Kirill Rudy on Belarus’ prospects in Africa and China, debts, the yuan, and the import rate
In the context of Western sanctions, the Belarusian government is looking for an opportunity to increase supplies to faraway countries. It is currently working with Zimbabwe to establish a hub in Africa for trade in Belarusian products. China, which has been grooming the African continent for a long time, may become Belarus’s partner. In 2022, Belarusian exports to the Celestial Empire increased by 1.8 times. What are the prospects for Belarus in these areas? Online service Ilex.by speaking to Kirill Rudy, professor, doctor of economic sciences, and Ambassador of Belarus to China in 2016-2020, on this topic.
“In Africa, Belarus has a choice between China and Russia.”
– Belarus intends to actively develop economic relations with the countries of the African continent. How do you see the prospects?
– Half of the 50 fastest-growing countries in 2022 will be from Africa. In the next 10-20 years, Africa will take the lead from Asia regarding dynamics, opportunities, and population. At that rate, it will overtake our region in terms of development, which is a good bet.
– The United States, China, Russia, the EU, and Britain are already present in Africa. Is it worth cooperating with anyone? If so, with whom? China or Russia?
– Belarus has its own experience in Africa, and there are connections with Chinese companies that have been working there longer. We are competitors in several positions, for example, in equipment; we can cooperate on complex projects, our salaries are lower than in China, and the productivity gap is smaller. We are now a risky, undesirable option for Western companies. So, yes, Belarus is choosing between China and Russia in Africa.
– As China’s multi-billion-dollar “One Belt, One Road” initiative gains momentum in Africa through a host of major infrastructure projects, there is growing criticism of lenders from African countries mired in debt. According to the World Bank, Africa’s total debt to China is about $150 billion. Several countries are at risk of default. What is the background here? Is it due to Chinese expansion in the struggle for minerals?
– I don’t think it’s about China. There was a time when countries took cheap loans for growth point projects to overcome the effects of COVID-19. Now it’s time to pay back, and the projects haven’t paid off. At the same time, they chose their projects, contractors, and lenders. Chinese conditions and negotiators were better.
African authorities thought they would build a road or an airport, and direct investment would come, but they needed more time with business climate reforms. As a result, Ghana, Ethiopia, and Zambia defaulted. Now their bond yields to maturity are above 20%. And while they have a lot in common, each has a different credit history. The hope is now on the International Monetary Fund (IMF) and the West. They are trying to “sell” their future reforms to the IMF, to get loans against this, to instill confidence in investors in the financial market, and to lend money there.
Fossil fuels play a lesser role in this. For example, in the 1970s and 1990s, as soon as the price of copper fell, Zambia immediately experienced a crisis, because exports and the budget depended on world prices. Zambia had to ask the IMF for help. Now copper prices are high, and Zambia is in default and the IMF program. It’s no longer about resources; it’s about economic policy.
“The risk of “debt trap” for Belarus is somewhat overestimated”.
– High debt burden is typical of developed and developing countries. The World Bank focuses on the latter and predicts more problems for them. The bank estimates that China (66%) would again be the primary recipient of official bilateral debt repayments. Why the focus on developing countries?
– Developing countries need money to catch up and outpace development. But the approach of relying on individual projects is required to justify itself. The World Bank, IMF, and G20 are now addressing the debt problems of these countries. China is the biggest creditor, and I think international organizations will want to use it as leverage to get debtors to accept IMF conditions. Many of China’s accusations of a “debt trap” were unsubstantiated; now, the West can access developing countries’ loan agreements with China and confirm or refute its suspicions.
There are many interests here. International organizations want to reduce the debt of developing countries and restart economic growth. China is only one of the creditors, albeit the largest, but it is not an international organization. Its goal is to get its money back. Developing countries want money because reforms are unpopular.
– Renowned economist Nouriel Roubini has stated that debt no longer helps economic growth but only serves to build up debt. The world is threatened by debt and economic and financial crises at the same time. Do you share this view?
– Well, these are great economists; arguing with them is hard. With world inflation expected to be 6% in 2023, you can agree that interest rates will rise. That will slow global growth to 2%, and refinancing old cheap loans with new expensive ones will increase debt, which will outpace economic growth. Roubini is right about that. But there will be growth with money too.
– The main creditor of Belarus is Russia, with China in second place. It is said that the level of Belarus’ public debt is not critical. Can Belarus fall into the “debt trap” given the Chinese history in other countries and that most of the debt is owed by Russia and related structures?
– In the past, creditors fought over debts and imposed temporary tax administration to repay their loans. Times are different now: creditors are more humane and no less interested than the borrower himself in keeping him out of the trap and paying. There are a lot of credit conditions; they can be negotiated, weakened, and up to debt forgiveness. Last year Russia refinanced the debts of Belarus, while China wrote off 23 interest-free loans to 17 African countries and refinanced $10 billion.
The worst thing Belarus could have had was a ban on accessing the global financial market. It did. So? I used to think it would affect our other creditors, and there would be a recession. Now, it seems that the risk of the “debt trap” for Belarus is somewhat overestimated.
“Belarusian-Chinese investment relations have suffered”.
– The Belarusian authorities view China and Russia as the most extensive and promising markets for reorientating exports from the West and Ukraine. According to the Ministry of Economy of Belarus, in 2022, Belarus’s exports to China increased 1.8-fold, reaching $1.6 billion. Why did it happen? The growth of prices of potash fertilizers?
– Last year, the supplies of food and agricultural products also showed considerable growth. Potash, by the way, to some extent, Potash hindered our export to China because it filled the railway containers, and other exporters had to wait for their turn and delay deliveries to China or master the long road haulage.
– How are the investment relations between Belarus and China structured for 2020-2022? On the one hand, Minsk is building a swimming pool and a stadium at the expense of the Chinese side. But this is technical assistance. On the other hand, we see that China has suspended loans for the construction of a potash plant in the Luban district. There needs to be more information about other new projects.
– Technical assistance in constructing a stadium and a swimming pool is a political issue, not an investment one. Belarus also assisted in China: during COVID-19 and in the treatment and rehabilitation of children. This is a bilateral process comparable to the two countries budgets.
The suspension of loans for the potash project is a matter of risk of secondary sanctions for the Chinese side. It is resolved in the field of international law. The financial sanctions are aimed at specific business entities. There are no restrictions for other projects and subjects.
– Has the Chinese-Belarusian Industrial Park “Great Stone” development stalled recently?
– You can assess the development of “Great Stone” by the number of residents. It is growing, not shrinking. Judging by the visits, the interest in the park from Russian regions and development zones has increased.
On the whole, of course, Belarusian-Chinese investment relations have suffered. Political events in our country, military operations in our neighbors, covid restrictions in China, and Western sanctions had an impact. There was a waiting mode. Now the reality is apparent; investors will start to make some decisions.
“Yuan is not an alternative, but a supplement to other currencies”.
– How do you see the yuan’s prospects as an alternative to the dollar and euro?
– Prospects for the yuan depend on China. It goes its way and at its own pace. It has been spreading the yuan in foreign settlements for over a decade, but its share in the global turnover is insignificant. Since 2020, it has begun introducing the digital yuan, which is already in 17 Chinese cities, pays salaries, and uses it in cross-border trade. But foreign settlements in the digital yuan go through SWIFT, from which Belarus is disconnected. Therefore, the yuan is yet to be an alternative but a supplement to other currencies.
– Could there be more cards of the Chinese UnionPay payment system in Belarus? Is there feasibility, and what are the barriers in this direction?
– The Belarusian market must be more significant for UnionPay to pay off. China’s openness and the return of the transit status to Belarus could bring back Chinese tourists, increase the number of Chinese students, and stimulate the demand for this payment system in Belarus. We also need interest from the Chinese side: benefits for use, marketing, and accumulation of the customer base.
– We assumed that after the departure of the Western brands from Russia, the Belarusians would quietly occupy their niches. But China and other countries had similar plans. For example, in the Russian Federation, the sales of Chinese trucks have skyrocketed. They replaced Mercedes, Scania, other Western manufacturers, and the MAZ (Minsk Automobile Plant). What may conclusions for Belarus be inferred from it? Maybe MAZ should make a joint venture with Chinese manufacturers.
– It’s a question of protection of the internal market of the Customs Union and lobbying of Belarusian interests. By the way, MAZ has joint ventures with the Chinese in Velikiy Kamen to produce Weichai engines and Fast Gear gearboxes. They should start making an effect.
One way or another, we will come to a full-fledged free trade zone between the EAEU and China. And it will bring us back to the competitiveness issue, investing in our production science and technology. Betting on imports of Western or Chinese equipment and technologies will always leave Belarus behind.
Alexander Zayats interviewed
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