The Long Road to Liberalization: Digest of Belarus Economy
On 29 March 2016 Prime Minister Andrei Kobyakov proclaimed the government's intention to speed up the long-awaited process of joining the WTO.
Moreover, after renegotiating different scenarios for pension reform in Belarus, the authorities have agreed to an increase in the retirement age for men and women.
Meanwhile, оn 21 April 2016 President Alexander Lukashenka announced that it would be a tough year for the economy, all the while encouraging the government to accelerate its attempts to develop the economy.
WTO: Reforming the Negotiations
On 29 March 2016 Prime Minister Andrei Kobyakov announced that in the near future Belarus jointly with the WTO team would formulate final proposals and terms for the accession to the organisation. In September 2015 Belarus agreed to a WTO roadmap that includes negotiations with 40 countries.
Belarus has been trying to join the WTO since 1993. However, it is only now after almost a quarter of a century that the authorities have finally made the tough decision to speed up this process. The Belarusian government has taken such an "extraordinary" forward looking decision under pressure from the significantly negative internal and external macroeconomic shocks.
A prolonged economic recession, the skyrocketing negative trade balance with China, increased disagreements with Russia, the country's main trade partner, and the successful accession to the WTO of the other four members of Eurasian Economic Union (EEU) trade bloc prompted the Belarusian side to take the decision.
Moreover, Belarus has already met a substantial number of the WTO obligations by virtue of the participation of other EEU states in the trade organisation, including reduced customs tariffs and financial support for state-owned enterprises (SOEs).
At the same time, some trading partners are increasing import tariffs for Belarus, while others are still avoiding signing bilateral trade agreements with Belarus (for example, China). Therefore, in order to challenge tariff barriers and trade restrictions, accession to the WTO is becoming an irreversible process and one of the main challenges for the state.
Pension Reform: a Gradualist Approach
On 11 April 2016, in an effort to preserve the existing ratio of workers and pensioners, Lukashenka signed a new decree that increases the retirement age for the working population in Belarus. From 1 January 2017 the threshold for retirement will gradually increase by six months each year until it reaches 63 years for men and 58 years for women.
The demographic problem is the main reason for this reform. In Belarus there are ten people of working age for every four pensioners; by 2035, this number will increase to six. As a result, according to the Deputy Minister of Labour and Social Security Valery Kovalkov, from 2020 this trend will lead to an additional substantial burden on the budget. Thus, in order to solve this problem the government is encouraging economic entities to hire elderly candidates.
However, experts express doubts about the interests of employers in accomplishing such a task. According to Svetlana Korosteleva, director of consulting company Kvadrat, in Belarus there exists an unspoken age limit for new workers – approximately 45-50 years for both sexes. In most cases employers "fear" that older applicants will not be up to date with industrial trends, will have poor computer skills and perform tasks slowly.
Moreover, business owners that grew up in the 90s seem particularly "vulnerable" to age discrimination as they tend not to hire new specialists over 35 years. But such a "modern" practice of Belarus’s businessmen strongly violates national labour legislation, which prohibits weeding out candidates by age, gender, eye colour and other traits.
Economic Growth: Escaping from Dreams
According to an analysis by Standard & Poor’s (S&P) carried out on 10 April 2016, the additional economic problems that Belarus is experiencing are due to the low predictability and efficiency of its institutional system, the very weak external economic position of the country and a lack of flexibility of its monetary policy. S&P experts also believe that Belarus will continue to experience an economic downturn (see figure 1).
Later, on 14 April 2016, the IMF in turn revised its forecast on the Belarusian economy. IMF experts think that Belarus's GDP growth in 2016 will decrease by 2.7 per cent, which significantly differs from their October 2015 estimates that predicted a contraction of 2.2 per cent.
However, the Belarusian authorities still forecast positive economic growth for this year. But in the past five years the government has accomplished none of the most important socio-economic indicators it identified. For example, official forecasts assume five-year economic growth equal to 62-68 per cent, but real figures foresee results more than ten times lower.
This has happened mostly due to the prescriptive, declarative nature of such indicators. In most cases local authorities consider such orders as non-binding obligations that do not correspond with economic reality.
In order to break up such a vicious circle, on 5 April 2016 Prime Minister Andrei Kobyakov announced substantial efficiency improvements in resource use by enterprises. From now on, a return on every rouble of investment constitutes one of the main goals of the new government’s economic program for 2016-2020.
Additionally, the government has banned the popular practice of local authorities establishing prescribed economic indicators for state and private enterprises, which presupposed accelerated growth rates in previous years.
Thus, after two decades of "easy" solutions to big problems, Belarus seems to be reversing its economic course in the direction of a more liberalised economy, at least in the labour market, trade policy and management of SOEs. But further, inevitable decisions are still waiting for the right moment.
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)
Migration and National Security in Belarus
In March 2016 the Belarusian government approved the new national programme The National Health and Demographic Security of Belarus for the upcoming period 2016-2020.
It aims "to stabilise population density and extend life expectancy". To achieve these admirable goals the government plans among other things to increase life expectancy from the current average of 73.2 years to 74.6 years and to admit 70,000 new migrants.
With that the government recognises the role of migration in national security. However, the projected number of migrants appears to be rather modest. Meanwhile, national statistics agency Belstat recorded 28,349 migrants in 2015 alone.
The large number of migrants contributed to an increase in the overall population outweighing the negative results of high mortality rates. Whether this trend will continue or not remains to be seen, but it already means that Belarus has to learn to harness the power of migration.
Migration Inflow and Outflow
Following the breakup of the Soviet Union, Belarus and Russia became the only two countries in the region to have positive migration inflows in the 2000s. In other words the number of arrivals exceeded that of departures. Belstat puts the number of international migrants at 28,349 in 2015. Out of these, 22,505 came from the Commonwealth of Independent States (CIS) or former Soviet Republics, and the remaining 5,844 from other countries. This brought the above mentioned positive migration inflow to a record high of 18,494 in the last decade.
Evidently the number of incoming migrants in Belarus peaked in 2015 due to the war breaking out in neighbouring Ukraine. However, state authorities like to attribute this increase not so much to the war as to the improving investment climate and economic attractiveness of Belarus.Ukrainians and migrants from other CIS countries adapt well to Belarusian society: they are white Caucasians, mostly Christian, and speak Russian. In other words, they integrate well.
However, in order for the migration ratio to remain positive, Belarusians need to want to stay in their own country. According to Belstat, 9,855 people permanently left Belarus in 2015. And yet, destination countries’ statistics paint a totally different picture.
1.3 million or 453,479 Belarusians resided abroad in 2014. They represent respectively 14.4 per cent or 4.8 per cent of the overall population of 9.5 million. The huge difference between the two estimates depends on whether migrants residing in Russia are counted according to their country of birth or citizenship respectively.
Labour Migration Flows
Ageing and depopulation pose major threats to Belarusian economic security. Migration may help alleviate some of the problems associated with it, but then it requires a special type of migrant, a labour migrant.
According to the Ministry of Interior data, 31,770 foreign citizens received employment in Belarus in 2015. And yet Belarus continues to struggle on this front. The problems include not only attracting qualified labour migrants and retaining them, but also providing them with long-term employment as opposed to one-off contracts.
This number represents a decrease from the 37,868 foreigners registered to work in 2014. The Ministry of Interior attributes the decrease to “the stabilisation of the situation in South-Eastern Ukraine”. 14,045 Ukrainians applied and received official work authorizations in Belarus in 2015.
Next after the most numerous cohort of Ukrainians came 7,225 citizens of China, 2,209 Russians, 1,707 Uzbekistanis and 657 Turks.
Workers from the CIS, China, and Turkey mostly find employment in manual jobs, while the far less numeorus highly skilled workers come predominantly from the neighbouring Baltic States. For now it seems Belarus has no competitive advantages in attracting and retaining high-skilled foreign labour. Neighbouring Poland is attempting to lure the young labour force, and recently introduced the so-called "card of the Pole". What Poland has to offer includes eventual access to other European countries and freedom of travel.
Maybe Belarus should focus on retaining its own talents instead. The Ministry of Interior registers the outflow of labour migrants but only those who choose to provide signed employment contracts. In the past year, 6,328 citizens submitted such information to the Department of Migration, the bulk of these 5,359 travelled to work in Russia. Certainly nothing prevents people from leaving Belarus in search of employment abroad on their own without registering either in their home or destination country.
Other Migration Trends
While Europe struggles with thousands of refugees and migrants from Syria and the rest of the Middle East, Belarus remains a country of transit. A total of three Syrian families with 6 adults and 8 children resettled to Belarus in 2015. They found their new home in Homyel.
Since 1997 Belarus has granted refugee status to 910 people from 19 countries according to the UN Refugee Agency (UNHCR). 2015 saw an increase in the number of asylum seekers, again most of them from Ukraine.
Since the 1950s the urban population of Belarus has steadily increased. Currently more than 75 per cent of Belarusians live in towns and cities. Every third Belarusian resides in Minsk or Minsk region. According to the UN forecasts this trend will continue, with the urban population expected to reach up to 80 per cent by 2030.
Interestingly, people in the cities tend to live five years longer than people in rural areas, at 74.4 years and 69.6 years respectively. Hopefully for Belarusians, urbanisation promises longer and more satisfactory lives with better social and medical care.
The national programme appears out of touch with reality, at least in terms of the migration component. If the Belarusian authorities do nothing, 70,000 new migrants are likely to arrive in Belarus in the next five years. The ultimate goals should include attracting a highly skilled labour force and retaining native talents. Respective legislation adjustments, economic reforms and promising investment opportunities could improve Belarus' image for younger, highly skilled labour migrants.
Meanwhile Belarus remains a highly homogenous urban society with almost 84 per cent of the population identifying as Belarusian, followed by 8.3 per cent identifying as Russian. The current population of Belarus totals roughly 9.5 million. The migration trends described above will hardly reverse that in the coming years. Few refugees from the Middle East or Asia regard it as a country of destination. Unfortunately, even fewer highly skilled labour migrants view Belarus as a viable option for work and living.