Authorities crumb privatization deals in petrochemical industry
In early July, "Belneftekhim" Head Igor Zhilin was released from office. Until now, official explanation was not provided. In addition, the Belarusian law enforcement agencies do not comment the information, published in some independent media about the alleged arrest of Zhilin.
For example, according to BelaPAN, the General Prosecutor’s Office instituted criminal proceedings under Article 424 of the Criminal Code (abuse of power or of a position of authority). A Russian citizen, Igor Zhilin in 2009 – amid dairy and "gas wars" between Moscow and Minsk and before the abolition of oil preferences – was appointed as ‘Grodno Nitrogen’ Head. In 2011 – amid a dispute over duty-free Russian oil – he was appointed as "Belneftekhim" Head. Experts have interpreted his most recent appointment as a preparation stage for privatisation of Belarus’ petrochemical industry by large Russian business. Today the Belarusian leadership is lacking sufficient resources to continue delaying privatisation in favour of Russian business. However, they might use some old means (eg Baumgertner case) to initiate tension in Russo-Belarusian relations, and put in jail top managers representing Russian oligarchs, interested in Belarusian assets.
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.