Inflated asset prices are the main reason behind the privatization auctions’ failure

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April 22, 2016 18:21

To fulfill the ACF requirements Belarus has to raise USD 2.5 billion in foreign direct investment by selling state assets. As a rule, only enterprises in a bad financial condition or with numerous restrictions or those overpriced are auctioned. In these circumstances, it is difficult to count on massive inflows of direct investment.

On November 2nd, 2012 state-owned shares in MTS (mobile operator) were presented for sale.

The government has been trying to sell its stake in MTS for over a year. Out of forty-five invitations, only two counterparts replied. Moreover, one of the potential investors already has experience in Belarusian, but its financial performance could have been better. MTS’s parent company is interested in buying the stakes however it considers the announced asset’s price inflated (at least by two times in the primary potential buyer’s view).

An auction, scheduled for mid-December 2012 to sell “Negorely wax processing and hive plant”, demonstrates another extreme side of the Belarusian privatization policy. This venture, with poor performance and depreciated fixed assets is put on sale on terms of preservation of its structure and the number of staff in the following 5 years. This is an attempt to burden an investor with enterprises that the state is unable to cope with on its own.

As a logical consequence of such a privatization policy, the state privatization auctions are all the time either cancelled, or postponed. At the same time, mergers and acquisitions take place in Belarus. As a rule, assets are purchased by private companies interested in expanding their activities. Some private businesses enjoy favourable sales terms for some state assets.

Thus, the Belarusian authorities continue demonstrating a negative attitude to any capital other than from business circles close the government.

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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.