Baltic States – CIS, Direct Speech, Interview, The Baltic Course No. 27

BC: Your Excellency, Mr. Ambassador, how would you define the present state-of-art in Belarus economic development?

Alexander Gerasimenko: The country's economic profile has changed greatly during 2007 due to various macroeconomic and international factors. 

First of all, I would mention a sharp increase in Russian commodity prices exported to Belarus. This caused a consequential correction of our companies' activity, especially those using Russian gas as energy source, and the refineries using Russian crude oil.

Then, second, we can mention a certain slow-down in prices on world markets which caused the reduction in trade with the EU countries and the country's profits in trade with the EU member states. It is to be added that Belarus terminated almost completely its own oil export.

Among other factors we can mention the imposition of the EU's temporary sanctions (entered into effect this fall) on preferential trade with Belarus which would definitely exert negative effect on Belarus' export to the EU in the second half of 2007. 

All those not really optimistic factors of "outside nature" affect our national economy. However, the stable growth of our economy during last several years has allowed us in the new development conditions quickly introduce necessary corrections, diversify exports and secure competitive advantages of Belarus export items, mainly by reducing delivery costs. We managed to achieve all this.

Here are some examples: according to forecasts, the GDP growth in the country is expected in 2007 to be at the level of 8-9 per cent; in fact, during 3Q of 2007 the growth rate reached 8.3 per cent and we expect it to go on. Our economy ministry has already prepared a perspective development plan for the next year with the GDP growth rate at 8-9 per cent. 

Industrial production in the 2007 third quarter increased by 7.7 per cent; most active growth was noticed in manufacturing and metal-processing industries (increase by 13 per cent).

Growth rate in agricultural production reached 6.3 per cent; this means that we managed to secure our supplies from our own resources and we import only those agro-produces that we can't produce in the country, e.g. sea-fish products, tropical fruits and vegetables, etc.

The positive trends in economic development are clearly seen in the retail trade growth by 16.8 per cent; private sector's share reached 81.8 per cent in retail turnover, state sector - 15 per cent and the rest was assisted by the foreign companies.

As the outcome of the 3Q development, the energy consumption as the GDP share reduced by 12.2 per cent instead of initially planed 6-7 per cent.  The government's decision is aimed at the further reduction in the national GDP's energy consumption share by 31 per cent in 2010, by 50 per cent in 2015 and by 60 per cent by 2020.    

The implementation of this aim will require the elaboration of complex measures including energy efficiency certificates for all the national and imported goods and machines; and a national alternative energy program has been elaborated including wind energy usage.

Belarus economic development is under constant scrutiny by various international experts working either in the country's trade missions in Belarus or through periodic reconnaissance tours. Thus, recently the World Bank experts published their analysis containing positive assessments of Belarus economy underlining adequate growth rates even under increased prices on energy resources.

A new World Bank strategy concerning its activities in Belarus is being prepared and it will be published next year. Three main directions will be supported by this international financial institution: measures to increase energy efficiency, measures to protect water quality and environmental protection measures, including waste management.    

Among the positive factor affecting our economic development we have to mention that Belarus was acknowledged by the two most renowned international ratings agencies, i.e.  Standard&Poor's and Moody's Investors Service; all the ratings' scales have issued the notion of "stable prognosis" for the country.  

Among factors influencing the rating agencies' approaches experts in Standard&Poor's mentioned stable growth rates of national economy, low level of public debt, significant country's economic potentials, positive trends in reducing inflation, high wellbeing level (compared to the other SNG/CIS members), as well as available qualified workforce. It was underlined that in the near future the ratings' evaluations could be increased.

Moody's agency experts underlined "positive signs in Belarus macroeconomic development during last 5 years" and existence of "world class" undertakings in the country.

The ratings' results have been made public only this fall but we nevertheless expect that it would accelerate foreign investment flow, including FDI. So far our economy has been developing mostly relying on our own investment resources which were apparently insufficient for the prospective economic development.

After acquiring these credit ratings we can significantly decrease payments for our external debts; at the same time we expect positive transformations in the country's banking system.

According to Belarus finance ministry, we are going for the first time to emit our euro-bonds, the process that represents a completely different approach concerning additional resources for the budget and state development programs.

Foreign investors have significantly increased their activity on the Belarus market since the beginning of this year. Thus, in its first half the volume of foreign investments increased by 2.3 times (compared with the same period last year) and reached 2.3 bln USD. The share of foreign direct investments accounts for 21.9 per cent, the rest is bank credits and financial institutions' loans. According to experts' opinion, the main factor behind this investment boom is a massive industrial modernization in the country.

Those negative factors which I mentioned in the beginning, e.g. increased commodity prices, have resulted in assets' reduction by 13.1 per cent in products' turnover (compared to 13.8 per cent last year and estimated 14.5 per cent for the whole 2007). The rate of profit in energy supply sector has reduced to 7 per cent in the first half of 2007, and profitability in refineries was only at the level of 5 per cent.

However, country's industrial sector as a whole has successfully adapted to the increased energy resources' price levels; on average, profit rates in industry reached 17.1 per cent in the 1Q of 2007. 

Innovations have been intensively developed in industry during this year with breakthrough technologies and big enterprises, e.g. new tube production at Belarus metallurgical factory.

We are worried by the level of inflation which during the last 12 months reached 7.2 per cent due, in part, increased commodity prices which has led to customers' payment growth by 20 per cent for gas and electricity and by 23 per cent on wood products. Besides, prices on cement increased by 30 per cent as the item with intensive energy consuming production. Consequently, consumer product prices increased, in particular fruits and vegetables grown in green-houses.

Our country's economic model is oriented towards adequate citizens' social protection regardless of the present developmental difficulties. Here are some vivid examples: pensions have been increased by 7.5 per cent since 1 September this year and a subsequent increase is expected next year (average pension amounts presently to 278.7 th rubles or about 130 USD).

Average national wage growth, as well as pensions, reached 10 per cent during first half of 2007; an average salary in the country amounts to 330.7 USD. 

Assessing new economic trends in Belarus, we have to take into consideration the state of our labour resources. We can hear rumors on possible Belarus workers' immigration to Latvia, though we have been experiencing recently lack of work force self. As it is in Latvia, we lack qualified workers in construction sector, mainly in Minsk. Average labour requirements are at the level of 5 thousand specialists a year.

The unemployment level in Belarus is about 1 per cent, or about 1.2 per cent in the beginning of 2007; during last year the figure was 1.4 per cent.

We have to mention a positive external trade balance in Belarus: as far as in 1990 the trade balance was negative, since then foreigners were coming to the country and the immigration trend reversed. Presently the number of returning citizens is higher than those immigrated: during last half a year 6980 people returned and 4280 tried their luck elsewhere. Notable, that among those coming back are highly qualified workers and specialist which for several years worked abroad on contracts.   

Among positive trends the reduced immigration from rural areas has to be mentioned. 

BC: How is the external trade with the European states going on and in particular with the Baltic States? What are the main Belarus export items to Europe?

A. G.: In the beginning of 1990s the dominating share of our export were goods aimed towards Russia - about 80 per cent of the total; however during last years regional export structure has changed drastically. On the general rate of export growth its European direction is exceeding that of the Russian one. Thus according to the last year data the division is the following: 34.7 per cent of our export goes to Russia and 45.5 per cent to the EU.

According to our customs' authorities, during 3Q in 2007 our total external trade increased by 19.8 per cent, compared to the same period last year, and reached 278 bln USD. Our export was 12.88 bln USD (+16.5%) and import 14.9 bln (+23.9%).  

Our trade balance with the SNG/CIS members is negative at present - about 3.87 bln USD; with the countries outside this block the balance is positive - about 1.8 bln USD.

In the Belarus export structure the following "main five" items are important:

• Crude and refined oil products - 31.1 per cent of the total export;

• Calcium fertilizers - 6.3 per cent;

• Various tractors - 5.2 per cent;

• Production of steel and non-legated metals — 4.3 per cent;

• Heavy trucks - 3.5 per cent.   

We can witness a general increase in Belarus' export added value on all items which traditionally occupy main export positions, except oil products.

One of the important trends in the year's trade is an increased export of calcium fertilizers (+73.7 per cent or +286.9 mln USD) as compared to the general supply reduction level in 2006.

Export to the EU member states increased by 6.4 per cent and reached 5.9 bln USD; however we have to mention a certain decrease in export dynamics compared to previous years when export growth has been at the level of 20-30 per cent yearly.

Main export item in Belarus trade with the EU members has been permanently (at least during most of 2007) oil products (54.6 per cent of the total export to Europe), which was about 3.2 bln USD in value and slightly reduced by 0.9 per cent.  

I would like to mention a small share of calcium fertilizers in Belarus export to the EU, which occupies the second place in the country's total export, due to negative effect of special anti-damping levies imposed by the EU in the beginning of 1990s which are still valid for the "old EU members".   

Next items in our exports to the European states are the metallurgical products, mostly semi-manufactured products of various kinds of steel, tractors and drudges, as well as various sorts of wheels for tractors and cars.

In the structure of our import items various energy commodities occupy a specific place: more than 30 per cent of our import belongs to it. Russia is our main partner in these import items. There are the following five main import items from Russia by their commercial value:

• Crude oil — 23.1 per cent;

• Gas and gas ingredients — 8.4 per cent;

• Passenger cars — 4.4 per cent;

• Oil products — 1.3 per cent;

• Motors and engines — 1.2 per cent. 

BC: What is the present situation with the idea of Belarus acquiring its own infrastructure in Ventspils port, and what are the perspectives of dispatching calcium fertilizers through Ventspils terminal?  

A. G.: We are trying to modify both our transit business and the whole structure of our growing export volumes to customers abroad. It's a complex issue which requires, among other things, a decision on possible acquisition of our own infrastructures in foreign ports. Though, we do not wish to rush with such decisions.   

We approach this issue, as well as identical other problems, in a system-like fashion. Thus, we have finalized this year the concept of transport and logistic scheme for formation of special centers on our territory in order to form a unified transport system for our goods destined for international markets. At the same time we are exploring the inter-modality options used in the whole scheme.

Such complex and big project can definitely attract foreign investors' attention. For example, a Belgian transportation company is already exploring the opportunities to build in Belarus warehouses for road and railway cargos; we have some interesting proposals from the Russian investors too.

To my mind, Latvian sea ports are quite attractive and suitable for us; the increasing transit of Belarus goods through Latvian territory is a clear example of that and we have some good partnership assets in this regard. At the same time, the above mentioned concept's implementation would definitely include Latvian transit infrastructures. However, it's so far difficult to say which directions such development will follow.

The issue of acquiring the port infrastructure is not a separate question; it has to be approached in line with the whole transit links servicing our deliveries to foreign markets. In order for the "transit chain" to function effectively, we have to increase efficiency of each link.

Belarus is constantly exploring new activity spheres which were previously out of our interests as an in-land state without entrance to seas. However we have already several companies involved with sea transportation; these companies during this year alone increased their turnover by one-third and they are constantly growing. These are also the necessary links of our integrated solution.

In 2005 the Belarusian calcium company (BCC) was established which was actively involved in our calcium trade on international markers. During last two years the company managed to effectively enter the new markets and increased exports by 47 per cent in 2007 to 5 mln t and several new deals were concluded. Thanks to these activities we increased by third the calcium fertilizers production in 2007.

This May we established Belarusian oil company (BOC) which foreign markets' strategy based on emulation of the calcium company's activity. The main task of the new company is to supply our oil products to foreign customers; thus the main operational spheres are buying crude oil, its refinery in Belarus and final export. For these activities some preferential terms were given to the company in organizing international sea transport routs.

Therefore acquisition of the port infrastructure might be the next step, which to my mind is inevitable. The demand for our calcium fertilizers, as well as for our oil refinery products, is growing in the world and Belarus occupies leading positions in their production. We produce about 8 mln t of calcium fertilizers a year (the calcium deposits can last for the next 500 years); and our refinery is processing about 23 mln t of crude oil.

As to calcium's transport through Ventspils port, I have to admit that this port has most comfortable for that kind of transportation facilities and we are definitely very interested to cooperate. We transport through the port about 3-3.5 mln t of fertilizers and we'd like to increase the turnover.           

BC: What is the Latvian role in Belarusian economic development? Can you name the main items in the bilateral export-import trade? 

A. G.: Latvia's role for Belarus is not reduced to the bilateral trade alone. I would like to mention our mutual bilateral relations in other spheres of economic cooperation including investments, transit and science-technology fields. 

As to the sea goods transit, it is to be stressed, that Latvia is our most important partner. I would like to repeat it again that the greatest share of our sea-transported export goods, according to some estimates, is up to 80 per cent, and it's all delivered through Latvian transit corridor. 

We can judge our cooperation's transit potentials looking at the amount of transported railway cargos: during the first half of 2007 the Belarusian Railway Company handled 72 mln t of exported goods; important to mention that on the Russian direction (our main trading partner) there were only 16 per cent of cargoes, and on Lithuanian direction - 21.3 per cent. Mostly these were cargoes delivered to Latvian sea ports for further processing towards our foreign customers. Besides, an additional share of our exporting goods is delivered to the sea ports by road transport.

Latvian Railway Company transported about a third of the total Belarusian goods' turnover and about one-quarter potentials of Latvian ports are covered by our goods' processing.

We can see good perspectives in our economic development which is highly transparent and therefore our export activity will be increasing. Our economic growth is followed by an adequate increase in people's wellbeing, and due to our socially-oriented development model we can expect a further increase in consumer goods' import. For example, already this year we can expect an increase in passenger cars' import, as we do not produce cars. Therefore we can see that our transit cooperation will increase further on and we are willing to discuss with our partners such issues as common tariffs, transport infrastructure developments, including that of the sea ports. I would like to underline, at the same time that these are particular cooperative spheres for business partners from both sides and our embassy is willing to render all possible assistance in these contacts' creation.         

Here are some figures that show our investment cooperation: during last three years Latvia has been among ten of our most active investment partners. Starting from 2005, Latvia is investing about 100 mln USD annually (151 mln in 2006 and the same amount is expected this year). There are about 500 joint ventures from both sides and perspectives are great.   

Recent bilateral investment forum this October has gathered about 150 experts from two countries. A perspective plan for further forums has been already composed, which can show the perspectives in mutually beneficial investment trends. Special sections in the plan will be devoted to investment projects in transit and banking spheres. There are interesting investment initiatives from Riga Free Port administration and Latvian Railway Company. Practically all main sectors of Belarus economy have made proposals concerning joint ventures and possible Latvian investments. Besides traditional projects in bilateral cooperation oriented towards, e.g. industrial cooperation and wood processing, we presented for the first time in Latvia our high technology park, a Belarus analogy of the US Silicon Valley. We have prepared for Latvian firms tourist and transit projects of interest to Belarus regions.

During last years we can witness a growing interest from Latvian and Belarus companies in industrial cooperation: since 2005 Latvia assembles our heavy trucks "MAZ", though in small numbers, so far. There are plans to make an assembly line for Belarus busses. These projects are a clear sign of interest from Latvian side to assist in creating a connecting "bridge" between the EU and Eastern Europe. It is precisely along these projects the idea of final assembling on Latvian territory of competitive goods for the European markets can be materialized.     

We can say that cooperation between Riga railway construction factory and a number of Belarus companies is proceeding quite well. This year we have signed an agreement on delivering to Latvia elevators made in Belarus which have already acquired the European certification and can be used on the Latvian market.

We are supporting longstanding fruitful cooperative contacts between Belarusian's Malavica factory and Liepaja's Lauma in women's underwear production and trade.

With great expectations we are waiting for renovation of contacts in pharmaceutical cooperation which have been so successful not so long before. 

This year we have established in Belarus the Industrial and Business Confederation which already united 19 companies and organization. The Confederation's head participated in the Forum and established valuable partnership contacts with the corresponding Latvian Industrial Confederation. The agreement can provide a solid background for mutual cooperation among business circles in two countries and can serve as an additional tool in stimulating our cooperation.

Some words about our mutual trade: in 2006 our trade turnover was over half a billion USD and was the highest since the establishment of our bilateral economic relations; this year we hit the record line, i.e. for the seven month in 2007 we already broke the 0.5 bln mark. The growth in trade is followed in almost all components of our bilateral cooperation.

Thus, about 60 per cent of Latvian diesel consumption is covered from Belarus; a lot of other items are delivered to Latvia, e.g. forest production and wood processing, crude metal and manufactured metals, cars and buses, tractors and agricultural machinery, various industrial   goods, furniture and beverages (which always get highest awards at Latvian foodstuff fair "Riga-Food").                

Belarus imports from Latvia includes consumer products, e.g. frozen fish products, pharmaceutical goods and drugs, medical equipment, electric railway cars, and diesel-locomotives, manufacturing goods, textile and animal forage.   

BC: What kind of interesting items are expected for the traditional Autumn Belarus fair in Latvia this year?

A. G.: We are not organizing our national fair this year; it's arranged once in two years (in was in 2004 and 2006, then next one is expected in 2008). However, this fall we had organized three other traditional events of economic character: above mentioned 3rd Belarus-Latvian Investment Forum; 3rd meeting of the bilateral Intergovernmental Commission on economic, scientific and technology cooperation; and a visit of Belarus business leaders to Latvia as an exchange among our industry and trade chambers. All three events were held this October.

In the Investment Forum our Economy Minister, Mr. Nikolaj Zajchenko participated and from the Latvia side, Mr. Kaspars Gerhards, state-secretary in the Latvian Economic Ministry. Belarus delegation composed of about 50 prominent businessmen participated in the Forum.

Latvian-Belarus bilateral Intergovernmental Commission on economic, scientific and technology cooperation meets regularly in order to streamline our cooperation efforts. Important that we have already formed all necessary legal background for our economic cooperation; however each Commission's meeting adopts bilateral agreements on specific spheres of cooperation.

For example, at each Commission's meeting new agreements and protocols are signed in the sphere of certification and standardization which assist the new goods and services enter bilateral trade. Decisions in the transit and transport spheres have become traditional too. Quite perspective is bilateral science and technology cooperation: two years ago an agreement was signed regarding cooperation in forestry and in the beginning of this year a detailed cooperative plan was composed concerning cooperation in this field.

The Baltic Course 27, Autumn 2007