The government will restore dominance in retail

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April 22, 2016 18:44

Retail chain trade has been  developing rapidly in recent years, resulting in the state gradually losing its grip over the industry. In order to restore some control , the government has introduced amendments which aim to increase the state’s ability to influence retailers. As a result, investors’ interest in the retail market may reduce, the range of goods will narrow, and prices will go up.

On January 21st, 2014 the Law ‘On state regulation of trade and catering in Belarus’ took effect. 

In 2013, retail turnover in Belarus was USD 27.2 billion, and the share of state-owned enterprises was 9.4%. In some  regions, commercial retail chains  dominate. To overcome the antitrust law limitations, affiliated trade structures were created to demonstrate artificial competition. Some trading companies, including state-owned ones, are controlled by the private sector. Retailers either ignore or treat the existing trade regulations formally.

The new law introduces the obligation for any commercial enterprise to stock all products on the assortment list. Each store will have a required number of product types that must be constantly available. This will increase the number of products made in Belarus on the shelves. Violation of the assortment list envisages penalties. Retailers, including their affiliated trading partners, cannot have more than 20% of the market share.

As a result, small retail stores might face some problems in complying with the assortment lists, which may lead to problems for the entire industry since they are the most widespread. Derailed sales plans may result in cascading defaults and disruptions in the commodities supply by manufacturers and importers. Retail networks will only be able to expand in the largest cities, since regional penetration will be limited by not surpassing the 20%  margin of regional turnover, and so will be unattractive in terms of financial results.

The law does not envisage liability for failures by suppliers of ‘socially-important products’, which may lead to additional penalties for retailers (regardless if they are to blame). Restrictions on retailers will also work against price-reductions on Belarusian goods. 

The state plans to extract additional revenue through fines and tighter control over private commercial structures. In addition, the state plans to use this law to limit the expansion of Russian capital in order to prevent its interference in the 2015 election campaign. Consumers will suffer the most from these changes, as they will pay higher prices for the retailers’ additional costs.

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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.