High-profile resignations aimed at improving Lukashenko’s popularity and at greater control over foreign investment
On April 18th, President Lukashenko dismissed Energy Minister Alexander Ozerets “for the failures in management”. Earlier his Deputy Tovpenets was also dismissed.
With high-profile resignations of influential officials President Lukashenko seeks to restore his image as the “people’s” President, as well as breaks up the entrenched interest groups in the strategically important energy sector.
A purge in the Energy Ministry has two implications. Firstly, in President’s view, it fits well with the administrative reform and plays into the hands of Alexander Lukashenko: he manages to preserve his images as the “people’s president” and a fighter against corruption and bureaucracy.
In particular, the KGB is involved in the Energy Ministry’s oversight - it is investigating possible frauds with the public procurements at Berezovskaya GRES and Mozyr CHP reconstruction sites. As well, a State Control Committee representative pointed to the unjustified tariffs growth for the population.
Secondly, Energy Ministry subsidiaries not only control the strategically important sector of the Belarus’ economy, but also engage in the priority investment projects with foreign investors.
In particular, it concerns the construction of a nuclear power plant using Russian loan, as well as Sino-Belarusian projects. Namely, Bereza power plant carries out a joint project with the Chinese engineering machinery corporation concerning steam-gas station construction.
It is likely that the president’s environment is interested in strengthening the control over such investment projects. Therefore, purges at the Energy Ministry take place, getting rid of those officials who have worked in the Ministry’s senior management prior to the Belarus-Russian cooperation about the NPP construction and the active phase of the investment partnership with China. Currently the President prefers putting newcomers to the Energy Ministry senior positions - they would be more susceptible to play by the new rules of the game.
For instance, dismissed Minister Alexander Ozerets was the Minister since 2006, and his First Deputy, 73-year-old E. Tovpenets worked in his post since 2004. Both are “career” energy experts.
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.