Harmonization of railway tariffs in Belarus resulted in domestic freight market reformatting
On 30th May, Belneftekhim Concern announced the launch of Euro 4 diesel fuel trial pumping through Navapolack-Ventspils pipeline.
Following the railway tariffs harmonization, the costs for local transportation of goods by rail have increased sharply in Belarus. Businesses started considering alternative routes and transportation means in order to minimize their transportation costs. Enterprises which were unable to shift to other transportation means might start working at a loss or go completely bankrupt.
Within the Common Economic Space agreement Belarus has undertook an obligation to unify tariffs for transportation of goods on domestic routes using various transport means. Since January 1st, 2013, all rail way cargo tariffs were unified regardless of the cargo’s destination (Economy Ministry decision No 111 of December 17th, 2012). As a result, domestic freight tariffs increased by 2.76 times since early 2013, and for some goods and destinations by more than 7 times, taking into account previous discounts.
As a result of railway tariffs rise, cargo transportation shifted from railway to road and pipeline transport. In April and May 2013 CJSC Belarusian Oil Company tested Navapolack-Ventspils pipeline for Euro 4 diesel. When problems linked with this pipeline are solved, its transportation capacity will be increased. Transportation of cement by road has increased as a result of higher railway tariffs and in generally the attractiveness of transportation by road has increased, while by railway decreased.
Higher railway tariffs had a significant impact on some businesses, first of all, on cement plants. Cement’s shelf life is short. Raw materials for the cement production are delivered by rail, which increases its costs significantly and, combined with cement sales problems in the domestic market, results in many cement plants working at a loss. Enterprises working on wooden pallets and chips also suffered from the higher tariffs. Wooden pallets and chips transportation costs now equal their price due to the sevenfold increase in tariffs.
Thus, after the railway tariffs’ harmonization, the country’s cargo transportation structure has changed. Businesses used railway transport due to its low costs and now they have to reconsider transport means or abandon production of the goods, which depended on low railway cargo tariffs.
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.