Lukashenka’s Annual Address: Accept Change or Remain on the Periphery of History
On 19 April Alexander Lukashenka delivered his annual address to the nation and parliament. For more than three hours he has been speaking about priorities on his current political and economic agenda and answered MPs’ questions.
Economic modernization, privatisation and relations with the EU and Russia featured at the top of his agenda. All the topics went under an unusual headline – changes for modernisation.
Like Lukashenka’s most public appearances, the address was full of self-promotion and contradictory remarks. On the one hand, he made several reform-oriented declarations. But at the same time he clearly reiterated the limits of what he intends to do.
Talking to the Nation
Like any charismatic political leader Alexander Lukashenka loves all sorts of occasions when he can talk directly to the whole nation. He regularly holds massive press-conferences for Belarusian and foreign media. He also meets journalists for short Q&A sessions during his visits to factories and collective farms in the country’s regions. All these media appearances are then extensively covered by state and oppositional TV channels and newspapers.
During such events Lukashenka does his best to demonstrate that he stays in good physical shape and remains a master of public speaking. He laughs, jokes and holds friendly conversations with journalists. Sometimes he talks about his private affairs and sometimes sheds a bit of light on high-level negotiations with foreign leaders. In other words, he normally says what ordinary people like to hear.
He also uses public speaking occasions to deal with the most sensitive current issues. He aims to make sure that Belarusians are aware of his own arguments and to beat the arguments of his opponents until they gain any ground in society. That is why, unlike the notorious public events of the Soviet times, Lukashenka’s speeches and press-conferences do not avoid contradictory issues.
Annual addresses to the nation and parliament, that usually take place in April, also serve these PR purposes (like in any other country). But they additionally have a bit of special taste as their primary objective is to present Lukashenka's political and economic priorities.
Economic Renewal for Increased Competitiveness
Lukashenka opened his address on 19 April with traditional words of praise towards the Belarusian socioeconomic model. He emphasised that the economy had overcome the financial crisis and now showed signs of healthy stability.
Immediately after that he accepted that at the same time economic problems were growing. According to Lukashenka, those problems come from Russia and the EU, where markets for Belarusian goods are shrinking.
“The key problem of our economy is competitiveness of Belarusian goods. To be winning in the highly competitive war on the world market we all the time need to update our knowledge, technologies, equipment and management systems. Therefore, today the fundamental idea for Belarus is the idea of a renewal”, said Lukashenka.
At the same time the Belarusian strongman reiterated that the renewal does not imply abandoning the existing economic model and ideology. It should only be a new stage in the development of the generally successful development strategy.
He suggested three big national projects that, in his opinion, would make an overall renewal possible. Firstly, economic modernization. Secondly, informatization of the society. Thirdly, support of young people in order to involve more of them in the process of state development.
Lukashenka also underlined that Belarus can not isolate itself from global processes. Therefore, he concluded that the county's options look limited: "accept change or remain on the periphery of history".
Numerous commentators keep asking the question of what stands behind the Belarusian government’s modernization rhetoric. Alexander Lukashenka gave them a sufficient answer last Friday.
The reason is simple: Russia has already joined the World Trade Organisation and Kazakhstan, the other Customs Union partner, is on the way there. This means increasing competition for Belarusian producers. Therefore, there is no other option but quickly modernise the economy.
By announcing that the modernization of the wood-processing industry has to be completed in early November Lukashenka again demonstrated what he means by the very term “modernization”. For him and his inner circle it appears like simply moving from point A to point B. As soon as they reach point B modernization will terminate.
In other words, the authorities see economic modernization as changing equipment: let’s instal 100 new machines and build 50 new walls and we will be done with this modernization!
The Economics of Foreign Policy
The economic block of the address then transformed into foreign policy. Here Lukashenka managed to comment on virtually everything.
He said that the relations with the European Union would now depend on the EU. If there is will on the part of the EU to improve the status quo Belarus then “will walk its walk very quickly”. It is difficult to guess what exactly he implied by this walk. Presumably, it reflects the unfolding behind-the-scenes negotiation process between Minsk and European capitals. And most probably it centres on the issue of the political prisoners.
The Belarusian ruler also went back to his recent visits to South-East Asia (Indonesia and Singapore). He once again offered his rationale for travelling to such distant corners of the world stressing the potential for trade with the region.
Then he proceeded to his usual rhetoric words about the significance of “third world” countries for Belarusian foreign economic relations. He even reiterated the governing rule of the Belarusian foreign policy: “we have to go there where we are welcome”.
The Russian Front
But the most exciting part of the whole address began when Alexandr Lukashenka tackled the Belarus-Russia relations.
He began with banal compliments to the Customs Union and Single Economic Space and promised that the Eurasian integration would soon bear its tasty fruit for the Belarusians. But later he turned to the issue of privatisation in the bilateral relations that traditionally tears apart many agreements.
After months of public and closed talks about the prospects of MAZ/KAMAZ unification Lukashenka boldly denounced the idea. He simply said that he did not see any value added in the prospective unification. And that according to his sources, the whole idea got inspiration from some Western competitors of MAZ, who only wish to destroy the Belarusian giant.
Lukashenka then moved on to the issue of privatisation in general. At this point he asked the Russians “not to bind us a lot”. In the president’s opinion, the market “is in its lowest point”. And one can only privatise very cheap, which is not going to be the case in Belarus.
Interestingly, the following Monday morning some Russian newspapers already published an unofficial response to Lukashenka’s address. They said that the Kremlin decided to suspend the signing of oil contracts Belarus was hoping to conclude.
Who Invests In Belarus?
On 17 April 2013 Standard and Poor's upgraded its outlook on Belarus sovereign rating from stable to positive. According to the agency, strengthening economic stability was brought on by tightened monetary and fiscal policies.
The beneficial change means more than a pleasant evaluation of the country’s performance, but also a signal to foreign investors, which Belarus needs now more than ever. While the Middle East countries continue to speak highly of the country’s investment attractiveness, the less friendly West invests in Belarus much more.
The facts suggest that Belarus' politics plays a less significant role for foreign investments’ inflow than one could imagine. Even more, statistics shows increase of European investments into Belarus against the background of deterioration of Belarus-EU political relations.
Map of Foreign Investments in Belarus
The origin of foreign investments coming to Belarus remains quite stable. Traditionally, the largest amounts come from Russia and the European Union countries. Since 2007 Russia, Great Britain and Cyprus have never left the Top-5 countries investing in Belarus, regardless of whatever changes in Belarus’ external policy. Austria, Germany, Netherlands, Switzerland, Lithuania, Ukraine, the United States and China also head the list of active contributors to Belarusian economy.
At the same time, the widely declared plans of Belarus’ government to attract investments from the East, namely, from the Middle East remain far from full implementation.
Even with the rare existing investment projects of the Eastern countries in Belarus considerable troubles occur. The most notorious ones include refusal of Oman investor from carrying out a major investment project in June 2012 – a couple of years after entering into an investment agreement with Belarus.
In 2010, the Oman investor obtained a 2.6 hectares’ land plot in the very centre of Minsk and a number of other preferences granted by the Belarusian President.
According to Minsk city authorities, the investor’s refusal from the project resulted from the 2011 economic crisis. At the same time, for example, Qatar investments until now appear to be working well and tend only to increase.
The situation with foreign investments from China remains unclear. Belarusian media devote much attention to Belarus-China economic cooperation but in reality the country’s investments into Belarus still remain modest, although higher than those from the Middle East states. The major contributions came to Belarus from China as earmarked loans of Chinese banks for a implementation of projects involving the use of Chinese goods and workers.
Politics of Profits?
The low responsiveness of foreign investments to political developments became obvious in 2011. Despite Belarus-EU relations hitting a new low after the 2010 presidential elections, the inflow of European investments into Belarus in 2011 exceeds the level of 2010 and 2009. Belarusian Internet resource Doingbusiness.by provides the following chart of foreign direct investments inflows to Belarus from the EU and the European Free Trade Association countries:
Importantly, Europeans themselves do not hide that economic interests prevail over political disagreements. Therefore, the dislike of the West of the Belarusian regime hardly reflects on FDI flows. Even Belarus Prime-Minister Mikhail Miasnikovich complains about the insufficient profitability of investments into Belarusian industry: the $31,5 bn invested into Belarusian industry have brought only $19,2 bn increase of value added during the last 7 years.
The United States, despite a firm stand on the political situation in Belarus, also invest in Belarus. As of now, the most preferred destination of American investments in Belarus is the High-Technology Park. Three American companies included into The 2013 Global Outsourcing 100 rating – EPAM Systems, Intetics and Itransition – reside in the High-Technology Park. Some of them were founded by ethnic Belarusians.
Considering investments from Russia, politics does influence them, although with certain peculiarities. Using financial and fuel dependence of Belarus from its big neighbour, Russian businesses can secure their investment interests in Belarus. It is no secret that the Russia-Belarus agreement on the sale of Beltransgaz’ shares to Russian Gazprom appeared on the same day as the treaty on lower Russian gas prices for Belarus. So, the irony of the Russia-Belarus relations was that the largest Russian investment into Belarus made the result of gas disputes between the countries.
Dividends’ Taxation Decides
A range of reasons for which these, but not the others, European countries invest in Belarus is wide. Together with strength of such countries’ national economies in some cases and geographical closeness to Belarus in the others, go tax regulations.
Belarus concluded double taxation treaties with 63 countries, including, those which invest in it. Predictably, the treaties with the actively contributing in Belarus countries provide their residents with the best investment opportunities. The low tax on dividends – for which the statutory rate in Belarus is 15% – plays an important role.
Great Britain firmly ranks second among states of origin of investments coming to Belarus. A great deal of funds from this country concentrates in Belarusian free economic zones and High-Technology Park. Doing business in these areas ensures considerable taxation and other privileges for its residents, but British investors are in a favourable position a priori. According to the Great Britain-Belarus double taxation treaty British companies and natural persons pay no taxes on dividends at all.
Provisions of the double taxation treaty with Cyprus, Netherlands, Germany and Austria are less attractive. Still, under certain conditions they provide for the tax rate of only 5% on dividends. Thanks to this rule, investing from these countries becomes more profitable than from almost all the others.
The Cyprus' extremely beneficial national taxes coupled with benefits from the double taxation treaty, it is easy to understand why this small country headed the list of countries investing into Belarus during all these years up to recently. Moreover, many businesses from Belarus and other former Soviet Union countries use entities incorporated in Cyprus to do business back at home.
Double taxation treaties between Belarus and many Middle East countries also establish good conditions for businesses.
So, European investors are still far more active in Belarus than their Asian competitors despite high politics. Whether the tendency will last remains still unclear because the Eastern countries are expanding their capital over the world. In Belarus their state will not be essentially worse than that of the Europeans – at least from the point of view of taxation.
Belarus simply needs investments in big volumes and does not care a lot about their sources. While international political relations can influence foreign investors’ intentions, their first priority is profits. But as of now, Belarus’ financial attractiveness is still not high, both because of low profitability and the lack of stability of Belarusian laws and economy.
According to a study of the United Nations Commission on Trade and Development, in 2009 the cumulative FDI inﬂow per capita in Belarus was just $878, compared to $1,138 in Ukraine, $1,792 in Russia, and $4,801 in Poland.
Belarus still has many lessons to learn how to attract foreign investors.