Industry drags Belarusian economy down
Decline in production has been the major trend in most industries in Belarus. The main factors responsible for such a decline include recession in Russia, which is the main export market for Belarusian enterprises. In the medium-term, the overall economic decline is very likely in Belarus due to the industry’s role in different economic sectors and the lack of opportunities for improvements.
According to the National Statistics Committee, in March 2015, industrial production index dropped by 10.3% to March 2014. With the exception of oil refining and electric power industry, industrial production has declined in Belarus.
Mechanical engineering has been hit the hardest. In Q1 2015, MTZ tractors production reduced by 35.4%, MAZ trucks and dump trucks – by half, and BelAZ dump truck production – by 33%. Machine tool industry, production of harvesting equipment and TV sets also has seen a significant decrease in production.
The general decline in production is associated with a significant decrease in investment demand in Russia. Truck market in Russia decreased by half in January – February 2015. The devaluation of the Russian rouble has significantly reduced financial capacities of Russian agricultural enterprises.
The situation is also unfavourable for other industries exporting to the Russian market. Prices on dairy products fell by one-third, leading to heavy losses for Belarusian exporters. Until March 2015, potash industry had somewhat reduced the negative trends in the industry. However, in March potash production fell by 11.5% to March 2014, due to the production record set in 2014.
In the past, the government had addressed crises in the industry with various state subsidies. In 2015, however, the state budget is depleted. The Russian market in 2015 is unlikely to recover, and other stable and large buyers of Belarusian trucks would not appear. In April – September 2015, despite the signed contract with China for potash supplies, Belarus’ chemical industry would not outperform 2014 and would not reverse the overall negative trend. Production growth in oil refining is insufficient to compensate for the drop in production in most other industries. The situation in the industry would have a direct impact on the wholesale and retail trade, transport and construction, resulting in a further economic slowdown in the medium term.
Belarus’ industry situation continues to deteriorate because of the recession on the main export market, i.e. Russia. In the absence of financial resources for the incentive-based measures, the industry will have a major negative impact on the economy.
President Lukashenka has met with the head of Chechnya Ramzan Kadyrov, who visited Minsk and the Minsk Automobile Plant. Minsk has always sought to have independent links with Russian regional elites, partially, to compensate for the Kremlin's diminishing interest in Belarus. In recent years, Belarus’ contacts with the Russian regions have been extremely intense. However, with some leaders of Russian regions, primarily heads of large republics, communication was more difficult to build. As many analysts in Minsk suggested, Minsk could regard contacts between President Lukashenka and the head of Chechnya as an additional communication channel for relieving tension in relations with the Kremlin. However, most likely, a trusting relationship with Kadyrov is a value for Minsk as such, provided Kadyrov’s broad business and political interests, and a high degree of autonomy for the Chechen leader from the Kremlin.