Government control expanded

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April 22, 2016 18:22

By including enterprises with state shares exceeding 50% into state planning scheme, the government expands and clarifies its command authority in managing the economy. The state is trying to replace the owner, without worrying much about the economic feasibilities.

A Council of Ministers resolution No 1021 of November 13th, “Socio-economic development performance indicators in 2013”, sets performance targets for businesses, inter alia, for those with state shares more than 50%, and holding companies, where the state’s share exceeds 50%.

The state declared the intention to shift from quantitative indicators to qualitative. To implement this, it has defined seven tasks for enterprises with state shares exceeding 50% in capital shares and holding companies, in which HQ are state-owned with more than 50% shares. The projected indicators are: sales return, net income, exports, service exports, balanced foreign trade in goods, balanced foreign trade in services, the ratio between exports of goods and industrial production. Moreover, such targets could be set for businesses without the state’s shares in the authorized capital.

However analysis of the socio-economic development indicators in the territorial context suggests that in 2013, the emphasis again will be on quantitative indicators. The first of them is the GDP growth rate, which is too high for the current economic situation. Foreign direct investment is projected at USD 2 billion on a net basis. Bear in mind, that the only industry, which managed to attract investment over the 2012 plan was the “High-Tech Park”. Perhaps for this reason, the 2013 FDI plan for this industry has been increased from USD 41 million to USD 106 million.

De facto, this regulation establishes the government’s effective right to intervene in business activities of almost any enterprise. The acquisition of a minority stake in a company, where the state is one of the stakeholders, loses economic sense because its financial parameters could change significantly depending on projections, set by the state.

Thus, on the one hand, the state wants to attract investment and counts on business initiative, and on the other hand, sets strict frameworks for enterprises’ commercial activity.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

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.