Lukashenko sides with Gazprom in dispute with Ukraine
Belarus wants to increase its long-term and guaranteed proceeds from the Russian energy transit. Complicated negotiations between the Kremlin and Kiev are in Belarus’ favour, as it plays on Russia’s side.
On November 22nd, President Lukashenko met with Chairman of the “Gazprom” Board Alexey Miller.
The most significant outcome of the talks in Minsk, according to Miller, was the intention to increase gas transit through Belarus by 30% by 2017. After Beltransgaz was sold to Gazprom in 2011, Belarus has lower, but still guaranteed income from tax revenues.
Moreover, the likely increase in transit volume means revenue growth for Belarus from Gazprom’s investment and infrastructure projects. For instance, during the meeting Miller and Lukashenko discussed the construction of additional local pipeline bridges (Mikashevichi-Luninets), an underground gas storage, and maintenance of existing transportation systems.
In particular, Belarus is interested in the modernization of the national gas distribution system with the Gazprom’s financial support. During the meeting it was noted that Gazprom and the Belarusian Government would develop three and ten-year investment programmes for the reconstruction of gas distribution stations. Mr. Miller has declared Gazprom’s readiness to reconstruct 35 stations by 2015.
Most likely, the reason for such promising plans of Mr. Miller in Belarus is the deterioration of the situation between Gazprom and Naftogaz-Ukraine regarding gas prices and other issues, or even more broadly, between the Kremlin and Kiev regarding Ukraine’s participation in the Eurasian Economic Union. In any case, today Belarus will gain more benefits if she plays on Russia’s side, particularly, bearing in mind, that when it comes to discussion of specific conditions, Minsk only “express consent” to Gazprom plans.
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.