Foreign trade in July: expected results against suspension of innovative schemes
With high probability it can be argued that a sharp slowdown in the foreign trade surplus is a direct consequence of the suspension of innovative schemes (export of solvents and thinners made from Russian oil products). Further foreign trade trend will depend on which schemes are suspended and for how long.
On September 3rd, Belstat published Belarus’ trade balance data in January-July 2012.
A trade surplus in January-July 2012 was USD 2013.8 million. In January – June 2012 the value was USD 1990.6 million. It would be wrong to conclude that the difference between the two figures made July surplus. Accurate data with monthly breakdown will be announced on September 15-16, and the data for January-June will be adjusted, changing the final balance.
There are a number of innovative schemes with a varying degree of dependence on Russia. The primary one – solvents production based on Russian naphtha supply. At the moment this scheme is suspended and is unlikely to be renewed due to a number of reasons. Solvents supply is under investigation by the Russian Investigative Committee and its outcome is not yet known. Moreover, the demand for straight-run gasoline is high, and it is more economically profitable for Russian companies to supply these products to other destinations.
Lubricants production is based on fuel oil component. The scheme could not be blocked entirely because fuel oil could be produced in sufficient volumes by Belarusian refineries. However, recently the supply of lubricants has decreased, which may be the result of unofficial measures taken against the Russian companies involved in these operations.
Biodiesel is supplied to two main regions: Latvia and Ukraine. Until now there were no problems with supplies to Latvia. However measures undertaken by Estonia with regard to cheap fuel from Russia in a while could affect a wide range of petroleum products, including those made in Belarus, as biodiesel shipments are significant and not only to Latvian market, but to all Baltic countries.
In Ukraine, as a result of both, economic and political processes, biodiesel supplies have been suspended and an investigation has been initiated by the TNK-BP concerning biodiesel supply from Belarus. Moreover, the decision concerning LINIK’s fate (Lisichansk refinery) has been announced, which could have a negative impact also on the traditional petroleum products supply from Belarus.
Therefore, if the majority of schemes are suspended, the share of ‘oil products’ exports in the foreign trade will decrease significantly and the share of imports – to a lesser extent. There are no other exports which could replace such exports. Potash supplies and machinery could compensate these losses to a certain extent. However, they cannot replace the decreasing export volumes entirely. Positive trade balance depends purely on the volume of innovative schemes. If all schemes are suspended, the trade balance will return to its negative values.
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.