Sale of mineral resources as an alternative to privatization
The authorities plan to build the second potash plant with the capacity of 1.1 million tons per year and with USD1.5 billion of investment by 2017. Given the lack of privatization deals, the government is trying to get money from investors by offering to implement projects from a scratch, selling the mineral resources of the country.
It is planned that at the expense of a company GMC Global Energy plc, which is owned by Mikhail Gutseriev, the second potash plant will be built in 2017 with an annual production capacity of 1.1 million tons. Investment will amount to $ 1.5 billion. The Prime Minister said it would be a large-scale project concerning the development of the mineral resources of Belarus based on principles of public-private partnership. A company “Slavkali” which, according to the investment agreement between the Government of Belarus and the GMC Global Energy plc, will become the second largest manufacturer of potash fertilizers in the country and will be a 100% foreign capital company. Mikhail Gutseriev said the first installment of USD 32 million will be transferred as early as next month and that the sale of potash fertilizers from the new manufacturer will be made via the Belarusian potash enterprise.
Experts doubt that the new Belarusian manufacturer will produce 5, let alone 10 million tons of potash fertilizers annually. The payback period for a new Belarusian enterprise will depend on the situation at the global fertilizer market.
Experts doubt that the new Belarusian manufacturer will produce 5, let alone 10 million tons of potash fertilizers annually. The payback period for a new Belarusian enterprise will depend on the situation at the global fertilizer market. Today the prices for potassium chloride are rather high: USD 550-580 per ton however there are reasons to expect a reduction of prices for potash fertilizers.
The government plans to mobilize about USD 6-7 billion by opening access to the Belarusian mineral resources for investors. On the one hand, the transfer of mineral resources to investors will bring a lot of foreign currency into the country and on the other hand it will not require the privatization of the state-owned assets. The authorities plan to attract investors to develop Belarusian deposits of crushed stone, brown coal, shale oil, etc. in the future. The time will show whether these plans are realistic.
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.