DEVELOPMENT CHALLENGES
Belarus gained its independence in 1991 and, between 1998 and 2008, registered average annual GDP growth of 7.7%. This growth was primarily driven by improvements in labour productivity and increases in energy efficiency and capacity utilization. Having recently graduated to “upper-middle” income status, Belarus had a GNI per capita of US$6,130 in 2010. Belarus is ranked 65th of 187 countries on the Human Development Index (HDI), with a “high” value of 0.756. Despite remarkable progress, the global economic crisis and the rise in energy prices have exposed the limits of Belarus’ development model, as GDP growth dropped from 10.2% in 2008 to barely positive (0.2%) in 2009. While Belarus has recovered rapidly, the recovery is unsustainable, and the country faces urgent macroeconomic and development challenges.
Inequality and unemployment
Whereas the proportion of the population living below the national poverty line declined substantially, from 41.9% in 2000 to 5.4% in 2009, inequality has remained stable. A number of groups are still vulnerable to poverty, including large families with three or more children, single parent households, workers with a low level of education, and disabled persons. Rural poverty is also higher than the national average. Similarly, official unemployment is low, accounted for only 0.9% of the total workforce at the end of 2009; however, youth aged 15-24 represented 26.5% of the unemployed, and many individuals are employed in the informal economy, estimated at 43.3% of official GDP (Andreas Bühn & Friedrich Schneider, 2011). Part-time work has also increased since the onset of the international economic crisis.
Irregular labour migration
Migration represents another development challenge for Belarus. Sharing 1,050 km of border with the EU through Latvia, Lithuania and Poland, as well as a relatively open frontier with the Russian Federation, Belarus is used as a transit route for irregular westward migration. However, strengthened EU border controls have left Belarus with a growing number of irregular immigrants. Conversely, Belarus has faced increasing labour emigration in recent years, directed mainly towards the Russian Federation, United States and EU. Other popular destinations include Turkey, Moldova, Vietnam and China. However, migrant workers are often illegal or, if legal, marginalized and not granted the same legal and social rights as domestic residents.
Skills gap
Belarus has achieved 100% adult literacy, with primary enrolment and completion rates of 94.4% and 92%, respectively, in 2009. Tertiary enrolment is at 75%. Nevertheless, with public expenditure on education decreasing from 6.1% of GDP in 2006 to 4.5% in 2009, educational institutions are underfunded and qualified teachers have left the profession. Teaching methods are based more on knowledge accumulation than skills development, resulting in inadequate preparation of workers for the job market. Although tertiary education significantly reduces the likelihood of being unemployed, Belarus has particularly high percentages of unemployed with post-secondary non-tertiary education.
Weak governance
Belarus also suffers from low governance efficiency and accountability. Poor governance leads to an opaque and uncertain business environment and discourages foreign direct investment (FDI). Public institutions lack the capacities to enforce regulations, thereby creating room for rent-seeking behaviour that diverts scarce resources away from broad development objectives. This results in the exclusion of vulnerable groups from the social protection system and reinforces inequalities.
KEY TRADE ISSUES
Market concentration and trade deficit
The Belarusian economy is very dependent on exports. However, while Belarus has trade relations with 183 countries, its exports are concentrated on a small number of markets. Higher value-added exports are mainly directed at the CIS, with the Russian Federation constituting the main trading partner, accounting for 30.4% of total exports. The EU makes up 43.5% of total exports from Belarus, which are mainly concentrated on oil products. Since the onset of the financial crisis in 2008, Belarus has witnessed a considerable drop in exports due to decreased demand from the Russian Federation and the EU. This, along with high dependence on energy imports, has resulted in a widening of the country’s trade deficit.
Regional integration and WTO accession
Although the recent Customs Union with Kazakhstan and the Russian Federation is expected to provide more trade opportunities for Belarus, continued efforts are required to finalize the tariff and customs unification process, in order to reap the full benefits of regional integration. There is also a pressing need to finalize the WTO accession process (which began in 1993), in order for the country to become better integrated into the world economy.
Limited access to finance
Belarus has a long history of supporting state-owned enterprises and providing credit at low interest rates to certain strategic industries. However, small private entrepreneurs face a lack of access to finance, due to the high administrative costs attached to small-scale lending, and the perception of high risk associated with lending to small businesses. Collateral rates are also extremely high, reaching 118.4% of the value of the loan. Moreover, despite an average year-on-year increase of 42% of FDI inflows between 2002 and 2008, Belarus has attracted low levels of FDI compared to most countries in the region, with the exception of the telecommunication and energy sectors, which received large one-off investments. Between 2009 and 2010, FDI inflows decreased from 3.8% to 3.0%.
Administrative and regulatory barriers
The business environment in Belarus is not very attractive for small private businesses and individual entrepreneurs and is characterized by excessive paperwork, onerous tax payment, licensing, registration and inspection processes, and strict price, wage and employment regulations. Nevertheless, the country’s rank on the World Bank’s “ease of doing business” indicator improved by 22 positions over the past year, from 91st to 69th place of 183 countries. In terms of “trading across borders”, however, Belarus remains in 152nd place. Complex and non-transparent administrative procedures and regulations represent a significant barrier to conducting foreign trade operations.
Slow privatization
Another key trade issue is the pervasive role of the state in the Belarusian economy. Despite a new and enlarged privatization programme launched in 2008, the private sector share of GDP is only about 30%, the lowest among all transition economies. Small-scale and private businesses therefore play a marginal role in the economy. As a result, there is a continued need to increase the scope of private sector activity in the country, in order to promote modernization and help fill fiscal gaps.
Statistics have been compiled by the World Bank, OECD and UNECE. Information has been adopted from: the United Nations Development Assistance Framework for the Republic of Belarus 2011-2015; the 2010 United Nations report on “The MDGs in Europe and Central Asia: Achievements, Challenges and the Way Forward”; and the 2011 OECD report on “Competitiveness and Private Sector Development: Eastern Europe and South Caucasus”.