Small-scale privatization: IPOs plan for 2012 – 2013

In the first half of 2012 there was no public information about any small-scale privatization deals. The authorities continue demonstrating unwillingness to give away small and medium enterprises under control of local authorities and local directors. Mass scale IPOs of enterprises should be regarded as a kind of safety net only. If economic situation deteriorates, profitable enterprises of the second tier will be put on sale.

There are two parallel processes ongoing within the privatization. Firstly, transformation of SOEs into joint stock companies with 100% state ownership. Secondly, offering for sale little liquidity and loss-making enterprises, which do not find their owners.

If previously local directors were against privatization, desiring to maintain state funding, now a different trend is observed. In particular, in the Minsk region local managers show interest in becoming owners of small profitable enterprises. At the same time, there was no yet reaction from the central government to these initiatives. It could also imply that Minsk is not yet prepared to pay for the loyalty of regional elites with their greater economic independence.

In general, small-scale privatization is frozen. Authorities intend to sell 8 joint stock companies via the Agency for Investment and Privatization set up last year, among them are: Minsk Margarine Plant and Baranovichi reinforced concrete structures. This year’s privatization pace makes us doubt that by the end of the year privatization will reach the level of 2011, when stakes in 36 companies were sold.

Current state of affairs proves that the government lacks a long term privatization strategy. Privatization policy varies depending on the immediate economic situation: intensifies when there is crisis (2011) and inhibits when there is relative stability (first half of 2012).

In the spring of 2011 Belarusian government approved a three-year plan to sell shares in state owned enterprises in 2011-2013. This plan envisaged the sale of shares in 244 state-owned enterprises in the course of three years.

Back in January 2012 the State Property Committee announced plans to sell shares of 133 enterprises in 2012. But this spring, Alexander Lukashenko ruled out the sale of state-owned enterprises in compliance with the privatization list. “We abandon the lists of enterprises subject to privatization… We have stated that the advance publishing of privatization lists is humiliating employees of enterprises to be privatized”, Lukashenko said speaking in the Parliament in May. Therefore the government’s state property privatization plan in 2011-2013 should not be taken seriously. There is no new strategy for the state property privatization. Authorities stake on backroom negotiations for the sale of large enterprises. Small businesses are regarded as illiquid ballast.

For reference, 2012 plan envisaged to attract USD 3.7 billion of foreign direct investment into the Belarusian economy, including USD 2.5 billion from state property privatization.