How to Make Belarusian Privatisation More Sensible
Belarus will need to pay over $3 billion this year to serve its mounting external debt. This payment is more than twice than in 2012.
In the absence of significant foreign investments and additional Russian subsidies, Belarusian authorities may have to privatise more state enterprises.
Although a number of foreign companies have been operating in Belarus for decades, the process for privatisation is far from transparent and often unpredictable, a recent study from the Belarus Public Policy Fund suggests.
Although the efficiency gap between Belarusian state enterprises and foreign private companies is increasing, Belarusian authorities are not in a hurry to sell off state property. They lack a clear vision of the goals that should be achieved as the result of privatisation and often impose conditions which make privatisation unattractive for foreign investors.
The integration of Belarus with Russia and Kazakhstan within the Customs Union has been a mixed blessing for Belarus. On the one hand, potential foreign investors have access to a bigger market, which extends from the Polish border in the West to Korea in the East. But at the same time it has intensified competition within the Customs Union.
Now the key challenge for Belarus is to compete with often more favourable business environments in Russia and Kazakhstan. The better the investment climate, the better the chances that a large foreign investor would come and, consequently, the higher the asking price for privatised state property. Belarus is missing what its eastern neighbours have: a more liberal economic climate, private ownership of land, lower taxes, and other virtues of a more market-oriented company.
However, the not-so-favourable investment climate is not Belarus' biggest problem.
Main Barriers to Effective Privatisation
When it comes to selling state enterprises, a whole plethora of Belarusian state institutions comes into play. It is difficult to clearly understand differences between them and their responsibilities.
More importantly, Belrusian authorities and foreign investors have very different approaches to valuation of state property. Belarus insists that the balance sheet value of the enterprise should be the most important factor. Foreign investors are more interested in anticipated revenues of the enterprise. The problem is that when all liabilities and losses of privatised companies are taken into account, they become not nearly as attractive for potential buyers.
The new owners would have to deal not only with the old debts of the enterprise but also with various strings attached to the privatisation contract. They may need to guarantee that no massive layoffs would follow, that the volume of production would remain the same or that the investor would continue to inject money into the enterprise.
Even the very process of understanding what old and new liabilities come with the enterprise is not an easy task. The Belarusian state fails to publish coherent lists of enterprises offered for privatisation and the uniform conditions for sale of state enterprises simply do not exist.
This is yet further evidence that privatisation is Belarus lacks a coherent strategy and goals. Instead, privatisation is often done on an ad hoc basis, where each deals depends on how well the foreign investor can navigate its way in the corridors of Belarusian state institutions.
How to Make Privatisation More Effective
The most obvious step which Belarusian authorities need to take is to concentrate various privatisation procedures in a single state agency. It is no secret that the Presidential Administration takes the most important economic decisions in the country, including the privatisation of sizable chunks of state property.
Making the already existent National Investment and Privatisation Agency accountable directly to the Presidential Administration would help ease negotiations between the state and potential investors.
Agreeing on the right price tag for privatised assets remains the most difficult hurdle for foreign investors. If the parties reach a stalemate in negotiations, the use of independent experts to evaluate the property should be accepted by both parties.
The unwillingness of the parties to defer, despite their disagreements, to independent experts would probably mean that one of the parties is not genuinely interested in the deal. Otherwise, they should unconditionally accept such a valuation. If the state is unsatisfied with the result of the valuation, it would be counterproductive to refuse the sale altogether or organise another broad auction in order to invite new bids.
Instead of the requirement to preserve jobs at state enterprises, which are often overstaffed and inefficient, the state should insist on the mandatory retraining of personnel. A more flexible approach would also make sense in requiring the enterprise to preserve its core activities or guarantee a certain number of investments.
Finally, the process of privatisation should be more transparent not only to the parties involved, but also to the general public. This includes publishing the lists of enterprises offered for privatisation and developing a uniform set of rules for privatisation.
Although the practise of offering special favourable conditions to certain investors should remain, the process needs to become much more open and predictable. That would benefit not only the foreign investor, but also the state and the Belarusian people at large.
This review was prepared on the basis of Policy Brief Privatization in the Republic of Belarus: Framework Improvements and Chief Priorities of Andrej Skryba. The study was conducted by Belarus Public Policy Fund as a part of a program jointly carried out by Pontis Foundation (Slovakia) and Belarusian Institute for Strategic Studies.
Sanctions vs Engagement: Is Belarus on the Western Agenda?
As the next summit of the Eastern Partnership to be held in Vilnius in fall 2013 is approaching, the long-standing discussion on strategy towards the Belarusian regime reemerges. Last week, two figures from the western world publicly voiced opposite approaches to the Belarus problem.
During his visit to Lithuania, David Kramer, the head of the Freedom House NGO, stated that the language of sanctions is the only one the dictator understands and that civil society should be considered the only legitimate representative of Belarus to negotiate with.
Lithuanian Foreign Minister Linas Linkevičius in his interview on TV expressed another vision of the problem. He said that cooperation serves the only way to influence the regime and the west should not build a wall on the border with Belarus.
The two figures represent different countries and sectors, and their positions can be understood from that point of view. But for the rest of the western world, Belarus seems not to be the issue on the agenda, and that is why no clear strategy has been elaborated so far.
David Kramer: No Mercy for Lukashenka
In his interview with Delfi, a Lithuanian news portal, Kramer stated that Belarus poses a serious threat to the free world. Western nations should stop any cooperation with Lukashenka and his government, and instead cooperate with Belarusian civil society only. Moreover, the EU should revise trade relations with Belarus, as boosting bilateral trade hinders the effects of sanctions.
Kramer claims that the policy of economic sanctions has proved the most effective. He gave the example of Aliaksandr Kazulin's release from prison, which in his opinion was possible due to economic sanctions in 2006-2008 under the Bush administration.
At the same time, Kramer realises that for the EU, and particularly for a neighbouring country like Lithuania, trade with Belarus presents a very hot issue. Moreover, Lithuania makes a good contribution by issuing Belarusians a large number of Schengen visas and supporting its civil society. Yet he urged minimising contact with Belarusian high officials and dealing primarily with the opposition.
Linas Linkevičius: Human Rights and Economy are Equally Important
Linas Linkevičius, Lithuanian Foreign Minister, addressed the issue from a bit of a different angle. “We are not going to put economic interests above human rights, but Klaipeda cargoes are also important for both Belarus and Lithuania”, he said.
The Minister pointed out that economic cooperation unites people, makes them talk more constructively and jointly think about the obstacles that restrict cooperation. The EU should not build walls on Belarus' border, but should try to influence its Belarusian colleagues, and extend bilateral relations and cooperation. Thus, an engagement strategy presents the best solution in his opinion.
Linkevičius also mentioned the visa issue and said that Lithuania serves as a gate to the West for many Belarusians. According to him, Lithuania issues around 1000 visas daily to Belarusians, and thus lets them see the world and interact with Europeans.
Understanding the Differences
Why do these two obviously pro-democratic figures advocate opposite approaches to the Belarus problem? It may become clearer if one takes a look at the context these men come from.
David Kramer represents the NGO sector. He is not elected by citizens and holds no responsibilities before them. He can freely speak his mind and take one side or the other in any discussion.
Moreover, he represents an NGO based in the United States. As Kramer fairly points out, economic relations between the US and Belarus are close to zero. No economic interests can be involved here and any public actor can develop their strategies regardless of any potential damage to bilateral economic relations.
Linas Linkevičius occupies a different position, in a polity, and therefore has to be careful with his words. He serves as a member of the current Lithuania government, formed by an elected coalition of parties. The parties are accountable to their voters and risk not being reelected if they take a purely moral stance on politics and ignore economic issues.
Economically, Belarus remains one of the most important partners for Lithuania. Belarus uses he Klaipeda port and Lithuanian railways in its export logistics and accounts for around one-third of port freight. It gives jobs to thousands of Lithuanians, and the foreign minister has to care for them in the first place.
Still, How to Deal with Belarus?
Kramer wants to see civil society and the opposition as the sole partners in negotiations on the Eastern Partnership agenda. But is this way of doing business possible in principle? Due to permanent repressions, the opposition has lost its links with voters, and therefore can hardly be seen as a legitimate representative of the Belarusian nation, despite the reason that led to such a situation.
In addition, the implementation of the Eastern Partnership policies requires decision-making and implementation at the governmental level. Opposition members do not hold any governmental offices, and if no representatives of the government participate in the event, how will it be possible? These are the questions which the proponents of hard line have to bear in mind.
Linkevičius looks wiser in this question, as cooperation with government can be the only start for further negotiations on issues like democratisation. But on the other hand, the position of Belarus government remains the same for years: we are eager cooperate in economic issues, but do not touch our domestic politics. After all, Belarus is a sovereign state.
There is no way for change of regime through negotiations, and the West cannot offer the price high enough for Lukashenka to sell himself. So, why cooperate if no effects will be ever achieved?
Is Belarus Really On the Agenda?
The discourse of western strategy for Belarus democratisation has a long story already. Some politicians and experts speak in favour of restrictive measures and sanctions, while others urge engagement and cooperation. In Belarus, for instance, many oppositional politicians advocate sanctions, while most think-tanks and experts promote cooperation. What they all agree about is that there is no coherent strategy towards Belarus problem in the West and that such strategy must be elaborated.
Here, it is worth putting question differently: is the strategy towards Belarus on the western agenda today? Currently, the EU experiences major difficulties both domestically and externally. As economic crisis continues, European countries clash again and again over budgets and bailouts. Meanwhile, on the global scale Middle East draws the focus of world’s leaders over recent years.
Clearly, there exists no big interest in Belarus in the West. Belarus-related western initiatives remain scarce and do not involve significant funds. The least the EU could do – unilaterally facilitate free visa access for common Belarusians – has not been done yet. No wonder the West has no solid strategy towards Belarus, which is at the bottom of its agenda.