Foreign trade: export markets’ poor diversification creates problems

On March 18^th, 2013, Belstat published detailed data on international trade in January 2013.

Relative improvement of statistics in foreign trade in January 2013 is temporary. Exports of some large commodities showed shortcomings in the high dependence on Belarus’ largest market – Russia. The issue of diversifying the export market has not been resolved and new problems are likely in the short-term.

According to the National Statistics Committee, in January 2013 foreign trade was negative – minus USD 150.3 million. This value is significantly better than the international trade performance indicators in Q4 2012, when the average monthly negative balance was USD 594 million. International trade indicators have improved largely due to a traditional decline in imports at the start of the year, including decreased purchases of industrial equipment. Resuming the export of potash fertilizers and dairy product sales have helped to improve the situation with a negative international trade balance. However, industrial modernization plans will inevitably result in increased investment imports. Piling up stocks in the warehouses, in view of high import content, require raw materials and energy imports.

In January 2013 the problem of depending on one large market was clearly demonstrated. Truck deliveries fell by 2.5 times compared to January 2012. The reason is that the new truck requirements took effect. Russia accounted for 78% of total exports at the end of 2012. Reduced exports to this market – which is important for truck manufactures – cannot be compensated with supply to other markets in the short term. As a consequence, Belarus’ largest industry – MAZ – reduced its production volumes, built up stocks, and shortened the working week for some employees.

The need to diversify export markets is regularly noted by the government, but the situation continues to deteriorate. The lack of solvent and lubricant exports in January 2013 dramatically increased the share of exports to Russia from 29.4% in January 2012 to 38% in January 2013, even regardless of the sharp fall in truck exports. Exports of other commodities, such as pig livestock, for instance, totally depend on Russian market demand, but after Russia’s WTO accession, these exports have fallen significantly.

Belarus needs to manufacture export-oriented products aiming at different, preferably equivalent markets to reduce the impact of the Russian market on the country’s economy. However such diversification is hampered by Belarus’ approach to investment. Irrational expectations from foreign investors hinder the country’s economic development.