Lower interest rates in economy could make some Belarusian industries profitable in 2017
Thanks to the stability of the Belarusian rouble and decreased credit burden on enterprises, in January 2017 the Belarusian economy reported some profit. High interest payments on loans often ate up all profits in some industries and the agriculture. Lower interest rates in the economy enabled enterprises to save more than BYN 100 million on interest payments in just one month, which would facilitate cost-effectiveness in some industries.
According to the Belstat, in January 2017, net profit in the Belarusian economy totalled BYN 550 million. During the same period in 2016, the economy reported losses at BYN 1 554 million due to devaluation processes, which led to exchange rate differences. In 2017, the national currency was relatively stable. Meanwhile, every fourth enterprise in Belarus was unprofitable with the total count of 1836 entities. In January 2017, six out of 17 types of industrial production reported losses, including the most losses in oil refining.
Previously, interest rates on loans played an important role in financial performance of enterprises. In 2016, enterprises spent BYN 4 billion to repay interest on loans, which was only 9% less than the total net profit in the economy. In metallurgy, cement production and agriculture, interest payments were higher than the overall profits from product sales, and the total amount spent to repay the principal debt on loans including interest, exceeded half of all their revenues. In this case, apparently banks controlled most financial flows in industry.
Since April 2016, the National Bank has been consistently reducing the discount rate. In nine months, the rate fell from 24% to 15% per annum. The discount rate has a direct impact on the cost of loans for enterprises and their servicing costs. In January 2017, enterprises spent BYN 301 million to service loans, which was 25% less than in January 2016. Given the current situation with excess liquidity and government pressure on the National Bank regarding further rate cuts, interest rates on loans are likely to continue to reduce, leading to an overall decrease in the debt burden on enterprises. Wood processing, some machine-building enterprises and vehicle manufacturers are likely to report some profits. Cement factories and metallurgists are likely to reduce their losses in comparison with the previous year, albeit profits are unlikely in these industries due to high production costs.
Overall, some improvements in financial indicators in the Belarusian economy were partly due to the decrease in the loan servicing costs for enterprises. Amid anticipated further reductions in the interest rates, some industries could report profits in the future and chronically loss-making cement plants could reduce losses and lower appetite for required state aid.
The Belarusian authorities have revived the cyclical political agenda, including preventive crackdown with the use of force during the Freedom Day rally in Minsk and a loyal attitude to the participants in the opposition events in the regions. The protest rally in Minsk has evidenced that the Belarusian society has freed from the post-Maidan syndrome and showed high self-organisation capacity during the event in the absence of opposition leaders. In the future, the authorities are likely to expand the framework for sanctioned and legal activity for the moderate opposition in order to reduce the potential for street protests.
The Freedom Day march in Minsk on March 25th, 2017 was marked by unprecedented and brutal detentions before and during the event.
The Belarusian leadership has managed to stretch in time the political cycle - liberalization followed by repressions - and move beyond the electoral campaigns. Simultaneously, Minsk has demonstrated a rather high mobilisation potential under political slogans, despite the pressure from the state media and security forces before and during Freedom Day, including the presence of armed officers and new special equipment to disperse demonstrations in the streets of Minsk. That said, in other towns (Vitebsk, Gomel, Brest and Grodno) the Freedom Day march led by the opposition, was sanctioned by the local authorities (except Vitebsk), albeit there were fewer participants than in February and March protests against the decree on social dependants.
The Belarusian leadership has depersonalised (removed leaders) the protest, preventively weakened the protest movement, and has not opted for the harsh crackdown like in 2010 with many injured and hundreds arrested. For instance, some party leaders were preventively arrested or detained (Lebedko, Rymashevsky, Gubarevich, Neklyaev, Logvinets, Severinets) before the event. Nikolai Statkevich has disappeared and his whereabouts are currently unknown. Some could not pass through the police cordons (Yanukevich and Kostusev) or participated in the rallies in the regions (Dmitriev, Korotkevich and Milinkevich).
Despite the lack of protest leaders, some demonstrators managed to self-organize and march down the Minsk centre. The march was unauthorised but gathered several thousand participants. Many were detained by the law enforcement and later released without charges. In addition, the Belarusian law enforcers used some tactics of the western riot police against peaceful protesters, allegedly in order to mitigate the criticism from Western capitals.
Nevertheless, the Belarusian authorities have used the entire set of propaganda and power mechanisms applied during the highly politicised 2006 and 2010 elections - criminal prosecution of the opposition leaders, preventive detentions and arrests of activists, harsh propaganda campaign in the state media and, finally, the crackdown on the protest action in Minsk with the use of force.
Overall, the mobilisation potential of the Belarusian society remains high and the authorities are likely to expand the legal framework for public participation in politics in order to absorb superfluous tension.