Recession prompts Belarusian government to policy change in relation to large private businesses

The Belarusian government attempts to counterweigh social and economic policies by applying different approach to private and public enterprises. From the government’s perspective, the main task for the large state-owned enterprises is to ensure high employment rates with small wages in order to relieve tension in the labour movement. In turn, large and medium-sized private businesses provide for budget proceeds from taxes and employ a relatively small number of workers; their task is to compensate for the losses-making enterprises.

The World of Tanks founder Viktor Kisly has joined the Bloomberg’s billionaires list.

Previously, the Belarusian authorities have not made exceptions for private enterprises, and required them and the state enterprises to create more jobs. Amid recession, the state has abandoned its requirement, which is likely to indicate a change in the state’s attitude to different ownership forms within the existing socio-economic reality.

Large state-owned enterprises have no other option but to preserve excess employment; their incurred losses are covered from the state budget. Private companies do not receive financial support from the state, rather, their share in the budget replenishment is increasing. However, private enterprises are not obliged to preserve employment, while the state may transfer employees from large loss making to profitable state owned enterprises in order to retain unemployment.

Private and foreign enterprises have been paying most taxes to the state budget in all oblasts and some regions of Belarus. For instance, the Tax Ministry reported that in 2015, private enterprises of the Mogilev oblast paid almost as many taxes as the state-owned ones – 48.3%. In January 2016, foreign companies of the Ostrovets region made 99.5% of payments to the local budget.

Most likely, the authorities are attempting to preserve the social function of the large state-owned enterprises and local economic mainstays. Their main objective for this period is to preserve the employment level. In return, the state is ready to provide financial and other assistance to cover their losses. For example, the Minsk Tractor Plant and Gomselmash in 2015 received more than USD 500 million worth of state aid and were allowed to extend the deadline for paying taxes.

According to the Finance Ministry, Q1-3 2015, the number of loss-making enterprises increased by one third – to 677, including engineering giants Gomselmash, MAZ, MTZ and BMZ. In 2016, the state is planning to compensate ten SOEs in woodworking part of the interest on loans, which will be used as working capital. That said, in 2008-2014, the woodworking industry received more than EUR 1 billion of public funds for the modernization of production facilities.

However, despite the state support, some SOEs are forced to lay-off workers, including the largest machine-building enterprises – MAZ, BelAZ and Belshina. In order to reduce tension among workers, some of them are offered unscheduled leave with payment of two-thirds of the basic rate or unpaid leave. That said, the number of employees at some SOEs has increased. In small towns with loss making core enterprises, the situation in even worse – layoffs are common, as well as shutdowns.

IT business is the new focus of attention for the Belarusian authorities. In H1 2015, High Technologies Park has boosted its activity by one-third. In addition, major Belarusian companies attracted many employees, including from abroad.

Overall, the recession has prompted the Belarusian authorities to adjust the existing socio-economic model with an increase in the share of private businesses. However, the government is likely to continue supporting large state-owned enterprises in order to preserve high employment rates and contain tension in the labour movement.

Photo: http://kanobu.ru