The government prepares to sell oil infrastructure
First Vice-Prime Minister of Belarus Vladimir Semashko voiced willingness of the authorities to sell pipelines, following the sale of gas transport enterprise Beltransgaz to Russian Gazprom in 2011.
Prime Minister of Belarus Mikhail Myasnikovich coordinated with President Lukashenko a list of strategic enterprises to be put on sale in 2012 to provide for USD 2.5 billion from privatization in order to meet Belarus’ commitments within the ACF of the EurAsEC lending program, said the Head of the State Property Committee of Belarus Georgy Kuznetsov.
The government continues the intrigue with the privatization list-2012 attempting to stir up interest of the investors. At the same time, the Head of the State Property Committee said he “still has not seen the final version of the list, that the list was incomplete and could be amended”. Therefore neither Economy Ministry, nor the Council of Ministers are the main authors of the list and as a consequence, have any authority regarding privatization. According to Kuznetsov, there are 19 enterprises on the list with a book value of about Br 7 trillion (about $ 850 million). However, the enterprises will be privatized for their market value.
Kuznetsov refused to name companies appearing in the list, saying only that “it included strategic and liquid companies of Belneftekhim and of the Ministry of Industry”. Kuznetsov acknowledged that while compiling the list they faced with opposition from almost all Belarusian ministries. It also describes the attitude towards the privatization of directors of enterprises, local and central authorities. Even if the decision to sell an enterprise is made, the investor may face with hidden resistance and sabotage from the directorate and the relevant agencies (which is usually the case). Accordingly, in order to protect own interests, the investor will have to seek for protection and support at the highest political level.
Non-official sources say that the list includes the most liquid strategic enterprises of the country: Novopolotsk refinery, MAZ, BelAZ, MTS, oil pipelines, two breweries and Paritetbank. That is, the list contains assets that could be prepared for sale quickly.
The fact that the government is considering selling Druzhba pipeline has been confirmed by Vladimir Semashko. Deputy Prime Minister announced that the Government was assessing the effectiveness of the Belarusian oil pipelines and considering their further use or sale. Mr. Semashko said, the Belarusian oil pipelines had aging service life and some were not used at all, and noted that “we must remember about BTS, the BTS-2”. Semashko also said that the Government was negotiating with various buyers interested in purchasing Belarusian oil pipelines. Pipeline transportation is one of the most profitable industries of the Belarusian economy. For example, an enterprise “Gomel Friendship” is the fifth on a list of the most profitable companies during the first three quarters of 2011 with a margin of more than 50% (in foreign currency).
Therefore we have been proved right, saying that the privatization would be “targeted” i.e. strategic or profitable small businesses will be sold only to fulfill the obligations and to cover the current needs in the foreign currency (USD 2.5 billion or so, based on the needs, for instance, on the decision to increase salaries of public officials and/or state employees).
Most exclusively the buyers will be Russian private and public companies, as Russia now has sufficient leverage to cut off any other potential investors and ensure protection of their interests. At the same time, the row with the largest Russian private investor “Itera” (Alexander Lukashenko ordered to terminate the contract with them) shows the level of protection of investors, including Russian ones.
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.