Military industrial complex outlook as a bridge between Russia and Belarus
Enhanced cooperation with Russia in the military sphere reinforces a safety cushion for a number of Belarusian companies by enabling them to take part in state procurement orders. Simultaneously, the cooperation programme’s ambiguity will push Belarus to seek additional funding opportunities, not necessarily in Russia.
In Minsk on October 23rd, Belarusian First Deputy Prime Minister Vladimir Semashko and Russian Deputy Prime Minister Dmitry Rogozin signed an action plan to intensify cooperation between the defense industrial complexes of the two countries for 2012-2015.
The signed document is a framework agreement, but the tone of statements by vice premier Rogozin implied that Russia has not abandoned attempts to acquire some Belarusian industrial assets. In particular, during the visit, two companies were named: “Integral” (computer technology) and MAZ (engineering), however the details and additional conditions for cooperation between these companies have not been disclosed. It is a known fact, that talks about MAZ and KAMAZ merger are ongoing.
In turn, Belarusian Prime Minister Myasnikovich expressed a desire to eliminate all restrictions still in force for a number of Belarusian industries within the Customs Union and the Common Economic Space. It should be noted that this request is not in Rogozin’s competence: he is in charge of the military-industrial complex and military-technical cooperation.
Thus, the political outcome of Rogozin’s visit to Minsk was the shaping of yet another link between Minsk and Moscow, in the security sphere and military-technical cooperation. However, the failure to address specific issues, i.e. the volume of financial support or compensation to the Belarusian defense industry and corresponding industrial enterprises – is most likely to cause Minsk to look for additional support. Therefore it is still possible that cooperation with the West will be enhanced, if Russia does not offer Belarus a profitable continuation of the project in question.
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.