Private Sector and Export Revenues Boost Belarusian Defence Industry
On 11 August, the State Military Industrial Committee of Belarus announced that in the first half of this year its defence enterprises earned a net profit of $80m, thus over-fulfilling the assigned export plans by a quarter.
Foreign media have recently reported that new Belarusian military equipment or equipment modernised in Belarus is being used by the Turkmenistani and Kazakhstani armies, Syrian government troops and Burmese air defence. In addition, the Belarusian government has finally started procuring arms for the country's armed forces.
The national defence industry, which emerged in the 1990's as a helpless fragment of Soviet arms industries, evolved to become a significant branch of the Belarusian economy. This happened also because of the rise of the private sector and diversification of its markets and partners.
Money from Arms
The Belarusian defence industry began to pick up speed in the early 2010s. For instance, in 2011-2015 the Baranavichy-based 558th Aircraft Repairs Plant increased its production volumes by 5.5 times while its personnel grew by a quarter.
How much arms Minsk actually exports remains a secret. Based on insider information, the Moscow-based Centre for Analysis of World Arms Trade reported that in 2004-2011 Belarus exported arms for $550m, i.e., $69m every year.
However, these were hard times for Belarusian arms exporters as the old Soviet arms had already been sold and new products had yet to appear. The figures are now higher as the industry has started producing new items and a proliferation of local conflicts requires a growing amount of equipment.
So far, Belarusian firms have been exporting arms with no proven violations of international norms, despite concluding risky deals. On 27 July, the Balkan Investigative Reporting Network and the Organized Crime and Corruption Reporting Project claimed that arms from Belarus, alongside other countries, were being sent to rebels supported by the West or associated with Western allies in Syria and Yemen. Belarusian transportation companies had been transporting arms to these rebels.
However, by doing this Belarus has neither broken international legal norms nor challenged global powers. Investigators believe that everything probably took place with the CIA's knowledge.
This increase in export resulted from the large-scale evolution of the national defence industry. First of all, the private sector has got larger. In January, Belarusian President Lukashenka praised a privately-owned defence company, Minotor-Servis, for its efficiency, describing it as a paragon for the entire economy.
Following that, the Belarusian media outlet TUT.by published an analysis of private defence firms indicating that Minotor-Servis was not an exceptional case. It listed ten more private defence companies which have succeeded in finding a profitable niche.
The Minsk-based company Tetraedr is just one example. It already runs several production sites of up to 13,000 square metres in Minsk. However, as its founder and director Andrei Vakhouski told Belarusian media earlier this year, “we do not limit ourselves to Belarus. Our main production sites are outside the country.”
On 7 August Tetraedr declared that it signed an agreement with the Electronics Corporation of India Limited. The two companies revealed only that they intend to cooperate in manufacturing and delivery of “high-technology defence equipment.” Given their profiles, they are probably attempting to undertake maintenance, modernisation or manufacturing of air defence- and electronic warfare-related systems owned by the Indian military.
The implications of the private sector's rise in this area are immense. First, the defence industry can provide a model for development of private firms in other branches of the economy. Secondly, throughout the world the defence industry has frequently become a driver for technological innovation in other areas, leading to the manufacture of high-technology civil-use items.
Thirdly, even though the Belarusian defence industry is disproportionately entangled with the Russian military industrial complex, Belarusian private firms working in the defence industry boast more diversified international partners. For example, for many years the main customer of privately-owned Tetraedr was Azerbaijan; the firm also worked actively with Kazakhstan.
In addition, while earlier Belarusian defence firms were most likely to do business with former Soviet allies and relied on older Soviet-era ties for their exports, the situation is now different. For example, over the past three years Belarus has been developing relations with Pakistan in the defence sphere thanks largely to the help and mediation of China and/or conservative Arab regimes.
Last December, The French daily Le Monde reported another case in which Belarusian arms firms were doing business with international arms traders outside the former Soviet network. According to French journalists, a French-Israeli businessman named Steve Bokhobza had been acting as an agent for the Belarusian defence firm Beltechexport for at least three years.
Steve Bokhobza reportedly has good connections with French and African politics and business communities as well as the Israeli security establishment. Bokhobza, according to Le Monde, facilitated deals between the Belarusian firm and its affiliates in the Central African Republic, Equatorial Guinea and most likely other countries.
Not Just Exports
For the first time ever, the new Military Doctrine, which entered into force on 20 July, contains a separate section on national defence industries. It emphasises the necessity of developing the defence industry as "a high-technology sector capable of meeting the needs of the Armed Forces with regard to modern armaments, military and special equipment.”
This is new for the Belarusian defence industry, which in 1991 was still a highly export-driven branch. Initially, Belarusians exported equipment inherited from the Soviet era and modernised Soviet arms. The capacities of national defence industries subsequently evolved. By the early 2010's the government announced that 90 per cent of exported arms constitute Belarusian-made products.
The Belarusian military, however, has deployed few of them. In January 2013, Lukashenka admitted that more than 70 per cent of products manufactured by national defence industries were going abroad, and such major firms as Peleng, MZKT and Tetraedr were exporting almost all their production.
Back then, in 2013, he demanded from government officials in charge of the defence industry to create arms for export and mentioned supplying the national army almost as an afterthought. Now, Lukashenka insists on providing weapons for the national army.
Addressing graduates of military colleges on 5 July, Lukashenka exclaimed, “Any country that takes its own security seriously should produce its principal weapons with its own hands.” The Belarusian leader cited the recently established production of lightly-armoured vehicles and missiles production as examples of the approach.
In sum, despite many contradictions, the Belarusian defence industry is far from stagnation, unlike many other branches of the Belarusian economy (such as machine building). It brings a stable income from exports and develops finished products.
These products, including anti-tank rockets, optics, electronics, and missiles, have not only found a market abroad, they have also contributed to national military capacities.
Moreover, the development of this branch can set an example for other industries, especially with regard to the incremental development of the private sector and diversification of international ties.
Belarus Agriculture: Success Abroad, Failure at Home
On 7 August 2016 the Minister of Agriculture and Food of Belarus Leanid Zayats announced that the country received $11m per day between January and June 2016 for exporting its agricultural products; this accounted for 18 per cent of all Belarusian exports.
Moreover, according to national statistics Belarus has become the third largest world exporter of butter and powdered milk, as well as the fourth largest world exporter of cheese.
At home, however, people are blaming authorities for high food prices. Experts point to high expenditures on agriculture, which exceeds income from export. Another problem is strong dependence on the Russian market – 85-98 per cent of Belarusian agricultural exports go to Russia.
The risk of the Russian market partially closing also remain high. On 11 August 2016 Russian authorities once again banned export of certain Belarusian dairy products due to supposedly substandard quality.
An engine for economic development?
Agriculture has remained a priority for Aliaksandr Lukashenka throughout his presidency. Content analysis of his speeches reveals that the president time and again declares agriculture to be the driving force for economic development in Belarus.
Officials emphasise the growth of export as the main reason for the success of the Belarusian agricultural sector. Due to sanctions imposed by Russia against Western food products, Belarus has managed to increase its share of the Russian market. The table below illustrates this:
In August 2015 the Russian Minister of Agriculture Alexander Tkachiov claimed that Belarus, with a total market share of 86 per cent, had almost completely replaced the EU in import of dairy products to Russia.
However, more detailed statistical data cast a shadow on the economic success of Belarusian agriculture. The table below depicts Belarusian export of the four most important agricultural products in 2013-2015. All calculations have been made by the author based on data from the National Statistical Committee of Belarus and National Bank of Belarus.
These data prove some very important trends in Belarusian agricultural export.
Firstly, they demonstrate its strong dependence on the Russian market. Russian authorities constantly accuse Belarus of dumping as well as exporting low-quality and / or re-exported agricultural products. Moreover, the deteriorating economic situation in Russia directly influences prices for Belarusian agricultural products. In 2015 they fell significantly compared to 2014.
Preserving Belarus's status on the Russian agricultural market requires significant financial government allocations to agriculture. Even the authorities admit that they allocated more than $40bn for modernization of the agricultural sector.
At the same time, the sector continues to offer some of the lowest salaries in the country – 66-72.25 per cent of the national average. About 35 per cent state agricultural enterprises remain unprofitable, while the total profitability amounts to 0.5-0.6 per cent. Unfortunately, such poor economic conditions are what allow Belarus to maintain its share on the Russian agricultural market.
around $2bn out of a total of $4-5bn gained from Belarusian agricultural export comes from re-exporting Read more
What's more, the Russian agency 'Rosselhoznadzor' and the Russian Prime-Minister Dmitry Medvedev have have accused Belarus of re-exporting EU agricultural products, prohibited in Russia. Some experts claim that around $2bn out of a total of $4-5bn gained from Belarusian agricultural export comes from re-exporting.
Secondly, these figures confirm the existence of dumping. Prices inside Belarus can be twice as high as prices in Russia. This context makes exports to Russia seem much less profitable.
Moreover, this situation contributes to high risks of devaluation of the national currency. The authorities unwittingly become interested in weakening the national currency in order to increase their profits from trade with Russia.
Elimination of competition
The government tries to concentrate agricultural production in large state-owned farms. About 1,400 milk-producing farms produce 61.5 per cent of all dairy products. Nevertheless, authorities believe that state farms should be producing an even higher proportion of Belarusian dairy and blame private farms for the competition.
The special government programme ‘Development of private farms in 2011-2015’ appeared to eliminate this competition while providing sources of cheap crude products either for further processing or direct export to Russia.
However, the name of the programme should not deceive readers. It stipulates a decrease of food production by private farms and a state monopoly on buying such products. It also requires maintaining ridiculously low farm-gate prices.
A story reported by numerous Belarusia mass-media, which occurred in May-June 2016, illustrates how this system works. Seven people from a village in the Haradok district of Vitsiebsk region near the Russian border sold their cattle to a Russian businessman instead of selling to the closest state agricultural enterprise. The latter would have offered much less and involved significant delays.
As a result, the local authorities initiated an investigation and tried to bring these people to court, as well trying to confiscate money already paid.
High price and dubious results
Many viewed Belarusian agriculture as an apparent success on the Russian market. The country has become one of the world's top dairy producers, as well as the main supplier of agricultural products to Russia. Russian sanctions against Western agricultural products facilitated this success significantly, making Belarusian products a real substitute for the banned supplies.
However, this success comes at a high cost inside the country. Authorities allocate many resources to supporting this level of export. Extremely high domestic prices compensate for dumping in Russia.
Poor economic conditions in the countryside, restrictions, unfair competition, and inefficiency of state-owned agricultural enterprises also contribute to this ‘success story’.
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".