Privatization breakthrough ended without starting
The draft amendments to the Law “On state property privatization” put an end to attempts of most investors to purchase state-owned enterprises in Belarus.
To implement the FDI plan, the Economy Ministry has compiled a list of 800 companies for a possible sale to investors. However, privatization in Belarus can be severely restricted due to the potential interventions by the state in the privatized enterprises’ operations, even after their sale to the new owner. Therefore, the range of investors will be limited to businessmen with strong connections in the government and mainly representatives of Russian large businesses, who have the opportunity to lobby their interests.
On February 13th, the Economy Ministry has compiled a list of 800 companies for a possible sale to investors. The State Property Committee has compiled a list of 103 companies, the sale of minority stakes in which can provide for USD 5 billion. The government intends to keep the controlling stake in these companies. Belaruskali, Naftan and others are on this list.
On February 21st, the draft Law “On state property privatization” was submitted to the Parliament. If adopted as is, as of April 1st, 2013 state representatives will be able to participate in open meetings of shareholders and to vote for the minority shareholders that have not registered for participation in the meeting. In addition, they will be able to intervene in all decisions concerning enterprises’ reorganization, payment of dividends, issuance of additional shares; to suspend implementation of decisions, made at open shareholders’ meetings, - even if the state does not own the controlling stake. Operations of any enterprise, which has been privatized, can be blocked.
It makes no sense for investors to buy such enterprises. Buying a minority stake is not economically feasible due to the peculiarities of the Belarusian economy. High-performance businesses annually enter certain amounts in the national development fund’s accounts. In December 2012 Naftan remitted BYR 600 billion to the fund. Before Russia bought 100% shares of Beltransgaz, it could do nothing about enterprise’s loss-making (50% of the shares were bought for USD 2.5 billion).
Thus, attitudes to privatization have not changed in Belarus. The range of investors is limited to businessmen with strong connections in the government and mainly representatives of Russian large businesses, who have the opportunity to lobby their interests and oppose the interventions in the operations. For other potential investors buying enterprises in Belarus could become a high-risk undertaking.
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.