Fight between lobbyists destabilises Belarusian pharmaceutical market
Private pharmacy chains and wholesale distributors dominate Belarus’ pharmaceutical – the largest of them control most medical imports. From time to time, lobbyists of domestic drug producers clash with large private importers, who often have close links with the nomenclature. The Belarusian authorities attempt to relieve tension by creating favourable conditions for Belarusian drug manufacturers on the EAEC pharmaceutical market.
The Belarusian Health Ministry has established full control over whether doctors prescribe Belarusian drugs.
In recent years, the Belarusian drug market has been growing rapidly and bringing high profits. In 2014, the market’s sales volume was over USD 1 billion and the authorities anticipate its further growth in the coming years. The retail segment of the pharmaceutical market was particularly profitable. Pharmacies mushroom in Minsk and large cities as the market share of private companies increases.
The Health Ministry reported that in January 2015, the share of Belarusian drugs on the domestic pharmaceutical market was 39% (37.6% in 2014). President Lukashenko has ordered to raise this share up to 50% by the year-end; Health Minister Zharko, however, said that would be an extremely challenging task.
Large private business is reluctant to invest in the drug production, however, it is broadly represented in retail and wholesale trade. Specialists estimate, that ten private wholesalers control about 75% of drug imports in Belarus. In addition, many pharmacy chains are owned by or have connections with the nomenclature. For example, the owner of "Iskamed", leading Belarusian pharmaceutical wholesaler and retailer, is Sergey Shakutin, half-brother of senator and prominent businessman Alexander Shakutin. In addition, the company often participates in public tenders as a mediator between foreign manufacturers and state pharmacy chains and hospitals.
In Belarus, more than 28 industrial drug producers, including two state-owned companies and three with state share over 50%. Among the five largest Belarusian drug producers, two are companies with foreign capital. In addition, one of the most prominent Belarusian businesspersons Yury Chizh also owns the "TriplePharm" pharmaceutical company, which has a negligible market share.
Belarusian drug producers are interested in simplified access to the EAEC pharmaceutical market, which will be launched on January 1st, 2016. The original plan was to open the market by 2025, but that did not suit the Belarusian representatives. In particular, former Vice-Prime Minister Sergei Rumas said, "the Health Ministry has assured us that there are no great dangers for our market. Therefore, we are approaching the creation of a single market in this area, and we were able to shift the launch on January 1st, 2016”. By that date, the Health Ministry should create favourable conditions for Belarusian producers to secure their positions on the domestic market.
If Belarusian drug producers enter the EAEC market tension between domestic producers and importers over domestic market might be relieved. Until then, the Health Ministry will continue to issue and abolish its orders, because neither lobbying group has a decisive advantage.
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.