Economic cooperation between Belarus and Russia is expanding
Vice-Premier Vladimir Semashko talked about the new plans to expand economic cooperation between Belarus and Russia. They include: MAZ-KamAZ holding, nuclear power plant construction, transferring potash trader under Swiss jurisdiction, Russian natural gas supply price reduction, and others.
At the moment it is difficult to say which of the aforementioned plans could be implemented, which are being implemented already, and which serve only as a tool for successful trading in main spheres of interest. In any case, Vladimir Semashko, while negotiating with Russians about cooperation terms was playing his traditional role: was overloading the other party with information and conditions.
In early July Belarus will sign a principal agreement with Russia for the construction of the first Belarusian nuclear power plant. Currently, preliminary works on the Ostrovets site, where nuclear power plants will be erected, have been finished: roads and railways were built. On July 31st, works on foundation pit will start.
Belarus’ First Vice-Premier Vladimir Semashko said, while speaking in the Parliament on June 22nd that a Belarusian-Russian holding Rosbelavto, merging MAZ and KamAZ will be created on the parity principle. The holding’s headquarters will be located in Moscow. Belarus’ input will be 75% minus one share of the Minsk Automobile Plant (MAZ), and Russian - 49.9% of KamAZ. KamAZ assets market value is assessed at USD 1.6 billion, MAZ – at USD 1.1 billion.
It is noteworthy that the holding will have control over MAZ (75% minus one share), while the majority of KamAZ stakes will be owned by other shareholders: Avtoinvest Limited – 24.53%, Daimler AG (Germany) - 11%, KAMAZ International Management – 4.25%, the European Bank for Reconstruction and Development - 4%, Decodelement Services Limited – 2.73%.
Belarus also believes there is a necessity to create other industrial holdings with the participation of Russian companies. Thus, Vladimir Semashko said the Belarusian State Association Gomselmash and the Russian group of companies Rostselmash plan to create a single management company on equal terms. Another option under consideration is co-operation between Minsk Wheel Tractor Plant (MWTP) and Russian GAZ.
Belarus is also studying a proposal concerning participation of Russian investors in Gomel Chemical Plant and OJSC GrodnoAzot, where a construction of a new production sight worth USD 1 billion is planned.
Soyuzkaly, a Russian-Belarusian fertilizers trader, set up on equal terms has been registered in Switzerland and will start operations in February 2013. The existing trader Belarusian Potash Company, which delivers potash fertilizers from Uralkaly and Belaruskali will continue operating until some time and later, apparently, will be winded up. In fact, Soyuzkaly is BPC, but with offices in Switserland.
Speaking in the Parliament, Vladimir Semashko also said that in the future, with the CES agreements taking effect, Belarus anticipated to buy certain amount of natural gas from Russian independent producers (Novatek and Itera) at prices lower than Gazprom’s. According to Vladimir Semashko, the average price of natural gas for Belarus in 2013 may be reduced compared with the actual operating costs in 2012 to USD 165.6 per one thousand cubic meters.
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.