Who Benefits From European Sanctions Against Belarus?
This month seven more European states joined the EU sanctions against Belarus. As a result of this year's new extension of restrictive measures target not only officials and politicians but also businessmen. It means that this politicised problem involves clear economic underpinning.
The history of relations between Belarus and the European Union demonstrates how important were economic interests in building political contacts. Relations with Western nations remained cold for over 15 years. Starting in 1996, when Belarus hold constitutional referendum extending the powers of her executive, all major political campaigns in the country have caused harsh criticism from the West.
Belarus Cannot Cut Gas for EU Anymore
Criticism followed attempts to influence Belarusian authorities – usually through targeted sanctions against state officials. Only the United Stated implemented economic measures of influence, but for this country Belarus is neither a neighbour nor a major partner. On the contrary, European nations until very recently did not seriously consider the option of economic sanctions. This March, however, European restrictive measures hit representatives of the Belarusian business.
Why it has happened just now? I would mention two changes which have had the most impact on the situation. First – the sale of Belarusian gas transport firm of Beltranshaz to Gazprom, second – the start of privatisation in Belarus.
The fact that in late 2011 Gazprom has completely purchased the Belarusian gas transport system, undoubtedly, influenced the position of European states on Belarusian issue. Earlier EU countries avoided the deterioration of relations with Minsk fearing the problems with gas transportation through Belarus. Now gas supplies for Europe depend only on Russia, and Europe has first of all to take its interests into consideration.
Sell to Survive
The second development is privatisation. The current economic situation in the country makes selling state-owned assets unavoidable. Today one can say that Belarus has recovered from the 2011 crisis. Through sale of 50% of the Beltranshaz shares, the government has refilled its gold and foreign currency reserves, and the discount for Russian energy resources supplies gained from Moscow positively affects the foreign trade balance.
It does not mean, however, that the systemic problems which have caused the crisis, have been successfully solved. The volume of gold and exchange currency reserves (USD 8.056 billion by 1 June) will suffice for approximately two and a half month of import. For a transition economy like Belarus, this is not enough. Moreover, over the next years the payments due to serve the external debt will reach their highest level. Minsk, most likely, will try to receive a new loan for re-structuring of its debt. And, quite probably, it will receive on condition of privatisation of some of its assets.
Privatisation as such is also a way to get money. Therefore, Belarus has to deal with it anyway in the foreseeable future – and sooner rather than later.
No Money from the West or China
In this context, the question is who will participate in Belarusian privatisation. Participation of the US and EU companies as potential buyers of assets is impossible after 19 December 2010. European companies have interest in purchasing some property in Belarus. Yet, implementation of the EU sanctions against Belarusian companies makes their coming – and modern technologies – less probable.
As for prospects for arrival of investors from other parts of the world, they look gloomy. Chinese entrepreneurs invest real money only in natural resources. Therefore, they would be interested only in something like Belaruskali, yet it is better to refrain from privatising it in the foreseeable future. On other projects, Belarus can expect from China only tied loans which involve investing money mostly in Chinese goods, equipment and labour delivered to Belarus. The opportunities to attract investors from Arab states are also limited as they usually invest the capital in the real estate and hotel business and only extremely rarely – in other projects.
“Regime Purses” or National Business?
Thus, the sole real player to participate in Belarusian privatisation is Russian business. Only Belarusian companies could compete with it. Admittedly, they do not possess such powerful financial resources as Russians. But national business has that doubtless advantage of knowing local specificity, and that can become the additional factor of success.
When the EU compiled a list of “regime purses”, that is the enterprises to be sanctioned or under threat of being sanctioned – it became a hard blow on prospects of Belarusian business participation in privatisation. Among «regime purses» landed owners of such successful companies as "Santa-Impeks", «Amkodor» and «Savushkin Produkt».
These and some other "blacklisted" companies work in competitive markets, created strong new brands in post-Soviet world and jobs in Belarus. They are not simply successfully in their business, but they also actively participate in privatisation. Putting them on the black list deprives them of the option to access cheap European loans and thus increases barriers on their way to participate in privatisation.
Introduction and possible expansion of the European sanctions on Belarusian business turns Russian companies in practically exclusive participants of privatisation in the country. I am not against Russian business, I am for competition. Privatisation in which only large Russian companies participate, actually means absence of competition.
That may result in some serious problems. First, the possibility of uncontested sale automatically reduces the cost of Belarusian assets. Secondly, without competition it is impossible to choose on competitive basis the most efficient investor which will bring not only money, but also new production and management know-hows.
Therefore, from the economic viewpoint the European economic sanctions contradict national interests of Belarus and its European future.
Pavel Daneika is a Belarusian politician, businessman and analyst. He is administrative director of Belarusian Economic Research and Outreach Centre. He served as president of the Institute for Privatisation and Management and as a member of Belarusian Parliament in 1990s.
This original article originally appeared in Russian by Nashe Mnenie and was translated by Siarhei Bohdan. It is a part of a new collaborative arrangement with the Agency of Political Expertise.
Belarusian Privatisation and the Future of BelarusKali
On 22 June Belarusian president asked PM Mikhail Miasnikovich to tackle inflation and ensure that the country’s average salary would reach $500 by the end of the year. In fact, it is not the right time to share oil revenues with the population when authorities badly need free money to repay their foreign debt and modernise the economy.
The Belarusian leadership understands that reforms are inevitable, but they fear to change radically the existing system of power and redistribution in hopes of maintaining the status quo with the help of Russian subsidies. But the more loans are taken and reforms protracted, the more money will be needed to change direction and get on the right track. Russian businessmen are waiting with impatience for Lukashenka to announce that socialism is over and the sale of state property is open.
Prerequisites for Privatization
Authorities managed to overcome the consequences of a large-scale crisis that started last spring. In particular, the first quarter saw a trade surplus of $700m. This indicator became positive for the first time in many years, though this happened only due to Russian oil and gas discounts. Moreover, the National Bank accumulated $7.975bn in gold-exchange reserves by 1 May – enough to pay the country’s import expenses over 50 days. And the inflation rate is going down.
in the wake of parliamentary elections Lukashenka ordered to fulfil populist promises to increase the average salary throughout the country to $500 Read more
But in the wake of parliamentary elections Lukashenka ordered to fulfil populist promises to increase the average salary throughout the country to $500 (in contrast to nearly $250 in January), rather than to continue on with a program of tough fiscal discipline. Thus he made the same mistake as he did before the presidential election in 2010. The economy has not yet demonstrated any breakthrough to justify such a raise in salaries. On the contrary, the production of machinery and electrical equipment fell by more than 12% and stockpiles of goods are rising. It clearly shows that foreign consumers have become less interested in Belarusian products.
Thus Belarus is becoming increasingly dependent on Mr. Putin’s whim. If he wants, the oil discount season may come to an end very soon. And what does he want? He would like to help his friends from Russian business acquire Belarusian enterprises. Terms of the Russian-sponsored $3bn EurAsEc loan entailed the privatisation of $7.5bn of Belarusian state assets over the next 3 years.
The Last Klondike of State Property in Eastern Europe
The officials in Minsk are making attempts to resist the pressure. On 2 May the vice-PM Siarhei Rumas denied the very existence of list of enterprises intended for privatisation. But everybody knows that privatisation is inevitable because Belarus does not possess any other significant sources of revenue. The IMF may possibly know it even better as it waits for repayment of $3.8bn of Belarusian debt over 2012-2014.
the wealthiest Belarusian businessman Vadimir Peftiev sold his enterprise Beltekhexport that came under EU sanctions to a Russian businessman Read more
Today Belarus is the only Eastern European country that has not yet implemented large-scale privatisation. The state owns about 70% of all industries, including metallurgy, oil refining, chemicals manufacturing and many others. As European countries impose sanctions on Belarusian companies, Russian businessmen are waiting with impatience to gain economic control over the country in the centre of Europe. In May the wealthiest Belarusian businessman Vadimir Peftiev sold his enterprise Beltekhexport that came under EU sanctions to a Russian businessman Dmitry Gurinovich.
If the EU’s aim is to assist Russian businessman in acquiring Belarusian state assets, sanctions are probably the best option. Now the biggest Belarusian company Belkali agrees to establish a new potash trader SoyuzKali in Switzerland instead of the existing Belarusian Potash Company that is accounting for 43% of the global market. Who is its partner? It is the largest Russian potash producer, Uralkali, whose management thinks that Switzerland is better than Belarus because of lower "political risks".
So, Minsk or Switzerland?
At the beginning of the deal, Belarus expressed the wish to expand activities of the Belarusian Potash Company, but leave the enterprise on its territory. For example, deputy foreign minister Alexander Gurianov stated on 14 June that "Minsk will preserve important coordinating functions". However, vice-PM Vladimir Semashka said a week later that the Belarusian Potash Company would remain only “for some time with some functions”.
The new trading company SoyuzKali will be created on a parity basis, with each potash producer owning 50% of the shares. But some observers think that Uralkali’s leadership will lobby the Kremlin to approve a structure which would allow it to obtain partial control over BelarusKali without purchasing it.
Though some experts suggest that having a headquarters in Switzerland may help avoid EU and US economic sanctions, it is hardly possible, because the involvement of the Belarusian government in this project is evident. It is rather the intention to benefit from access to funds at reduced interest rates based on the company’s efficiency and not on the low credit ratings of Belarus and Russia.
Possible Privatisation of BelarusKali
BelarusKali, one of the world's largest potash producers, is a valuable asset and several countries stand in a queue for its shares. According to Indian newspaper Business Standard, the Indian government set the purchasing of a part of BelarusKali as one of the priorities of its foreign economic policy. The Kazakh ambassador to Minsk Ergali Bulegenov dropped a hint during his interview to Belarusian TV that Kazakhstan might acquire 25% of BelarusKali shares.
China could also be interested in such a deal given that it buys prominent amount of BelarusKali’s fertilisers and is on good terms with the Belarusian authorities. And there is, of course, Russia and Suleyman Kerimov for whom the acquisition of BelarusKali means becoming the world's number one potash producer and thus overcoming Canada’s Potash Corp.
Vice-PM Semashka suddenly said that authorities would never sell a controlling interest in BelarusKali Read more
However, it is not easy to buy BelarusKali. Lukashenka announced on 8 May that its price is estimated at $32bn. And a week later Vice-PM Semashka suddenly said that authorities would never sell a controlling interest in BelarusKali at all.
Privatisation is Lukashenka’s Nightmare
Although privatisation allows the Belarusian regime to receive vast sums of money to survive, it would change the very essence of the existing power system. It would allow different stakeholders to influence Lukashenka’s policies and put an end to his model of “market socialism”. That is why the authorities are trying to put off any final decision.
A government insider recently told leading Belarusian news portal TUT.BY that the decision to postpone privatisation had been made after the analysis of those who would be potential buyers of Belarusian state assets. According to some estimates, Russia would acquire 80% of the enterprises.
Unfortunately, European and American businessmen do not want to invest in Belarus due to human rights violations and absence of the rule of law. And that’s a pity. Lukashenka will step down sooner or later, but if most of the country is controlled by Russia, there would be no European future for Belarus.