The government intends to act on behalf of minority shareholders

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April 22, 2016 18:20

On October 26, 2012 Spartak and Kommunarka confectionaries were de facto nationalized. It is anticipated that the issue of minority shareholders’ protection by the state will be decided on default. If so, the rights of large investors and minority shareholders will be violated and the feasibility of shares’ ownership in Belarusian enterprises will become even more questionable.

On October 25th, 2012 a meeting about how to improve public shares management was held.

Private shareholder’s stake in “Spartak” has been reduced from majority to minority by issuing additional shares and transferring to the state’s balance. It has been proposed to simplify functions of the Supervisory Boards at enterprises with state’s share larger than 50%. Private minority stakeholders are supposed to be protected by the state, even if they have not expressed interest in such protection. At enterprises with state’s shares less than 50% it was proposed to nominate a person to carry out state policy.

In fact, it implies a double standard in the field of corporate management. If an enterprise is owned by the state by 50% or more, the state does not care about the minority shareholders’ interests. The state will ignore opinions of shareholders about dividends and management in the name of public interest. If a private owner has the majority stake, the state formally denies it the right to control the enterprise, based on the assumption that it will focus on investment return, rather than on serving public interests.

Superficial concern about private minority shareholders is an attempt to control additional shares concentrated in the hands of private individuals. Private person, in state’s view, is incapable to decide whom and how to transfer the management of his/her stake. The state can therefore obtain the right to dispose of additional shares, without additional costs.

Thus, an investor is faced with choice: either to purchase the enterprise entirely to get rid of the state and private shareholders, or to invest at own risk, bearing in mind the potential risk to lose investments and control over the company, even if he or she is a majority stakeholder, as stakes can be taken away on formal grounds in the future. In these circumstances, privatization of state enterprises makes no sense for the majority of shareholders unless 100% of shares are sold.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

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.