Belarusian Economy: Challenges and Gains

In the first half of 2017, Belarus’s economy finally overcame its 2.5-year-long downward trend (EurasiaExpert, August 31). Thus, Belarus’s gross domestic product (GDP) has increased 1 percent compared with the first half of 2016. Industrial output increased 6.1 percent and retail sales—0.7 percent. In the past, the International Monetary Fund (IMF) repeatedly criticized Belarus for wages growing faster than labor productivity. It appears that this disproportion was overcome as early as 2014: during the period of economic decline, earnings were actually declining slightly faster than labor productivity. Whereas, during the first half of 2017, both indicators were increasing in unison. Belarus’s industrial growth has been particularly strong in machine building, wood processing and the chemical industry. The two most positive outcomes of 2017 have been 1) the shrinkage of stockpiled industrial products and the reduction of their ratio to overall monthly output, and 2) the proportion of so-called innovative products in the economy. The geography of economic growth reflects a contrasts between east and west, with the regional economies of Minsk, Brest and Grodno growing, while Mogilev and Vitebsk continue to contract.

Between January and July, Belarus’s international trade balance was positive ($420.5 million), and merchandise exports increased by 21 percent. However, merchandise imports ($14,270 million) still exceeded exports ($13,258 million), though not as much as in 2016. It is therefore the services sector—for the most part transportation and information technology (IT)—that is more than offsetting this deficit. The share of the Eurasian Economic Union (Russia for the most part) as the destination of Belarus’s exports is 47.4 percent; the European Union accounts for 26.7 percent; and the rest of the world accepts 25.9 percent of Belarusian exports. The proportion of the respective areas as origins of Belarus’s imports are 57.6, 19.3 and 23.1 percent. It appears, however, that positive dynamics of Belarus’s merchandise exports are largely due to a 19.2 percent increase in the average prices of its exported goods (such as potash, bitumen mixtures and heavy trucks); physical export volumes during this period grew by merely 3 percent.

The weakest aspect of the economic recovery and of Belarus’s economy at large is investment in fixed assets—i.e., property, plants and equipment. In the first half of 2017, investment actually declined by 3 percent compared with the same period in 2016. The ratio of investment to GDP is only 17.4 percent—below the level of economic security (EurasiaExpert, August 31). This situation contrasts with that of the countries of Central-Eastern Europe, reportedly “colonized” by Old Europe. In Poland, whose economy is ten times larger than Belarus’s, foreign (mostly Western European) investment accounts for 40 percent of its GDP; in the Czech Republic—for 60 percent; and in Hungary—64 percent. For this very reason, some analysts have argued, Hungary’s and Poland’s populist, anti-immigration and Euroskeptic trends cannot possibly gain the upper hand in the long run (Bloomberg, September 12). “Politics” as Vladimir Lenin famously declared, “is the concentrated expression of economics.” If this is true, as seems to be the case, then the means to transform Belarusian politics looks clear. Incidentally, James Collins, the former US ambassador to the Soviet Union and Russia (1990–1993), recently opined that Belarus’s advantage is that it “can take a look at the mistakes of Ukraine […] and not repeat them. Belarus ought to develop […] in such a way as not to be at loggerheads with either Russia or the West. You should not try to be West or East, rather you should be both” (Tut.by, September 7).

One may hypothesize that Belarusian authorities would love to be “colonized” the way European neighbors have been. But structural dependency—magnified by cultural and geographic proximity to Russia as well as the geopolitical self-restraint and the inertia of the West itself—have not allowed this to happen thus far. President Alyaksandr Lukashenka, however, keeps knocking on Europe’s door. On September 13, he met with the president of the European Bank for Reconstruction and Development (EBRD) and discussed aid by the latter in the areas of small- and medium-sized business development as well as in the construction of the so-called southern transportation corridor to deliver goods from China, Central Asia and Russia to Europe. Within Belarus, this corridor means a section between Gomel and Brest. In 2017, the EBRD will invest $200 billion in Belarus (BDG, September 14).

Belarus is indeed in dire need of not only Western investment but of Western credit lines, too. The state debt, primarily to Russia, is now $15.6 billion or 40.4 percent of Belarus’s GDP—higher than ever since obtaining independence from the Soviet Union. In late August, the Russian government decided to issue a new $700 million loan to Minsk to refinance its old debt to Moscow (RT, September 13).

It is not entirely clear how Belarus’s future nuclear power plant as well as Moscow’s strong recommendation that Belarus export its refined oil products via Russian (rather than Latvian or Lithuanian) Baltic seaports will affect the Belarusian economy. As for the latter, Deputy Prime Minister Vladimir Semashko recently referred to the “absence of blackmail and ultimatums” from the Russian side. And yet, even with significantly discounted transportation tariffs proposed by Russia, Belarus is still projected to sustain losses if it abandons its current itineraries via Lithuania and Latvia (Tut.by, September 15). As for the power plant, the prospects of its close integration into the Belarusian economy will also require a large additional investment. Switching industrial technologies and communal utilities from natural gas to electricity appears costly; as does the potential creation of direct-current links between the power line networks of the Eurasian Union and the EU. The latter are required because the Baltic States plan to disconnect from a single energy link with Russia and Belarus—a legacy of the Soviet Union—by 2025 (Tut.by, September 4), so their power grid will soon operate on a different frequency.

By all accounts, then, transforming the multiple liabilities of Belarus’s “in-between” location into advantages is a most important challenge facing Minsk over the coming years.