The structure of Belarusian economy. Following the break-up of the Soviet Union in 1991, Belarus opted to introduce liberal and economic policies

Following the break-up of the Soviet Union in 1991, Belarus opted to introduce liberal and economic policies, ending price and currency controls, withdrawing state subsidies and liberalizing trade. Belarus switched to a model often described as the social market economy. Therefore it has retained a form of centralized power, keeping many of the facets of a command economy, including a high level of government involvement and a low private sector share in GDP.

To date this model of transition has been effective. Economic growth has generally been robust and stable, with GDP BYR136bl in total and almost BYR14ml per capita (2009). Belarusians have maintained a comparatively high quality of life by all key measures, with a highly regarded education system and health care, and a functioning infrastructure.

In 2009 export accounted for 50,7% of the country’s GDP, while import contributed 62,1% to the GDP.

According to the European Bank of Reconstruction and Development and the World Bank, in 2006, 66% of residents were satisfied with their quality of life, with only 13% discontent. The economy of Belarus is characterized by growth and steady performance.

WORKFORCE

Approximately 4,5 million people contribute to the economy.

Belarus’ population is mostly employed in industry (about 26% of total employment), retail trade and servicing (15%), education and agriculture (nearly 10% apiece) and construction (about 9%). More than 70% of the labour force works at state-controlled enterprises.

According to official statistics, unemployment has remained very low (around 1%) for the past few years.

RESOURCES

Arguably Belarus’ greatest natural resource is its geographical location. We have large forest and water reserves. Belarus is well positioned in terms of natural resources for food and beverage production, oriented towards internal demand, and woodworking.

Belarus possesses the world’s largest reserves of potassium salts for production of potash fertilizers, and peat, that are mainly exported. Among the other minerals are food salt, construction materials (chiefly limestone, dolomite, gravel, fire resistant and refractory clay, loam and quartz sand, used locally) and small deposits of gold and diamonds.

Due to its comparatively low reserves of strategic resources such as iron ore, coal, petroleum and natural gas, Belarus has historically specialised in processing.

ENERGY

The major threat to the stability of the Belarusian economy is a price hike of energy resources supplied by Russia.

Since 2007, the terms and conditions of oil and gas supply to us have changed substantially. Firstly, the gas price has doubled and further price increase were scheduled by the contract, assuming world price levels until the end of 2011. Secondly, export duties were imposed on crude oil piped into Belarus, as well as an obligation to establish the same level of import duties on oil and oil products as in Russia. Belarus is currently searching for alternative and renewable energy resources.

INDUSTRY

Processing industry makes up 25.3% of GDP. It is dominated by machinery and metalworking.

The other main branches have been engineering (the production of technology for agriculture and specialized heavy vehicles) and refining. The production of different types of commercial vehicles (mostly tractors and dumper trucks), in addition to oil refining and petrochemicals activities account for more than 75% of Belarusian exports.

Belarus Potash Company controls around a 30% global market share. BelAZ is a major manufacturer of haulers and earthmoving equipment for mining, quarrying and construction applications. Minsk Tractor Works (employing 30,000) offers a wide range of special-purpose vehicles for logging and forestry, municipal services and mining, as well as loaders. Minsk Automobile Plant produces heavy trucks, buses, trailers and special vehicles. Belarusian Steel Works is a major steel mill, over 85% of which production is exported. Gomselmash manufactures fodder-picking combines and multi-functional agricultural machines.

Belarusian mechanical engineering offers a wide range of sophisticated consumer goods such as TV sets, refrigerators and washing machines. We are known abroad by instrument making, electrotechnical, radio-electronic, optical, chemical and petrochemical, wood-processing and cellulose-paper industries.

Industrial opportunities of the light industry are focused on producing flax fiber; washed wool; cotton, woolen, volumetric, staple, linen, and silk yarns and fabrics; carpets and carpetware; nonfabric materials; sewing threads; textile dry goods; knitted products; stockings and socks; sewed and corset, leather, fur and artificial products; footwear; zippers, etc.

Increase in food production contributed to food export growth. More than 60 meat processing plants and more than 100 milk processing plants exist in Belarus. Food products are exported mainly to the CIS countries (over 80%), while far abroad countries import around 17% of food produced in Belarus. Belarus is a net exporter of meat, sugar beet, dairy and confectionary, alcohol beverages and soft drinks, brewery malt, endocrine raw materials, salt etc. At the same time Belarus imports food products from over 30 countries. Belarus imports tinned fruit and vegetables from Southern countries, sugar, vegetable oil, wine, cognac, fish and see food products, tea, coffee, spicery.

The core of construction industry is made up by the companies producing construction materials, glass and faience, forestry and woodworking, engineering and metalworking. It contributes 10.7% of GDP. The Belarusian construction materials sector benefits from the construction boom, supplying materials in the domestic market, Russia and Europe.

BANKING AND FINANCE

Banking system in Belarus consists of the National Bank of Belarus and 32 commercial banks, most of which are either joint-stock or limited-liability companies. The three state-owned (Belarusbank, Belagroprombank, and Belinvestbank) control more than 70% of the market. Within the top-five, foreign banks (Sberbank and Raiffeisen international) are now counted. The biggest private bank is Trustbank.

A securities market and stock exchange are also functioning. The major market instruments are: shares, bonds, bills, and derivatives. Foreign investors are actively looking for opportunities in the Belarusian insurance sector.

National currency from 1994 is Belarusian rouble (BYR). The NBRB devalued it by 20% against the dollar in 2009. The exchange rate is:£1 = BYR 5,100; US$ 1 = BYR 2,970; € 1 = BYR 3,980 (January 2010).

TRANSPORT

Transport and communication aggregate for 8,9% of GDP. Belarus is a highly attractive place for investment in development of warehouse and transport logistics.

The automobile public transport, public railways, navigable rivers, and well-equipped airports are at the disposal of passenger and fright transportation.

AGRICULTURE

Agriculture has a 6-8% share in the Gross Domestic Product. Agricultural areas occupy around 7.7 ml hectares (30% of the total country land area). The average number of people employed in agriculture is more than 400 thousand, accounting for around 10% of the total labour force of the Republic of Belarus.

Agroindustrial complex of Belarus includes agriculture (plant-growing and animal husbandry), manufacturing industry (food manufacture, flour-and-cereals and mixed feed, flax preprocessing), service sector (production engineering, reclamation, land-planning, science, agrochemistry, veterinary science, construction, trade and other types of services).

Agricultural enterprises in Belarus are mainly specialized in crops, meat, dairy and poultry production. The country can be divided into three agricultural regions: north (flax, fodder, grasses, and cattle), central (potatoes and pigs), and south (pastureland, hemp, and cattle). Belarus' cool climate and dense soil are well suited to fodder crops, which support herds of cattle and pigs, and temperate-zone crops (wheat, barley, oats, buckwheat, potatoes, flax, and sugar beets). Belarus' soils are generally fertile, especially in the river valleys, except in the southern marshy regions.

Growth rate of agricultural output in 2006-2008 was 11,9 %, compared with average annual output for previous 5 years. Agricultural output in 2009 in current prices amounted to BYR 26,5 trillion, representing a 1,3 % year-on-year increase. Dairy production sector evidences good performance in the agricultural sector. For the years 2006-2008 agricultural enterprises almost doubled dairy production output and milk cows productivity, keeping the number of milk stock at 1,2 ml heads.

With a view to enhance efficiency of agricultural production and make products more competitive, the significant attention is paid to the improvement of forage reserve and selection work,increasing proficiency of top management and personnel, strengthening of work discipline at agricultural enterprises.

Trade and catering stand for 10,7% of GDP.

Net taxes make up 14,1%, and the remaining sectors add 22,5% to the GDP.

BALANCE OF PAIMENTS

Belarus’ foreign in goods has been in deficit for the past 15 years, partially covered by a surplus in the trade of services (revenues from gas and oil transit). The capital and financial account of Belarus’ balance of payment were run with a very minor surplus until 2007, when FDI and external borrowings notably increased, driven by privatization. We have traditionally executed most of foreign trade with CIS countries. Against the backdrop of the crisis, the Belarusian authorities had to implement a very prudent fiscal policy in 2009, in order to curb demand for consumer goods and to improve the investment climate.

The government has set an ambitious target of attracting $2.5bl from IMF with stand-by arrangement increased to $3.5 bl in 2010.

In 2008 Belarus concluded an agreement with the World Bank for a $200 ml development policy loan.

In addition, the government has signed a bilateral agreement with China for $540ml, Venezuela for $500ml, and $1bl loan from Russia.

BUSINESS CONDITIONS

Since 2007, the Belarusian president and government have implemented a wide range of measures aimed at easing state regulation of business. They are: streamlining the business registration (a one-day policy for entrepreneurs and enterprises), establishing a new land code; easing taxation (in 2009 turnover tax was reduced to 1%); creating a capital market. According to World Bank, for ease of doing business Belarus ranks 82nd out of 183 in 2009, above Spain, Poland, Turkey, Russia. Belarus ranks even higher in the ease of starting a business, and in terms of construction permits.

2. Reread the text again and prepare 10 questions of different types on its contents to ask your neighbour.

2. Try to find the English equivalents to the following Russian expressions:

Распад Союза; выбрать путь либеральной политики; отмена государственных субсидий; социальная рыночная экономика; аспекты плановой экономики; модель переходной экономики; ключевые показатели; поддерживать высокий уровень жизни; рост и стабильность; согласно официальной статистике; водные запасы; производство продуктов питания и напитков; внутренний спрос; калийные удобрения; перерабатывающая промышленность; ценовой скачёк; условия поставок; учитывая мировой уровень цен; экспортные пошлины, взимаемые за поставку сырой нефти; обязательства по установлению равных пошлин; машиностроение и сталелитейная промышленность; переработка нефти; самосвалы для горных работ; карьерная техника; металлургическое предприятие; кормоуборочные комбайны; пивоваренный солод; консервированные фрукты; ядро промышленности состоит; внутренний рынок; государственные предприятия; рынок ценных бумаг; фондовая биржа; страхование; курс обмена валют; складирование и логистика; сельхозугодия; животноводческие хозяйства; пастбища; плодородные почвы; молочные продукты; птицеводство; повышение производительности; торговля и общепит; чистые налоги составляют; платёжный баланс; внешние займы; бюджетная политика; заём на развитие; двустороннее соглашение; целый ряд мер; оптимизация процесса; снижение налогов; создание рынка капитала; земельный кодекс; разрешение на строительство.

3. Define the most difficult of the above expressions to your neighbour.

4. Make up your own sentences using some of the above expressions and read them to the class.

5. Discuss the following questions with your group mates:

1) Do you agree with those who say that firm and consistent position of the Belarusian Government will provide excellent investment opportunities and help to build strong strategic policy and mutually beneficial relations with investors as well as contribute greatly to the positive image of the Republic of Belarus as a reliable and long-term business and investment partner?

2) Are the following features of the Belarusian economy attractive for foreign investors?

- Low competition in many industries.

- Possibility to become a pioneer.

- Privatization opportunities: 70% of Belarusian enterprises are directly or indirectly controlled by the state.

- Highly favourable geographical position of the country.

- Highly developed scientific and industrial potential.

- Highly-skilled and relatively cheap workforce.

3) Can you name some of the disadvantages of the national economy in the current position?

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