Outflow of foreign investment from Belarus
Last week Oman refused to implement an investment project worth USD 150 million in Minsk. Belarusian authorities are looking for new investors to implement a number of investment projects.
Omman’s State Reserve Fund refused to implement an investment project. The investor believes the project is unprofitable due to significant changes in the economic conditions resulting from the devaluation of the Belarusian ruble in 2011.
In March 2010 the Fund, in face of “Eagle Properties four”, Ltd, received a land plot in the centre of Minsk (2.6 hectares) in private ownership for USD 10 million (no auction was held) for the construction of a residential complex, business center and a five star hotel. The overall investment was estimated at USD 150 million and the project should have been finished by 2016.
Quoting similar reasons an investment agreement with a Cypriot company IteraVnukovo Ltd (part of the group \"Itera\") was terminated. The contract envisaged construction of an aircraft maintenance and repair and business aviation centre at the Minsk National Airport.
Among other reasons that hinder the implementation of investment projects in Belarus are corruption and inefficiency of government agencies.
Nevertheless, the government continues looking for investors. For example, the Swiss Stadler Rail AG and JSC “Belkommunmash Holding Management Company” will build a plant to produce urban electric passenger transport in Dzerzhinsk district, Minsk region. For this, a JSC “Electric vehicles” has already been registered as a FEZ “Minsk”. Project implementation is envisaged between 2012 and 2016.
Lithuanian Norfa will build a vegetable processing plant in Belarus. Retailer Norfa Norfos mažmena has already acquired land plot in Belarus (in Vilejka). Currently design works are carried out, project cost is around Euro 5 million.
For reference. According to the National Statistics Committee, the net inflow of foreign direct investment in January-May 2012 decreased compared with the same period in 2011 by 18.5% to USD 605.7 million with the forecast for 2012 USD 1.2 billion.
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.