Is Belarus Turning away from the Socially-Oriented State Model?
On 5 August 2016, Andrei Labovich, First Deputy Minister of Labour and Social Protection of Belarus, said that the new Law on Employment would tackle the problem of the ‘professional’ unemployed.
Simultaneously, in August 2016 the National Statistical Committee of the Republic of Belarus released data on employment figures in the sphere of industry for 2011-2016. According to this information, during the last five years this sector alone has witnessed nearly 150,000 job cuts.
Such a clear contradiction raises a question about the future of the Belarusian social model. Does it mean that Belarus plans to give up on its artificially created 99.5% employment rate and what would the state do with those who lost their jobs in times of deep economic crisis?
Being unemployed in Belarus: nothing to envy
Belarus has one of the strictest systems of social protection for unemployed people in Europe. Unemployment benefits remain ridiculously low (near $20 per month) and not every jobless person is even eligible for them.
The country has always prided itself on its artificially low unemployment rate (near 0.5%). Employment in state sector, which dominates the economy, has played a significant role in maintaining political and ideological control over the people.
It also served as an additional channel for allocation public resources for the local elite and so called ‘red directors’ of state enterprises. A large amount of people working in Russia, as well as a developed informal economy, have helped promote such a policy.
The economic crisis changed everything
Experts claim that since 2015 Belarusians have been looking to find jobs in the EU rather than Russia. According to Yandex data, the number of job requests in Poland by Belarusians in 2015 grew fivefold compared to 2014. However, due to language barriers, visa regulations and legislative peculiarities, the EU has failed to become a full-pledged substitute for Russia when it comes to employment.
Unfortunately, the official statistics fail to demonstrate the real number of Belarusians employed in Russia. However, staffing companies and many individuals claim that salaries for Belarusians in Russia fell threefold or more.
The Belarusian authorities continue to hide real unemployment figures, reporting one percent at the end of 2015. Moreover, numerous reports exist that local authorities prevent (or prohibit) unemployment registration in order to maintain ‘good’ statistics.
Nevertheless, even the official statistics have recognised two major changes: the number of job vacancies are now half as much as even the number of registered unemployed, and the number of job cuts significantly exceeds the number of new vacancies.
But will this become an engine for social unrest? This seems unlikely.
Less fear of social protests, more support for security agencies
After the crisis of 2011 the authorities faced a dilemma. Maintaining the same number of employees became too expensive, while growing unemployment risked causing social protests and even riots. However, two main changes occurred after this crisis.
Firstly, the Belarusian authorities are much less wary of possible riots after the successful suppression of the so called ‘silent protests’ in summer 2011. Authorities believe that people’s standard of living means much less than number and welfare of security forces. The fact that these agencies faced no serious cuts – neither financial nor personnel – in 2011-2016 proves this point.
Secondly, the government has started to pay much more attention to the informal economy by considering it a source of additional revenue.
Deus ex machina – tax on unemployment
In April 2015 the president signed his famous Decree ‘On preventing social sponging’ as a further step towards the rollback of total employment policy. Some experts believe that the document aimed to prevent dismissals from state enterprises because of low salaries, as well as to struggle against ‘shadow’ business activities.
This seems only partly true. First of all, the Decree failed to prevent further dismissals. Moreover, the national Statistical Committee confirms that the total number of jobs cut in the country has even grown in December 2015 – June 2016. The table below demonstrates this idea:
These figures illustrate the growing rates of job cuts within a relatively short period of time. For example, in these seven months the sphere of industry witnessed 21% of all job cuts during the last six years.
Secondly, the Decree failed to struggle against ‘shadow’ business activities. Authorities claim the number of unofficially employed people to be 400,000 – 500,000, while up to July 2016 only 4,000 people registered to pay this tax. The actual number of eligible tax-payers remains unclear till now.
Unemployment in Belarus threatens authorities in two different ways: possible social protests and ‘brain drain’ from vitally important spheres. While the first risk is proving to be less real and significant, the second one is much more concerning for Belarusian officials.
Thus, according to the Ministry of Labour and Social Protection, only Minsk city requires more than 1,500 doctors and nurses, and the staffing level at first aid services amounts to only 67%. The number of vacancies exceeds the number of registered unemployed in the sphere of medical care by 81 times.
Lack of professionals may result in a further degradation of more or less profitable enterprises, export-oriented plants, strategic infrastructure etc. Moreover, such specialists have more opportunities to find a job in the informal sector or abroad. The Decree could become an effective instrument to prevent such dismissals.
It seems that Belarusian authorities are set on a course to further toughen the conditions of employment. Completely bankrupt enterprises risk being closed, which would result in people having no chance to obtain appropriate social security. Employees at relatively successful or important enterprises have to put up with lower salaries, longer working hours and more control.
The World Bank in its Belarus Economic Update for April, 2016 confirms that: 'The labour market is under stress due to weak performance of the construction, industrial and agricultural sectors. State-owned enterprises as a whole did not shed labour, but rather shortened the working week.'
Many experts have proposed that authorities promote more support for the unemployed, in particular by raising the amount of employment insurance to at least around $80 per month. These experts argued that given the increasing job cuts and lack of financial resources it would be cheaper for the government to support the unemployed than to sustain economically ineffective enterprises.
The new Law on Employment crashed these hopes of liberalisation of unemployment protection policy. Moreover, the authorities chose the worst of both world – no jobs, no opportunities for self-employment, no social protection, but strong police and security agencies always ready to suppress any protests and feeling no lack in financing or vacancies.
Aliaksandr is Dean of the Faculty of Extended Education at the Belarusian State University of Culture and Arts, and expert of the NGO "The Liberal Club".
Is Belarus-China Cooperation a Pipe Dream?
On 20 June 2016 Belarusian president Aliaksandr Lukashenka held a meeting with vice-chairman and president of the Chinese CITIC Group Corporation Wang Jiong. The meeting seems particularly significant in light of Lukashenka’s planned visit to China in September 2016.
The intentions of Belarusian authorities seem clear. The country needs foreign investments and / or loans, as long-lasting negotiations with the IMF continue to be relatively fruitless, while support from Russia is clearly declining.
But can China become a potential source of foreign currency for Belarus? There is no doubt that investments and loan issues are to be on the top of Lukashenka’s agenda in Beijing.
A good partner?
The state-owned company CITIC Construction Ltd. is one of the 100 largest construction companies in the world. In Belarus, the company has handled the modernization of three cement plants and a linen factory in Orsha. It continues work on the Geely car plant and has started construction of a hotel complex in Minsk’s Viasnianka district. To ensure that such construction projects go smoothly, heavy machinery, such as the online inventory of wheel loaders, must be utilized.
Ihar Kayuda, director of innovations and investment projects at the holding company “Amkodor”, announced further plans for cooperation. He mentioned the construction of a loader and tractor plant in Kalodzishchy near Minsk, construction of a tractor plant in Navapolatsk, and a milk producing holding company in the Mahilieu region.
Lukashenka pointed to CITIC’s distinguished role in implementing construction projects in Belarus. However, analysis of the actual projects reveals that this cooperation has its dark side.
Failed modernization of the cement industry
Since 2008, CITIC Construction Ltd. has participated in the modernization of three Belarusian cement plants in Krychau, Kastsiukovichy, and Krasnaselsky. Unfortunately, once modernization was completed, all three plants nevertheless remained among the most loss making enterprises in Belarus.
It is certainly easy to fully place the blame on Belarusian authorities for failing to predict low demand for cement in recent years. However, unsatisfactory work by the Chinese contractor also played its part.
Belarusian experts, and even some officials – such as Mikhail Miasnikovich – complained of low quality equipment, delayed shipment and unreasonably high construction costs. Officials claim the total amount spent on the project amounted to $1.2bn.
In other words, although Chinese tied loans became the main source of financing for the modernization, CITIC was nevertheless selling goods and services of dubious quality for high prices. Moreover, Belarus will have to cover all these expenditures as debt payment. Some suspect this is a deliberate strategy of CITIC and other state-owned Chinese companies in Belarus.
Other dubious projects
In spring 2014 the company announced its plans to invest in the construction of a soda ash production plant. However, CITIC proposed to invest only 15% of all necessary allocations. Other expenditures would come from Chinese tied loans. In spite of the signed Loan Agreement, these plans have not progressed.
Moreover, within the frames of the One Belt, One Road initiative, the company has begun construction of an auto assembly line for the Chinese automaker Geely, as well as the redevelopment of a linen manufacturing plant.
The problems with the modernization process of the linen (flax) industry in Belarus resemble that of the cement plant modernization. China allocated $51,835 m. of tied loans for modernization of the linen factory in Orsha. However, textile production and import, as well as economic viability, remain extremely low.
The Geely project has already become cause for much discussion in Belarus and Russia. It stipulates building an automobile production line with an annual output of 60,000 passenger cars. Signed in March 2015, the total contract value of this project amounts to $300m, and the contract period encompasses 21 months. This money is provided by Geely, not from the Chinese tied loans.
One may call this an example of full-pledged foreign investments. However, the principal questions remain unsolved. Experts believe that Russia is to be the project’s main target market, while Belarus would serve as a transit country (only formally as a country of origin) rather than a country of production. Russian authorities publicly suspect that Belarus plans to organise de facto re-export of Chinese made cars to the Eurasian Economic Union.
During his visit to Minsk, Mr. Wang took part in the initiation ceremony for the construction of the hotel complex in Minsk’s Viasnianka district. The declared financial resources for implementing this project amounted to $120m. However, because of the permanent crisis in the touristic and hotel industry in Belarus, one can hardly expect this hotel to turn a profit.
Declarations and memorandums instead of real contracts
In the context of poorly implemented, economically unfavourable projects, some of which exist only on paper, the three initiatives mentioned by Ihar Kayuda appear to be no more than fantasies.
Given that as of 2015 the export of Belarusian tractors and loaders has halved since 2011, one can hardly expect a serious investor to build two new plants in a struggling industry. It seems more likely that these plants are to be built for the sake of tied loans and that their fate would be similar to that of the cement plants.
Cooperation in the sphere of food industry seems more mutually beneficial, since China has announced its plans to increase food import from Belarus. Moreover, Belarusian food products seem to be competitive on the Chinese market. However, more details ared needed before judgements can be made.
The reasons for such bold statements lie in changes in China’s policy towards loan allocation for Belarus. While the country still has access to the remaining $7bn of a $15 n. credit line opened in the end of 2009, the Chinese government has toughened its crediting policy. Loans are becoming less accessible and focus on transportation and logistics programmes within the framework of the One Belt, One Road initiative.
In this context, the Belarusian government, which desperately needs money in light of the severe economic crisis, seems to be making any possible proposals to receive further allocations within the opened credit line. The feasibility of such proposals seems to be a matter of secondary importance.
Consuming money with no public profit?
No doubt, Aliaksandr Lukashenka considers his visit to Beijing to be urgently important given the economic situation in Belarus. The years 2015-2016 have witnessed a comparatively high number of meetings between Lukashenka and Xi Jinping. However, the question of what role China can play in Belarusian development remains open.
It would come as no surprise if Belarusian authorities understood all the risks of such dubious deals with China, both in the dumping of potash fertilisers and allocations of tied loans for economically ineffective projects. It seems that given the deepening economic crisis, they simple do not have other choices.
Aliaksandr is Dean of the Faculty of Extended Education at the Belarusian State University of Culture and Arts, and expert of the NGO “The Liberal Club”.