Minsk puts hope on conflict of interests between Putin and Medvedev
On September 11th, President Alexander Lukashenko met with Rosneft President Igor Sechin; on September 13th; with Gazprom Chairman of the Board Alexey Miller; and on September 14th with Sberbank Head German Gref.
The Belarusian government is trying to take advantage of contradictions between the camps of Russian President Vladimir Putin and Prime Minister Dmitry Medvedev. Meetings with key figures from Putin’s clan and the postponed ban by Rospotrebnadzor on the import of dairy products from Belarus may strengthen Belarus’ position in the short-term. The Belarusian president’s hope of clans fighting in Russia brings certain tactical benefits, which appear mainly in the Belarusian information space. Nevertheless, Belarus continues to suffer financial and reputational losses, becoming more vulnerable vis-à-vis Russian leadership.
During the past week Alexander Lukashenko met with two prominent members of Putin’s clan: Rosneft President Igor Sechin and Gazprom Chairman Alexey Miller. As presented by the Belarusian media, the conflict had purely a ‘domestic’ nature in Russia, in which Alexander Lukashenko took Vladimir Putin’s group side. The Belarusian president also used the meetings to show support for Belarus’ actions by Russia’s leadership in the ‘potash war’.
The meetings’ official results showed no major achievements, but this does not exclude backroom arrangements with Russian top-managers. Against the background of the protracted conflict in Russo-Belarusian relations, Lukashenko had to offer attractive terms during the high-level meeting in Minsk.
In particular, Belarus’ president said the following about Russian oil supply to Belarus: “…[the supply] will be to your refinery, because approximately one half of the Mozyr Refinery, which has its own decent markets, is now owned by Rosneft”. Previously, the Rosneft Head, when commenting on Transneft plans to cut oil supplies to Belarus, said, that “I need to supply crude oil to Mozyr Oil Refinery, my asset”. However, to date there is no official data about changes in the shareholders of JSC Mozyr Refinery. The Belarusian government owns 42.757 % of its shares, LLC MOR plus – 12.252 %, and Russian Slavneft - 42.581 % of the shares. Slavneft’s owners on par are Rosneft and Gazprom Neft. Alexey Miller is also Chairman of the Board at Gazprom Neft. Potentially, the main subject of discussion between Lukashenko and Russian top-managers was the change in the shareholding structure of the Mozyr Refinery.
During his entire presidency, Alexander Lukashenko tried to play an active role in the Russian domestic space. Best of all he succeeded in the late 1990s and early 2000s. However, the period ended with the election of President Putin, followed by consolidation of full power in his hands. Regardless of the conflict of interests between the camps of Vladimir Putin and Dmitry Medvedev, the Russian leadership’s approach to building relations with Belarus has remained unchanged since 2003.
Finally, the results of Russo-Belarusian meetings demonstrate that there has been a shift from Russia’s state support of the Belarusian economy towards Russian commercial and corporate structures. For example, Gazprom, which previously had full control over the Belarusian gas transportation system, has once again raised the price for gas supplies to Belarus in 2014. Rosneft is becoming more involved in oil supply to Belarus. Sberbank becomes the main creditor of virtually all industrial giants in Belarus, including Belaruskali, BelAZ, and Mozyr Oil Refinery. In addition, the issue of assets redistribution at the Mozyr Refinery is addressed non-transparently.
Thus, Belarus has to pay for the Kremlin’s favours – in one way or another. Belarus’ play on the contradictions between different Russian elite groups brings tactical gains but is unable to reverse Belarus’ increasing dependence on Russia. Finally, Russia continues increasing its presence in Belarus’ military and economy and Belarus is forced to pass on its most profitable assets to its ally.
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.