7th Investment Forum confirmed the foreign investment plan’s unenforceability
The Investment Forum, held in Minsk on November 15th – 16th did not result in a significant number of investment agreements. Investors are not interested in declarative statements and the situation with “Spartak” and “KOMMUNARKA” describes the private property situation in Belarus better than words.
On November 15th -16th, 2012 Minsk hosted 7th Belarusian Investment Forum.
There are supporters of foreign investments among the Belarusian officials. The National Agency for Investment and Development has been set up. Substantial benefits are provided to those who set business in small towns (decree No 6 of May 7th, 2012). Belarus has improved its rating in “Doingbusiness-2013”. Frameworks for the production activity in the Sino-Belarusian Industrial Park have been identified.
Some investment projects were presented during the Investment Forum. There were 600 Forum participants. However, only 12 agreements with insignificant amounts came as Forms’ results, which indicates business’ suspicion after “Spartak” and “KOMMUNARKA” were de facto nationalized. Even the attractive conditions in small towns have not made businesses excited about active investment in Belarusian economy.
Looking at a bigger picture, Belarus has not been successful in attracting investment: the 2012 plan, envisaging sales of state assets worth USD 2.5 billion, failed. Belarus’s attempts to sell MTS shares were unsuccessful. Establishment of a joint holding “Rosbelavto” is hampered for political reasons.
The reasons behind each failed ‘investment case’ vary, but in the end, Belarus’ very modest success with attracting investment is due to excessive control over commercial activity of enterprises, on the one hand, and leadership’s high expectations from investors, on the other hand. Indirect discussions between the President and the Prime Minister during the Forum demonstrated that in the end, it would be the President who would make the final investment decision regardless of the government’s position.
Thus, even if reduced to USD 2 billion, 2013 investment plan without high level support is yet another declaration of intent not supported by real projects. Potential large investors are well aware of peculiarities of investing in Belarus and prefer to invest in countries with a more predictable investment climate. Belarus therefore can only hope for investors willing to take risks, but they, as a rule, do not invest in long-term projects.
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.