Summary of what the country has become over 26 years of Lukashenko’s rule.
Checkmate, dear economists.
The “President” has been promising high salaries a countless number of times. And it appears that only the IT sector can boast relatively high salary levels in Belarus.
Alexandra Zvereva, a member of the initiative group at Victor Babariko’s team, Eduard Babariko’s girlfriend (Victor Babariko is one of the potential alternative candidates, who was not allowed to run in the election. Eduard Babariko is his son, and campaign manager. They both have been detained in mid-June for political reasons, they both remain political prisoners until today — note of voicesfrombelarus), wrote a post describing why the economy in the country with talented and hardworking people leaves much to be desired. Belarusian news portal KYKY.ORG quotes it.
“In 1994, Lukashenko started his presidential mandate, and took over the country with $1.2b of debt. By the end of his first term in 2001, the level of national debt had risen to $2.1b. In 2020, it stands at $20b: only in the first half of the year, the total debt of Belarus grew by $3.3b, a 17.5% increase.
During Lukashenko’s time in office, the national debt has increased by 64.4(!) times, while GDP growth in USD has increased only by 4.8 times.
Suppose these numbers say nothing. How about the following indicators: Belarus lags behind the EU countries by about 6 times in terms of productivity of labour. Official numbers show that Belarusian enterprises are only 16% as efficient as those in the EU countries, and 44% as efficient as those in Central and Eastern European countries. And this in the context of the total control of the labour market, and the endless fight against “parasites” (Lukashenko’s jargon for the unemployed people — note of voicesfrombelarus).
High-performance jobs are being created in Belarus, but the state has nothing to do with it: this is the merit of the IT sector, which enjoys tax benefits and a liberal business regime.
Even before the election, the administration of HTP (High Technologies Park — special economic zone for IT businesses in Minsk) called every single one of its businesses to explain that HTP had nothing to do with Tsepkalo’s nomination (Valeriy Tsepkalo is one of the alternative candidates who was not allowed to run in the election as half of the signatures his office submitted were deemed “fake” by the Central Election Committee. Among his other achievements, Valeriy Tsepkalo was one of the creators of the HTP, and was occupying a post of HTP’ Director for over 10 years until 2017 — note of voicesfrombelarus). They were told that it is the current government that they have to thank for the favorable working conditions. In addition, company executives were seriously advised to have a preventive conversation with their employees to exclude any participation in rallies, in order to “maintain the health and well-being of the employees’’, subtly hinting on adverse consequences.
Nevertheless, the HTP administration did not take into account the fact that the interests of people working in the IT sector have long gone beyond the “bub and grub”. Nor did they understand that putting pressure on the leaders of such companies and their employees is more difficult than to scare a factory manager (yet, despite all the intimidation, factory workers took to the streets as well). You may have heard that in the IT sector, companies are leaving the country one by one. And the “friendly visits” of the authorities to the offices of companies like PandaDoc, during which company employees are forced to show their computers and phones, only speed up this process.
Let’s get back to the numbers. At least 25% of enterprises in Belarus operate at a loss. Over the past 7 years, arrears on overdue loans and borrowings of state-owned enterprises have increased by 10 times.
The reason for the loss of many enterprises is the high cost of raw materials and energy, and low capacity to manufacture. Factories operate with outdated technologies, both in production and in management contexts.
In a market economy, the lifespan of a company operating at a loss is short: it either closes or changes its development strategy. Belarusian state-owned enterprises are being “fed” at the expense of the state budget. Here I want to remind you again that the state budget is comprised of taxes and loans. As a consequence, the country keeps accumulating huge debts.
Furthermore, there is a fun tradition in Belarus: to appoint heads of state companies without taking into account their experience in the desired field. At the same time, for any “wrong” decision, the leader risks being severely punished. It turns out that there is no incentive for development and growth, and it is much safer for them to act on the principle of “we will keep producing what we have been producing for 10 years” using traditional approaches. If there is no demand for our product, we still produce, to eventually store the output at the warehouse. Such business decisions are not punished, and the state traditionally covers the losses.
Now let’s talk about the favorite “argument” of Lukashenko supporters and propagandists: “the new government will sell off the country”. In many countries, a small number of companies are owned by the state. As a rule, these are infrastructure facilities, enterprises related to national security and natural resources. When the share of such enterprises is minor, it is easier to support them.
While discussing belarusian business, the general director of Gomellift (this enterprise producing elevators has been private since 1992) once said: “If we compare our firm with companies inside Belarus, we can be called successful, whilst if we compare it with Western companies, their productivity is 10 times higher”. Another amusing fact: labour productivity in foreign organizations and in organizations with foreign participation is a lot higher than in state-owned enterprises.
Also, privatisation is not that simple: when a company is chronically unprofitable, it obviously would not interest an investor. And if such interest occurs, it also quickly evaporates, because the attitude of the state to business owners is far from perfect, and this is another factor that negatively affects productivity. The requirements of the Belarusian legislation for business are a separate pain point to anyone who has done business in Belarus in one way or another.
In summary, the situation is as follows: those businesses that work at a loss are kept, and those who are able to earn and feed the economy are strangled.
To understand why the IT sector has blossomed in Belarus, we need to return to the first part of this post: it was not interfered into until recently. However, it is also worth noting that the Belarusian economy is not particularly relieved by these earnings, guess why? That’s right, because the IT sector enjoys a special tax regime.
Finally, support of the unprofitable enterprises is not a question of the economy, it is a matter of the policy. By ceasing to support unprofitable enterprises, the state would end up with thousands of laid-off people, which would spoil the beautiful picture of the low unemployment, and which would take those fired people to the streets to protest. And there are already more than enough protesters for them to deal with. It is worth noting however that the funds that go to support enterprises every year could be redistributed in the direction of strengthening measures to protect the unemployed, training and retraining.
Just saying. After all, none of the above forced the Belarusian authorities to reconsider economic policy. During the 2020 presidential campaign, Lukashenko promised to bet even more on Soviet methods of governance in 2021–2025. Checkmate, dear economists”.
