IT industry to lead Belarusian export growth in 2016

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April 22, 2016 19:44

In 2015, exports of IT services by HTP residents exceeded USD 700 million. The IT industry’s success is due to tax benefits, high quality of Belarusian specialists and limited abilities of the authorities to interfere with the industry. In 2016, amid expected export failures in other economic sectors, the Belarusian IT will lead export growth. 

The High-Tech Park management reported an increase in export of services by HTP residents by 21% compared with 2014, up to USD 705.6 million. Export occupies more than 90% of total HTP production. HTP companies-residents employ more than 24000 people with more than 3,000 jobs created in 2015 alone.

Overall, in 2015, Belarus’ export of telecommunication and computer services for the first time exceeded USD 1 billion and listed second in the total exports of services, following transport services. Branch holds the first place in terms of gross salary in Belarus. The average salary in the HTP in late January 2016 exceeded USD 1,700.

The industry’s success in Belarus is due to highly skilled workers, raised at domestic universities. In addition, the HTP enjoys tax benefits, including tax on profits and income tax, which is 9% for HTP employees. As well, a significant flexibility in the workflow prevents the Belarusian authorities from interfering too much with the industry. HTP companies can easily change their place of residence within a couple of days should any threat occur, and leave Belarus without foreign currency inflow. Tax Ministry’s attempt to increase tax payments for HTP residents was unsuccessful so as the HTP companies were able to defend their privileges, even against the backdrop of state budget deficit.

In 2016, Belarusian exports will continue to shrink. Exports of potash fertilizers may reduce by one third in value terms, prices on dairy products may reduce by 20%-30% in dollar terms, while investment demand for engineering products is unlikely to increase. Russian market, which is the key market for exports of Belarusian goods, is unlikely to resume growth in 2016 due to persistently low oil prices.

The IT industry is focused on markets outside the CIS, software is delivered to more than 60 countries in the world, which saves the industry from foreign exchange risks. High wages attract additional manpower to the industry, which allows to increase production volumes. In recent years, the industry’s exports grew by at least 10% per year, and its potential has not yet been exhausted. Exports of the IT industry in 2016 may increase by USD 100-150 million, making the most significant increase among all goods and services.

With the overall decline in exports of goods and services, the IT sphere earned more than USD 1 billion in 2015. Diversification of exports, minimal government interference and highly skilled workers create favourable environment for at least 10% increase in exports of IT services in 2016 relative to 2015.

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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.

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