and Polish ports, while its cooperation with Latvia and Lithuania on gaining access to sea suffers from instability. Without stable regional cooperation, Belarusian sovereignty remains under threat. It needs diversified trade and communications which can change the political economy of the Belarusian state and balance Minsk’s dependencies on Russia. This will only be possible if Belarus can secure access to the sea via various countries other than Russia.
Blazing the cryptoliberalisation trail – digest of the Belarusian economy
On 22 December 2017, the President of Belarus Alexander Lukashenka signed a presidential decree that identified Belarus as the first country in the world to legalise the blockchain—a digital ledger in which transactions made in cryptocurrencies can be chronologically recorded.
In the meantime, improved oil prices have helped the government outpace their economic growth plans for 2017. This has led to forecasts for 2018 to be even more ambitious.
On 18 December, government officials defined plans for wage growth in the coming year. In contrast to economic growth, the new 2018 wage growth target is below the presidential target set at the beginning of 2017.
The IT-sector: A haven for cryptocurrencies
On 22 December 2017, Alexander Lukashenka signed the presidential decree On the development of the digital economy, which is intended to make Belarus a regional IT leader.
President Lukashenka believes the decree will help Belarus become a centre for attracting computing talent, successful companies and international corporations working in the most advanced technological areas, such as artificial intelligence, big data, and blockchain technology.
The decree extends a special legal regime for companies based at the Belarus Hi-Tech Park (HTP) until 1 January 2049. It also expands the list of business activities to include new industries, such as neural networks, unmanned vehicles, biotechnologies, and more.
Most notably, the decree permits the HTP’s residents to conduct transactions with electronic money without limitations and companies no longer need the permission of the National Bank of Belarus to open accounts in foreign banks and other financial organizations and to perform financial operations.
Third, the decree legalises electronic money in Belarus. The HTP’s residents have a right to engage in mining and to conduct the cryptocurrency exchange.
Finally, individuals also have the right to own and to exchange cryptocurrency for foreign currency and Belarusian rubles, to carry out mining. Income from these operations frees from tax declaration of physical persons and excludes from taxation until 1 January 2023.
Almost all of the decree’s provisions will enter into force three months after its official publication. Its developers predict that by 2030 annual export revenues for Belarus’s IT sector will increase from the current $1bn to $4.7bn and the number of people employed will grow from the current 30 thousand up to 100 thousand people.
Economic development: results, prospects, and risks
On 5 December, Belarusian Prime Minister Andrei Kobyakov announced that GDP growth will reach 2 per cent for 2017 and inflation will not exceed 7 per cent. This is more ambitious than the 2017 forecast, which assumed 1.7 per cent GDP growth with an inflation rate lower than 9 per cent.
Several factors caused the current rebound of the Belarusian economy. They include improved external market conditions for trade, strengthened economic growth in Russia, and increased prices for commodities. These changes stimulated the growth of Belarusian exports and supported business activity in the country.
Furthermore, according to official forecasts from the Belarusian Council of Ministers, GDP in 2018 will rise by 3.5 per cent and goods and services exports by 5.7 per cent. The National Bank of Belarus also projects that inflation will stay at 6 per cent or below, and the money supply will not grow above 12 per cent.
However, certain experts disagree with the Council’s optimistic outlook. In particular, the World Bank forecasts GDP growth at 2.1 per cent and the IMF predicts only a 0.7 per cent growth to GDP. Common among the two organisations’ reasoning include a worsening external economic environment and the absence of structural changes within the Belarusian economy.
Indeed, it is unlikely prices of imported energy resources grow as much as in 2017. This will lead to lower benefits from commodity exports. Furthermore, the oil subsidy from Russia (a discount on purchased oil) that added substantially to GDP growth in previous years will continue to be reduced.
According to World Bank experts, in past years the Russian oil subsidy account for as much as 15 per cent of Belarusian GDP. A sharp drop in oil prices reduced the size of these benefits. In 2016, the oil subsidy accounted only for about 4.6 per cent, or approximately three times lower than in previous years.
In 2018, Belarus must repay about $3.7bn in external debts generated mostly by inefficient state-owned enterprises. Taking into account the absence of serious plans for structural reforms, these liabilities will need additional external financing and greater budget coverage.
As a result, according to the Minister of Finance Vladimir Amarin, the government plans to borrow approximately $1.2bn in 2018, increasing further the risks for financial stability and the burden on the budget.
Wages: looking forward
On 18 December, Labor and Social Protection Minister Irina Kostevich announced official predictions for wage growth in Belarus. According to Ministry estimates, average monthly wages will reach up to BYR941 in 2018 or approximately $466. Wage growth will ultimately depend on the situation of economic development in the country.
However, in April of this year, President Lukashenka said that a salary equal to BYR1000 a month remains the minimum government target. Currently, the average Belarusian earns approximately 98 per cent less than average Chinese, and more than two times less than the average Lithuanian or Pole (see the Average wages figure below).
Nevertheless, even if wages grow to predetermined levels in the coming months, true earnings will remain low. First, the threshold level of BYR1000 excludes taxes. Second, wages in the regions will be substantially minor in comparison with Minsk (the average salary in Minsk is higher by approximately 55 per cent).
Altogether, officials understand the unstable foundations of Belarus’s current macroeconomic drivers, but still, they prefer to ignore the problems of an unreformed economy and continue to dream about potential cryptocurrency benefits.
Aleh Mazol, Belarusian Economic Research and Outreach Center (BEROC)
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)