Sales of Belarusian products much worse than official statistics suggest
On September 17th the head of the Russian Association for Agricultural Machinery (‘Rosagromash’) and Rostselmash co-owner Konstantin Babkin complained about the dominance of Belarusian equipment on the Russian market.
Despite free access for some products to the Russian market, sales of Belarusian industry products in Russia, and other countries, are shrinking. So far, the government has managed to manipulate the numbers to hide the real situation. But the reality is much worse than the official statistics suggest. Belarus’ participation in the Customs Union and the Common Economic Space is unable to stop Belarusian goods from being pushed off the Russian market.
The 2020 Industrial Development Programme envisages that by 2020 Belarus will increase the sales of combine harvesters on the world markets from 10% to 15%. However, this task might be unattainable, given today’s problems with selling Belarusian equipment in Russia, which is Belarus’ major export market.
‘Gomselmash’ sells about 90% of its equipment through joint ventures and manufacturing facilities in Russia. At the same time, in 2013, supplies of agricultural machinery to the Russian market had reduced, despite the favorable conditions created by Russia. In February 2013 the Eurasian Economic Commission decided to introduce protective duty on combine harvesters, and on June 25th this measure was extended until March 14th, 2016.
The Rosagromash Head, Konstantin Babkin, said “The Russian market is open for Belarusian agricultural equipment, about 70% of Belarusian agricultural equipment is sold through Russian government structures using state banks loans and through ‘Rosagroleasing’”.
The production volume of combine harvesters in Belarus has been consistently declining since 2010 (2,035 units in 2010, 1,900 in 2011 and 864 in 2012). In H1 2013, Belarus produced 892 combine harvesters. As of July 1st, 2013 stocks of grain harvesters in Belarus were 408 units or 274% of the average monthly production volume. According to Babkin, there are 3,500 unsold Belarusian harvesters in Russia.
The discrepancy in the figures shows the real scale of the sales problem. Unsold Belarusian harvesters are transferred to the balance of dealers, distribution companies and trading houses, and reflected in the official statistics as exports. As of August 1st, 2013 the outstanding foreign receivables at Belarusian enterprises were BYR 2.8867 trillion, a 41.1% increase since January 2013.
A trend in ‘shrinking’ Belarusian exports to the Russian market persists. Neither the Customs Union, nor the Common Economic Space have stimulated the development of export-oriented economy in Belarus. In addition, after Russia’s WTO accession, the conflict of interests between Belarusian and Russian producers has grown in the face of stiffer competition from global brands.
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.