Privatization in Belarus: Neither Ours, Nor Yours

On January 30^th, the State Property Committee collegiums approved only 2 of the 14 privatization projects in 2012.

Privatization in Belarus needs to attract financial resources for production facilities’ modernization. The government is looking for additional internal financial sources. However, large-scale modernization programme and the enterprises’ limited financial capacity to upgrade their fixed assets questions the programme’s implementation without international investors’ inputs.

Currently, Belarusian industry needs modernization. Foreign trade indices suggest that the goods production variety in Belarus is narrow and needs to be extended, which is impracticable with the existing facilities.

If export potential for Belarusian goods remains limited by USD 3.5-4 billion a month, the international trade stability is threatened. Without new products, the industrial production growth is limited, and further wage growth becomes impossible. This situation can result in staffing shortages. Artificial wage growth will result in a repetition of the 2011 crisis.

The modernization requires significant financial inputs. In 2013 it is projected to attract circa USD 4.5 billion in FDI on a net base, but here are no real projects and potential investors. Government’s attitude also constrains privatization. In 2012, of the 14 projects only two minor privatization projects were approved and related tenders were not held due to unattractiveness of the proposed assets. To solve the problem the government could sell minority stakes in large enterprises. However, the sales of state shares are complemented with additional requirements for investors, reducing their attractiveness.

In these circumstances, the controlling state agencies suggest to rely on domestic sources for modernization, without naming these sources. Enterprises’ net profit will not be able to resolve this issue in full, access to bank loans in Belarusian rubles for enterprises is closed due to high interest rates (40% and higher). Currency loans require stable currency earnings, which increases enterprises’ financial risks.

Thus, the enterprises cannot hold modernization at own costs and cannot attract foreign investment due to the government’s excessive vigilance. Therefore, the deteriorating international trade situation can change the government agencies’ attitudes to international funding and facilitate the enterprises’ modernization through privatization.