Belarusian authorities plan to re-industrialise economy to support employment
The Belarusian authorities are being prompted towards re-industrialising the economy and preserving a large public sector at the expense of Chinese loans. Apparently, the industrial lobby took advantage of the authorities’ fear of social instability amid growing unemployment. If plans for a large-scale industrial modernisation materialise, the authorities will abandon structural economic reforms.
The state is planning to invest in MAZ and BATE USD 500 million each and USD 645 million in Gomselmash.
In all probability, the industrial lobby has convinced the president to accept their vision of how to ensure employment for unoccupied human resources. Following protests against the decree on social dependants in February-March 2017, the Belarusian leadership was vigorously seeking ways to reduce the unemployment rate, which could, in the authorities' opinion, relax tension in society and prevent open discontent with socio-economic policies. Nevertheless, according to Belstat, in April 2017, layoffs outnumbered hires (53,815 people vs. 46,206), regardless of the mobilisation of the entire state apparatus to ensure maximum employment.
That said, after industrial modernisation derailed in Belarus in 2012-2014, the authorities revised their approaches and abandoned massive investment in state enterprises at the expense of the state. Most likely, some emerging signs of economic recovery in Q1 2017 (export grew by 20.7%, inflation at 1.7%) have influenced the authorities’ expectations and prompted them to resume large investments in state enterprises .
Apparently, the Belarusian leadership has decided to re-industrialize the economy and retain a large public sector in order to control the labour movement. In addition to large-scale investments in the existing production, the authorities are creating or planning to create new large-scale productions, most likely, with Chinese loans. For instance, BelJI plant, which would assemble Chinese Geely cars, has almost completed construction; its estimated production capacity is some 60,000 cars per year. In addition, Amkodor Holding is planning to build a new plant in Belarus to produce automotive and municipal equipment with USD 300-350 million investment.
Overall, the authorities are ready to disregard the growth in warehouse stocks at industrial enterprises for the second month in a row, the non-competitiveness of the Belarusian industry and the losses of industrial giants (MAZ, MTZ, etc.) over the past few years, in order to preserve social stability and high employment.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.