Entrepreneurial strike: benefits and risks for the government
On June 27th, a nationwide strike of entrepreneurs against pre-certification of goods’ sales in the Custom Union space was held in Belarus.
Entrepreneurs’ strike against the Customs Union rules provides the authorities with an additional argument in bargaining with Russia on economic preferences within the Eurasian integration. Simultaneously, independent and pro-active behaviour of entrepreneurs create a threat to the authorities, entailing harsh retaliatory sanctions against the protests’ organizers.
Belarusian entrepreneurs believe that the new quality certificate procedure for light industry goods sold in the Customs Union space is too expensive and unnecessarily increases their costs. In response, the Belarusian authorities have promised to delay by one year the introduction of certification, but they failed in settling the issue entirely. Following the strike, the protesters applied for a permission to hold a rally on July 15th in Minsk against the certification procedure.
In the authorities’ view, the situation has both positive and negative sides. The protest against the Customs Union rules and threats to exit the CU (entrepreneurs have already announced that they had started collecting signatures for Belarus’ exit from the CU) will definitely be used by the authorities in couloirs negotiations with Russia on broader economic and trade preferences for Belarus in the Eurasian integration (energy, industrial goods).
However, overly independent entrepreneurial activity - especially the street protests - is a threat to the authorities. In addition, the ruling group is not interested in additional players interfering with the negotiations with the Kremlin (entrepreneurs have already addressed the Eurasian Economic Commission to resolve the certification issue).
Potentially, the authorities will use the protesters’ arguments, and especially the threat to quit the CU while Moscow negotiations. However, public solidarity between authorities and entrepreneurs should not be anticipated because of the ruling group desire to maintain bargaining monopoly in the Eurasian Economic Commission.
Therefore, during the strike the authorities acted quite typical. After the protests they detained a number of independent media journalists who covered the event, as well as the strike’s organizer business association "Perspective" Chairman Anatoly Shumchanka, who was sentenced to five days in jail for holding an unsanctioned event.
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.