Economic Aspects of Lukashenko’s State of the Nation Address

In his annual State of the Nation Address to the Belarusian People and the National Assembly, Alexander Lukashenko touched upon economic policy issues, privatization of state –owned assets, increase in wages and attraction of foreign investment. No fundamental changes in economic policy are to be expected in the coming years as long as reduced prices on imported energy are maintained.

To modernize the Belarusian economy, Alexander Lukashenko suggested attracting resources from both Belarusian and foreign investors more actively (including direct foreign investment). The President expressed willingness to consider an amnesty of the capital in order to engage in the official economic turnover funds of Belarusian residents that are either “hidden” or located offshore. However, according to Lukashenko, “the wall of bureaucracy and indifference which the investors have to face in executive committees and ministries puts off any intent to invest”.

For reference.

According to the National Statistics Committee, the net inflow of foreign direct investment in the first quarter of 2012 increased as compared to the same period in the previous year by 25.1% to USD 486.207 million. In the first quarter of 2012 the bulk of FDI on a net basis came to Belarus from Russia, Cyprus, the USA, the UK, Germany, Lithuania, Finland, Poland, Latvia, Austria, Czech Republic, Sweden. In addition, in the period under consideration, a net inflow of FDI came from international offshore areas (Cyprus, Belize, the British Virgin Islands, Bahamas, Gibraltar, Dominica, Liechtenstein, Luxembourg, Marshall Islands, the Isle of Man, Panama, Seychelles, St. Kitts and Nevis).

Alexander Lukashenko once again said that any company can be privatized in Belarus on certain terms (saving jobs and providing full social benefit for the employees). Therefore, due to inflated prices and the additional burdens, foreign investors are very cautious in their outlook for the purchase of Belarusian assets or entering into capital of Belarusian companies.

On the other hand, while maintaining favorable prices for the energy imported from Russia, the Belarusian authorities are in no hurry to privatize state assets. According to Alexander Lukashenko, the Belarusian side is in no hurry to privatize JSC “MAZ” (Minsk Automobile Plant) with the participation of the Russian State Corporation “Russian Technologies”. In this particular case, the Russian holding company is not satisfied with the price of the asset which Belarus has offered (about USD 1.095 billion). Also, the Belarusian authorities are reluctant to sell a controlling stake in the company.

In the address, Lukashenko also expressed willingness to privatize even JSC “Belaruskali” (Belarusian Potash Company). He voiced a new price of USD 31.5-32 billion, although previously it had been USD 30 billion). “If there are those who are willing to come, come. Nobody is willing. If they do not wish to come, it is totally up to them. The company is working, people are paid salaries, we trade more potash fertilizers than any other company in the world”, the President added.

For reference.

According to the National Statistics Committee, the production of potash fertilizers in Belarus in the first quarter of 2012 decreased as compared to the first quarter of 2011 by 12.1% to 1.269 million tons. Belarus’ exports of potassium fertilizers reduced in the first quarter of 2012 by 1.8 times to 688 thousand tons. In value terms, exports of potash fertilizers in the January-March of the current year decreased by 32.4% to USD 519.992 million. The average price of potash fertilizers has risen in the first quarter of 2012 as compared to same period last year by 20.1% to USD 755.8 dollars per ton.

Alexander Lukashenko remarked that as the time will soon come when Russia, Kazakhstan and Belarus will join the World Trade Organization, Belarusian producers will have to compete not only with their partners in the Single Economic Space.

However, the President admitted that the European Union is an important economic partner of Belarus (the export of Belarusian goods to the EU holds the first place, and the volume of foreign trade in goods is second to Russia).

For reference.

According to the National Statistics Committee, the volume of foreign trade between Belarus and the EU in the first quarter of 2012 increased as compared to the same period last year, once by 59.6% to USD 7.578 billion. Exports of Belarusian goods to the EU increased also increased in the same period by 2.1 times up to USD 5.753 billion. Imports of goods from the EU to Belarus fell by 7.3% to USD 1.825 billion. As a result, a positive trade balance in goods with the EU countries increased by 4.9 times, from + USD 809.4 million in January-March 2011 to + USD 3.928 billion in January-March 2012.

The share of the EU in the structure of foreign trade in goods (turnover) of Belarus in the first quarter of 2012 increased to 33% as compared to 25.4% a year ago. The share of the Belarusian export of the EU in January-March of 2012 equaled 48.6% , while the share of imports comprised 16.4%.

Lukashenko also talked about the necessity to restore the pre-crisis level of earnings so that by the end of the year, salaries would reach the sum of USD 500. The President’s statement aimed to reduce social tension and limit the outflow of skilled labour force to foreign countries, primarily to Russia.

The current level of wages in Belarus is one of the lowest in the region. According to National Statistics Committee, the average nominal monthly wage in March 2012 amounted to USD 387.30, which roughly corresponds to the average figure for May-June 2010.

Figures to compare: the average monthly wage in Ukraine amounted to USD 363.50 (data for March 2012), in Kazakhstan – USD 680.60 (March 2012), in Lithuania – USD 849 (fourth quarter of 2011), in Latvia – USD 873 (fourth quarter of 2011), in Russia – USD 901.40 (March 2012), in Poland – USD 1188.50 (data for the industrial sector in March 2012).

The average wage in Belarus reached its historical record in December 2010 – USD521.20. However, it must be stressed that during this period of time the purchasing power of the U.S. dollar declined. Therefore, even if the average salary in Belarus in December 2012 amounts to USD 500, it will still be premature to talk about the restoration of the pre-crisis level of purchasing power of the Belarusian people.