Impossible becomes possible
[b]In 2010, Belarus’ GDP should grow by 11-13 percent — as approved by Presidential Decree. experts agree this is more than just an ambitious goal[/b]In 2009, the country’s GDP rose by just 0.2 percent and foreign markets are likely to see gradual revival rather than rapid growth. Meanwhile, the Russian Government is keen to reconsider terms for the supply of oil to Mozyr Refinery and Novopolotsk’s Naftan. This could damage Belarus’ economic interests so we must be ready for post-crisis growth to require much effort. Nevertheless, the Government and the National Bank are optimistic. “The target prognosis is realistic and achievable,” stresses Piotr Prokopovich, the Chairman of the National Bank.
In 2009, the country’s GDP rose by just 0.2 percent and foreign markets are likely to see gradual revival rather than rapid growth. Meanwhile, the Russian Government is keen to reconsider terms for the supply of oil to Mozyr Refinery and Novopolotsk’s Naftan. This could damage Belarus’ economic interests so we must be ready for post-crisis growth to require much effort. Nevertheless, the Government and the National Bank are optimistic. “The target prognosis is realistic and achievable,” stresses Piotr Prokopovich, the Chairman of the National Bank.
“The presence of mobilising indices for 2010 is the correct decision, since they’ll help legal entities utilise the economic possibilities offered by the market,” believes Belarus’ Deputy Prime Minister Andrei Kobyakov. In turn, the Belarusian State University’s Economic Department Dean, Mikhail Kovalev, explains, “In my view, the major goals of the country’s economic development are real. However, it’s important not to equate them with formal figures of growth — which could lead to growth of warehouse stock, rather than income.”
These assessments look promising but what are the concrete arguments? Let’s look more closely.
Stake on investments. Comparing the basic scenario of economic development with the target set by the President (based on increased indices) in autumn 2009, Mr. Prokopovich notes that the two differ in three areas. Firstly, the target scenario plans to attract $2.8bn more foreign investments. Secondly, it presupposes the construction of a further two million square metres of accommodation. Thirdly, the growth of exports should exceed growth of imports by 10 percent (compared to 6 percent in the basic scenario).
Investments are a key factor in ensuring the dynamic GDP growth, since they stimulate GDP-forming branches — such as construction — alongside export growth. However, to what extent is the inflow of foreign capital happening?
The Belarusian Investment-Economic Forum — held in Minsk last November — demonstrated how much interest foreign businessmen have in our country. The National Library — which hosted the event — gathered so many guests that additional chairs were needed; 450 foreign participants from 60 countries were able to find out about opportunities for investment here. “Previously, it was mainly scientists and the public attending such events. Now, we are seeing real companies and manufacturers attending,” notes Mr. Kobyakov, adding that foreign investors are showing healthy interest in Belarus.
The First Deputy Director of the National Investment Agency, economist Georgy Grits, also notes increasing interest from foreign businessmen. “People are arriving with concrete projects worth hundreds of millions, even billions, of dollars. This is real, rather than virtual, money,” he tells us, adding that Belarus’ attractiveness rose significantly after having signed the Customs Union agreement with Russia and Kazakhstan. “Those opening production in Belarus have access to a market far larger than ten million,” Mr. Grits stresses.
He notes that investors are taking into consideration Belarus’ positive movement within the World Bank’s Doing Business annual report. Responding to the question of how foreign companies feel about the national tax system being so unwieldy (as recognised by external authorities) he asserts, “It’s not perceived as a problem or a barrier. Special tax preferences are applied to investors realising innovative import-substitution projects. Their tax regime is simplified and privileged. Once they realise this, they ignore the ratings.”
Mr. Grits’ views are interesting, “It’s possible to achieve our investment targets regarding basic capital (an additional 23-25 percent) from foreign inflow alone. This is not mere optimism but a real assessment. It’s important to correctly build relations with foreign businesses, creating efficient stimulus.” Mr. Grits notes, “Sales of oil, potash fertilisers and ferrous metals bring in foreign currency. Why shouldn’t we build our transport-logistical potential? We are a transit country. Logistical centres still exist only on paper; for them to become real, we need to set up a system of preferences for the development of the new sector of the economy. Once this is done, we’ll see additional hundreds of millions of dollars entering the country. This is an area where foreign capital could be attracted.”
Privatisation, salaries and prices. Nikolai Snopkov, Belarus’ new Economy Minister, has proposed a package of measures stimulating economic growth for 2010. He believes investments are needed not only to stimulate production but to manage existing factories more effectively. According to Mr. Snopkov, privatisation of state-owned property currently accounts for only 12.5 percent of the plan (via the sale of shares); other property accounts for 12.2 percent. “No real reimbursement has been received yet,” he stresses.
The Economy Ministry says that, in 2010, legislation in the field of property privatisation should be improved — proceeding from national needs, foreign experience and recommendations from international financial organisations. The list of objects to be privatised is to be expanded, with state property used more lucratively. State owned buildings could be given freely to companies and individual entrepreneurs on the condition that they create new jobs.
GDP growth should be stimulated by liberalising prices and salaries. Speaking of prices, it’s worth mentioning that, in October 2009, the Economy Ministry slashed the number of products whose mark-ups are regulated by the state. Trade networks viewed the measure with approval, since it gave them greater room for manoeuvre. Meanwhile, the business community had mixed feelings. “Relaxing trade prices is a logical, market step,” notes Georgy Badey, the Chairman of the Business Union of Entrepreneurs and Employers named after Kuniavsky. “However, manufacturers and service providers should be freed from the existing tough calculation of expenses. The market law of supply and demand should become the major factor influencing price.”
Mr Badey adds, “Prices for accommodation at our hotels are fixed yet, in most countries, they fluctuate depending on demand — rising during high tourist season and for festivals. During ‘dead’ seasons, prices are reduced to attract guests. Flexible pricing could lead to fines for our hotel business.”
The Economy Ministry admits that the established system of administrative price regulation could be improved further, despite recent positive changes and liberalisation. Work continues and Mr. Snopkov notes that, in 2010, basic provisions regarding costs being included in the prime cost of goods could be abolished. Additionally, we should see the list of products and services whose prices and tariffs are regulated by the state being cut drastically. The requirement to compile an economic substantiation of applied prices and tariffs is likely to see gradual abolishment. The Minister adds, “These will significantly simplify the work of companies’ economic departments, while cutting document circulation and expenses. Importantly, they’ll be allowed to set prices with more flexibility, depending on productive necessity and the market situation.”
Salaries for managers will also gain more flexibility, with bonuses and social packages applied from February (alongside other schemes of encouragement). The Economy Ministry advocates that the heads of state-run companies take more responsibility for economic results. Salaries of production related managers could be linked directly to output.
These mechanisms could help achieve high GDP figures. Of course, Belarus’ open economy relies heavily on external factors. Rising demand on foreign markets and a fully-fledged Customs Union could ease the Government’s task. “Logically, the Union should raise sales of Belarusian products,” stresses Mr. Grits. “Our agricultural manufactures are competitive on the Russian market but, until recently, have faced artificial restrictions. We hope these will become a thing of the past in 2010.” The Customs Union opens doors to machine builders. “Our customs fees on foreign trucks and heavy-duty dump trucks are higher than in Russia or Kazakhstan. The shift to a single customs tariffs will give Belarusian machinery easier access to Russian and Kazakh markets,” he explains.
In contrast, Russia’s desire to engage in energy relations beyond the Customs Union’s borders — as became clear in January — could turn the Union on its head. The single economic space presupposes equal conditions for the three states’ companies; to lose this negates the purpose of the Union. With this in mind, Mr. Grits’ assertions seem logical. He notes, “In 2010, we must rely not on external factors but on internal resources, using them to the utmost.”
By Vitaly Volyanyuk
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