Belarus raises stakes in anticipation of Kremlin negotiations
At a press conference with Russian regional journalists, Lukashenko said that the Rosbelavto holding (which may merge Belarusian MAZ and Russian KAMAZ) would not go ahead unless the terms will benefit Belarus.
Russo-Belarusian relations saw no substantial progress in resolving the existing problems and implementing joint projects. The Belarusian government gathers arguments to strengthen its position in negotiations with the Kremlin and waits for the right moment to start bargaining. By blackmailing Putin with sabotaging Eurasian integration, Belarus hopes for some concessions.
Currently, all the joint projects involving Russian investment in major Belarusian assets have been suspended. Back in September, during the ‘potash conflict’, KAMAZ CEO Sergey Kogoghin refused to come to Minsk for talks about MAZ and KAMAZ merger. Meanwhile, MAZ has been losing its investment appeal on the world market, and the Russian market, the latter of which is more important.
According to Belarus’ First Deputy Prime Minister Vladimir Semashko, other integration projects, such as the merger of Belarusian Integral with Russian Roselektronika, Grodno Azot with Russian Gazprom and EuroChem, Peleng with Russian Roskosmos, have stalled at the working group stage. At the same time, Semashko said that the era of cheap energy for Belarus was over, and that in a few years Belarus would pay world prices for energy.
The main problem today in Russo-Belarusian relations, i.e. the ‘potash conflict’, has not been solved. Despite Russian and Belarusian presidents meeting three times in September, no agreement had been reached about Uralkali. Putin’s visit to Belarus for joint military exercises in late September has changed the restraint measure to Vladislav Baumgertner from arrest to house arrest. However, to date, Uralkali’s CEO is still in Minsk under house arrest. Nevertheless, on October 18th, Russia lifted restrictions on pork imports from some Belarusian enterprises.
Belarus wanted to negotiate oil supply from Russia in Q4 2013 and in 2014 at the Ministerial meeting of the Union State in Moscow on September 17th, but the meeting was postponed. Russia says Belarus has not yet submitted its proposal for Russian oil supply in 2014 to the Russian Energy Ministry.
Meanwhile, Belarus has ratcheted up pressure on the Russian leadership by questioning the feasibility of Putin’s Eurasian integration project.
Before his official visit to Astana, Lukashenko spoke against the Eurasian Union plan - a single currency and political superstructure. The Belarusian president said that ‘above all, Russia will have to do what it has promised. Otherwise, on January 1st, 2015 the Eurasian Economic Union will not be created’.
On September 25th, at the EurAsEC Heads of Governments’ meeting in Astana, Belarusian Prime Minister Mikhail Myasnikovich also rigidly talked about Eurasian Union prospects, ‘Frankly speaking, maybe due to the lack of information, we do not quite understand what we need it for’.
During a recent meeting with students in Mogilev, Lukashenko reiterated his rhetoric about the value of the sovereignty and independence, ‘we tell our brotherly Russia, “yes, you are our people, we all look the same and you are our Russian brothers, but this land is Belarusian” and ‘the future is in the individual sovereign states and nations’”.
Belarus hopes to strengthen its position vis-à-vis the Kremlin ahead of the Eastern Partnership Summit, where Ukraine is supposed to sign the Association Agreement and the free trade Agreement between Ukraine and the EU. Lukashenko emphasized the importance of the issue for Russo-Belarusian relations, ‘Ukraine has the right to choose which way to go, and we have the right to understand Ukraine’s right, since it is a sovereign and independent state’.
Belarus hopes to restore an acceptable level of Russian support by the time the election campaign starts in 2015 without having to sell state property.
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.