Alcohol and tobacco manufacturers will focus on foreign markets
According to the National Statistics Committee, the highest increases in prices in January-April 2013 were prices on local cigarette brands without filter.
In the framework of harmonization of excise policy within the EEA from 1st January 2013, Belarus increased excise taxes on tobacco and alcohol. As a natural result, the sales of alcohol and tobacco products decreased. Belarusian manufacturers of these products, given the reduced domestic market opportunities are forced to look for export options to maintain their production volumes.
From 1 January 2013 excise rate on alcohol in Belarus was increased by 11.8-61.6%, depending on the type of alcoholic beverage. Excise taxes on tobacco products from January 1st, 2013 increased by 1.5-3.5 times. In Q3 and Q4 further increases are envisaged. Belarusian government introduced these measures to meet its commitments within the EurAsEC Anti-Crisis Fund and to harmonize the excise policy within the CES. It is planned to continue gradual increases of excise duties on alcohol and tobacco to level with Russia.
As a result of the excise growth, prices on alcohol and tobacco products have increased significantly. Prices on domestic non-filter cigarettes increased by 67.5% in January –April 2013, vodka by 17.4%. Such a significant rise in prices has resulted in reduced sales of alcohol and tobacco products in the domestic market. In Q1 2013 sales of vodka in real terms fell by 9%, and tobacco products - by 1.4% over the same period in 2012. Stocks of alcohol started growing due to existing production plans approved earlier for 2013.
The situation has also deteriorated due to growth of incomes. Beer imports in Q1 2013 increased by 38% over the same period in 2012, spirits by more than 30%. The population increased demands for better quality alcohol. Therefore, alcohol and tobacco producers are forced to pay attention to foreign markets, since the current excise policy reduces the domestic market’s profitability. The main tobacco producer, Grodno Tobacco Factory, expects to double exports in 2013, since domestic market is limited and will not expand.
Thus, excuse duties growth on the one hand forded citizens to reduce alcohol and tobacco consumption and increases budget revenues, but on the other hand reorients local producers towards international markets. Further increase in excise duties may be able to reduce alcohol and tobacco consumption and complement efforts targeting fight against alcoholization of the population – due to increased costs.
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.