1180 small industrial enterprises in one year
Presidential Decree No 6 has created considerably favourable legal frameworks for the development of small and medium enterprises and provided significant benefits for new businesses. However the Government concluded that these measures failed to make a difference to the regional development. It is a mistake to plan the number of enterprises to be set up and as a consequence, results are neutralized by sabotaging the implementation of such plan.
At a Council of Ministers’ meeting called to discuss the country’s socio-economic development Prime Minister Myasnikovich tasked to create at least 10 enterprises in each region employing at least 50 persons each.
Belarus is divided into 118 districts. To fulfill the order, by 2013 1180 enterprises need to be set up. Moreover, they have to be industrial enterprises. In the beginning of 2012 there were 11667 SMEs (employing 15 to 100 people) in Belarus, 3453 of them were industrial.
Prime Minister has not clarified why there was a need in such a huge number of enterprises. Also there is no indication of funding origin, while setting up one work place is assessed at USD 20-25 thousand. Therefore, in order to implement this task, about USD 1 billion is needed. The task ignores availability of labour force issue and the feasibility of having 10 enterprises in a region.
Private business always calculates its activities’ cost-effectiveness. Therefore the lack of initiative in setting up new enterprise should have been an indication to the government about existence of certain problems with creating new businesses. Instead, the government makes an administrative decision to set up the required number of enterprises.
While trying to fulfill the task, medium and large businesses might face fragmentation into smaller enterprises. Also there is a risk of creation ineffective enterprises, due to the lack of proper business plans and inefficient use of government funds by governmental agencies as local authorities will try to solve the task by seeking funds primarily in the local budget, and focus on quantity parameters rather than effective performance. The best solution would be to repeal this absurd decision or sabotage its implementation.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.