YAROSLAV ROMANCHUK,
President of the Minsk-based Mizes Center

RUSSIA’S FAILURE: THE UNDECLARED WAR

If to judge about the Belarusian-Russian relations just by the crude figures of the Belarus’ trade balance, the two countries are definitely at a trade war. At the forefront is the commodity exchange between Moscow and Belarus. Belarus has lost 49.7 % of the trade turnover with the Russian capital which is the most dynamically growing and the richest Russia’s market. On the whole, in 2005 in value terms the trade turnover between Belarus and Russia decreased by 10.7%, in physical terms the exports lessened by 10.9%, the imports – by 12.9%. The friendship with Moscow Mayor Yury Luzhkov (during his visit to Minsk before the elections, he stated that the commodity turnover growth between Belarus and Moscow to be $7 billion, which differed by $4 billion from the real sum), the Russian military officials, Patriarch of Moscow and All Russia Alexius ll, the Communist Party of the Russian Federation and the State Duma faction of the United Russia headed by Boris Gryzlov has become useful for the fuel and energy complex of Belarus and Russia, but counterproductive for the majority of entrepreneurs and the small business of the both countries.

 Frightening failure

Of all ten commodity item positions of Belarus’ exports to Russia there’s been a decrease in all ten. In 2004 the oil products exports skyrocketed, but in 2005 the Russian market nosedived as fast as it had been developing in the previous 12 months. In value terms the supply volume decreased by 74%. Such instability is caused by the legislative pandemonium and the fact that this segment of market has no set rules of the game.

Textiles and related goods are the second commodity group in terms of the drop speed. The Belarusian light industry sold Russia its products by 18.7% less than in 2004 in value terms. Textiles are followed by the chemicals and non-precious metals. It should be noted that according to those commodity groups the rate of decrease in imports to Belarus was much higher: chemicals – minus 23.8%, non-precious metals – minus 27.9%. In spite of the forthcoming 10-year anniversary of the Belarus – Russia Union, the trade relations between Belarus and Russia are far from being stable and predictable as they are declared to be. They are strongly dependent on the political decisions made by the authorities, but, evidently, the latter do not welcome the free trade regime between the countries.

The other Belarusian goods, the Russians have lost their interest in, include footwear (shrinkage of exports by 30.3%), the parts of cars, tractors (by 27.5%), television sets (by 24.5%). Also, Belarus has reduced the number of car and tractor parts (by 2.6 times), electrical accumulators (by 11 times), insulated wires and cables (by 2.1 times), plastics and their products (by 42.7%), paper and cardboard (by 30.7%), ferrous metals and related products (by 21.9) purchased in Russia.

The year of 2005 was successful for the Belarusian meat exporters. In value and physical terms, the export of fresh and frozen beef, pork and sausages increased. The dairy products manufacturers worked effectively. In value terms the export of different dairy products increased by 30-35%. The Russians have bought more of the Belarusian cheese, cottage cheese, sugar and even tinned fish. Against a background of dramatic growth in sugar exports (by 28.9% in physical terms, 31% in value terms) the year was unsuccessful for the chocolate manufacturers (shrinkage of exports by 36.2% in value terms) as well as for confectionery manufacturers (decrease in exports by 28.6%).

The strong positions of the Belarusian manufacturers of corset products in the Russian market were shaken in 2005. In physical terms the corset products exports to Russia increased by 12.1%, but in value terms the exports decreased by 2.9%. The year of 2005 was not very successful for the Belarusian timber processors. The exports of raw timbers decreased by 31.2%. The volume of supply of fiberboards, wood-particle boards and wood construction materials lessened. In value terms the furniture supplies lessened by 12.6%.

The leaders of the Belarusian industry suffered. In spite of the fact that in physical terms the fridge exports increased by 2.6 thousand (up to 683.7 thousand), in value terms it decreased by 13.2%. The television sets exports failed in physical volumes of supplies and in value terms: Belarus sold 65.8 thousand pieces less, which resulted in the gain decrease by 24.5%.

The hosiery market witnesses the competition growth. The physical values of the hosiery exports decreased by 7%. The situation with leather footwear is still more critical. In physical terms the exports decreased by 17.6%, in value terms – by 27.6%. If to carefully analyze the trade balance between Russia and Belarus in recent years, it is very difficult to find commodity items (gas and oil not included) that would have a stable tendency towards growth. The trade is developing in spite of, rather than thanks to, the Russian-Belarusian agreements, protocols and treaties that are signed regularly. 

Structural changes 

In 2005 the process of the structural changes in the trade relations between Belarus and Russia became much more intense. The mineral commodities percentage in Belarus’ import from Russia increased from 40.6% in 2004 to 54.9% in 2005. At the same time, the other goods percentage plummeted: machinery and equipment – from 12.5% in 2004 to 7.7% in 2005, non-precious metals and related products – from 16.4% to 13%, finished foodstuffs – from 3.8% to 3.3%, textiles – from 2.6% to 1.5%. Belarus is fencing itself off from Russia on virtually all “commodity fronts”, but demands to keep for itself the Russian gas prices and extremely profitable schemes of oil processing. Such behavior is unlikely to be characterized as that of a partner. Since the oil and gas flows and their prices issues have not been clarified in 2005, it is possible to suppose that the structural revolution in the trade between Belarus and Russia in 2005 would not be the last one.

We face a very unpleasant tug-of-war when Russia manufactures the goods, which would directly compete with big Belarusian enterprises (tractors, trucks, fridges, television sets, chemical products). Then, within the WTO and bilateral treaties signed, Russia will demand to provide it an equal access to the Belarusian market. If to take into consideration a much significant tax burden, lower energy prices and using of state-of-the-art technologies, Russia will become the most threatening competitor for the Belarusian enterprises.

Strong energy dependency 

The dependency on the Russian energy has relaxed the Belarusian manufacturers. The government protectionism allowed them to be relaxed to an even greater degree. The Directorate focused on achievement of forecasts about the GDP, not on the enterprises capitalization and cost saving. In an environment where the mild monetary and fiscal policy was being pursued, this was much easier than to modernize the basic capital and to find a way to access the rich countries markets.

The disquieting fact is that the crisis of the trade with Russia will certainly lead to the general crisis of the country’s foreign trade, and, as a result, to the recession of Belarus’ real economy. Up to now the lion’s share of the consumer goods export has gone to Russia. Over 98% - meat and meat products, 97.7% - milk and dairy products, 100% - sugar, 61.8% - medicines, 73.5% - wall-papers, 88% - footwear, 81% - fridges, 63% - metalworking machine-tools, 65% - television sets, 39% - tractors, 76% - truck tractors, 70% - furniture. The Belarusian authorities had been engaged in the discussion of the constitutional act, single currency and Slavic friendship to such a large degree, that they missed worsening of the trade and macroeconomic relations between Russia and Belarus. The negative trends in the Belarusian-Russian trade, which gathered momentum in 2005, will certainly tell on Belarusian economy for the next five-year period.

 Trade between Belarus and Russia, 2002 – 2005, USD million

Trade between Belarus and Russia’s regions, USD million

Leading trade partners of Belarus, 2002 – 2005

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