Economy Ministry: 4 pillars to achieve USD 600 average salary in 2013
The Belarusian government has projected the average wage in the country at USD 600. However, a detailed analysis of the factors that potentially will make this projection a reality casts doubt whether this aim is achievable.
On September 20th, at a briefing by Economy Minister Nikolai Snopkov on current issues of Belarus’ economic development he attempted to justify Lukashenko’s plans for the average salary at USD 600 in 2013.
Before the end of 2012, the Government plans to increase wages by 20.3%. January - July data shows that the growth in labour productivity lags behind the wages growth by almost twofold (5.1% productivity growth, 10.5% growth in real wages). Preliminary data shows downward trend in the labour productivity in the economy.
Evolutionary enterprises’ development is the basis for the productivity growth according to the Economy Minister.
1. Increased production capacities load. The focus is on the development of the production capacity in the processing industry. Major industries, generating the value added flows are chemical production and processing, which have little or no spare capacity. In 2012 refinery has been loaded up to 100% and fall in the potash production capacity is a consequence of the deteriorating situation in the foreign markets. Food production in Belarus after the Russia’s WTO accession may face increased competition and as a result, even the available spare capacity may be underused.
2. Increased number of new enterprises. It is anticipated that new enterprises will generate a new stream of value added and will redistribute the labor. Building of new enterprises per se, does not guarantee the achievement of the sales targets. Government’s justification concerning the reduced employment at existing enterprises also not guarantee that at the same time the existing production volumes at the existing facilities will be preserved.
3. Small and medium enterprises will generate 45-56 thousand new jobs. According to the National Statistics Committee, in 2009 – 2011 the average number of employees in SMEs decreased from 1243 thousand to 1223.3 thousand. The average wages in the SME sector are lower than the national average, which is associated with the tax optimization schemes widely used by businesses.
4. New programs in agriculture. A lion’s share of the agricultural production output is aiming for the Russian market. However, for the next year Russia meets its demand for poultry meat. Belarus has almost no access to alternative markets. Moreover, there are local conflicts in certain sectors, particularly in the dairy industry. There is no guaranteed market demand for new products.
Thus, all four factors are rather controversial, than guaranteed. Provided that Belarusian economy is focusing on one major market, the average wages at USD 600 depend more on the market demand by the largest trading partner, rather than the government’s efforts in this regard.
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.