Economy of Belarus

In the summer of 1994, during the days of “wild capitalism” that marked the height of Boris Yeltsin’s Russia, Belarusians elected Alexander Lukashenko as their president. Wasting no time in blaming a nameless US-led New World Order “conspiracy” for the ills that were befalling ordinary people across the former Soviet Union, the new president quickly turned Belarus away from “shock therapy”, the sudden release of price and currency controls that preceded a rapid shift from a command to an open market economy. In its place, he created his own brand of “market socialism”, loosely following China along its road to a more limited free market.

As a result of the slower transition toward a Western economic model, the Belarusian way of life turned out quite different from that of its neighbors across the Schengen Zone frontier. Because of the lack of oil and gas resources, Belarus also turned out differently from Russia. However, Lukashenko’s relatively stronger control over corruption kept his country from following Ukraine into its pre-Maidan slide into political oblivion, a slide that was slowed only by the urgent post-Yanukovych effort to restore economic law and order.

All this means that Belarus today represents truly a crossroad between Western prosperity and Russian-led economic feudalism. For 20 years, it’s enjoyed providing an oasis of quiet for its citizens. Certainly it borrows heavily on its future to pay for the present, and wages are far lower than many of its neighbors, but it’s safe to say that Belarusians enjoy a non-disruptive lifestyle. Crime rates remain lower than the rates in Ukraine or Russia, even if corruption hasn’t been completely quelled.

This article intends to explore different key sectors of the Belarusian economy, and to paint a more complete picture of this land as it stands today, already 21 years after Lukashenko came to power. Learning about its unique frame of reference through its economic sectors will help produce a greater understanding of what motivations lie behind the politics of the nation as it navigates between the desires of both the European Union and Russia.

 

Heavy Industry in Belarus

The post-Soviet Belarusian economy operates with the support of three heavy industries: metallurgy, machinery manufacturing, and potash production.

The Soviet Union, meanwhile, left behind to Belarus its present-day metal industry, as well as its machinery manufacturing. Some smaller scale industries managed to form way back in the late Russian Imperial period when Belarus consisted of a Minsk and Grodno governorates, and some larger enterprises started more recently just after the Byelorussian Soviet Socialist Republic emerged out of the dust stirred up from the Russian Revolution. However, only after World War II did the authors of the Soviet 5-Year Plans develop the industrial works seen in Belarus today.

The Belarusian Steel Works in Zhlobin heads the list of the main metallurgical works in the country, followed by the Rechitsa Tool Plant, the Mahiliou Metallurgical Works, and the Tsentrolit Foundry in Homiel. Additionally, there are more than 100 smaller scale factories that operate from many of the regional and district centers within the Republic. The heavy industry sector employs more than 40,000 workers and some 3,000 engineers, many of whom were trained at Belarusian institutes of higher learning.

The machine manufacturing sector largely involves machine tool factories and vehicle production plants. Minsk holds some of the largest car, truck, and tractor factories that remain in operation in the former Soviet Union, including the BelAZ autoworks (the only remaining post-Soviet production line for mining vehicles), and the MAZ automotive plant that shares dominance with BelAZ and the Minsk Tractor Works over the Zavodskaya District of the capital city.

An aging factory located near Minsk’s Victory Square produces home appliances and electronics sold under the name Horizont. Indeed, the Soviet KGB employed Lee Harvey Oswald in this factory during his brief stay in the country. Other similar facilities include the Minsk Heating Equipment enterprise, which authorities selected in 2010 as one of 50 industrial modernization projects picked out from across the country.

 

Agriculture in Belarus

Farming served as a mainstay of the Belarus economy since time immemorial. Its importance decreased only during the Soviet era when Moscow directed the diversification of the Byelorussian economy in the post-Soviet period. Still, even today, the sector employs nearly 10 percent of the total population, producing 7.5 percent of the country’s gross domestic product.

Most of the produce grown in Belarus continues to come from state-run farming enterprises, some of which, like the Ostrovetskoye turkey farm in the Astravets District village of Izabelino (the only one of its kind in Belarus), specialize in a specific product. Industrialized dairy farms, such as those run by the Belakt and Savushkin state-run concerns, supply not only domestic needs, but they also export substantial volumes of milk products to Russia and Kazakhstan. It is said that the share of dairy exports coming out of Belarus amounts to about 4 percent of the total global trade in this category, and this year, the expected volume of milk production will likely reach upwards to the 10.5 million metric tonne mark.

Slowly, the agricultural sector modernizes its equipment and best practices, and the Belarusian government hopes that by 2017 many of the subsidies that today come from the national budget will no longer be needed. However, despite the fact that Belarus spends less on food production than Russia spends, stores charge the same prices for finished produce in both countries.

 

Transport in Belarus

Belarus boasts an improving network of roads that connect the country’s main cities and border crossing points. The country keeps in service an estimated 83,000 kilometers of republic roads, including both toll-free highways and modern smart-toll roads.

As with most post-Soviet countries, though, railroad remains the leading freight and among the most popular passenger transportation options. The Belarusian Railway maintains some 5,512 kilometers of track, including 1,640 kilometers of double track and 897 kilometers of electrified rail in systems centered on the country’s regional centers.

Because of Belarus’ diminished size, domestic air travel remains under-developed (only Brest, Homiel, and Hrodna have regularly scheduled air service), but the national air carrier Belavia does operate routes to 52 cities in Europe and Central Asia.

 

Information Technology and Telecommunications in Belarus

The development of the country’s information and communication technologies (ICT) sector stands today as one of the most celebrated success stories of Belarus.

Recently the global IT and high-tech outsourcing industry ranked the country as number 13 among the 20 leading countries in its sector. The practice of transferring services from higher salaried economies to countries with lower salary demands (the average monthly salary in Minsk was 5.7 million BYR or about 650 USD back in 2013, according to the National Statistics Committee) brought to Belarus needed economic opportunity. The three top companies that provide outsourcing services today include EPAM Systems, which went into business in 1993, the IBA Group, and Intetics Co.

Overall, the UN rates Belarus as the 48th strongest IT sector in the world. This sector began to develop in 1998, and it took seven years before the government caught on to the idea that its talented programmers actually provided Belarus with a diamond in the rough. In September 2005, Lukashenko ordered by decree the creation of a new High-Tech Park (or HTP), which would serve as the center of a new Belarusian “Silicon Valley”. By its seventh year of operation, it brought in its first billion USD into the economy, mostly from North American and European clients.

As one of the highest profile ICT services and products said to be “made in Belarus”, the massively multiplayer online (MMO) game World of Tanks actually holds the honor maintained in the Guinness Book of Records of hosting the greatest number of players on a single server, exceeding some 90,000 person. Wargaming.net studios, which developed the game, continues to expand its offerings into other similar wargames, including World of Airplanes and a naval warfare simulator.

Viber also ranks high in visibility among Belarusian contributions to the world of ICT. Although the company established its headquartered in Israel, Belarusians develop all of its software. The company notes in its own words that Belarusian programmers typically think outside of the box in order to find non-trivial solutions.

 

Retail in Belarus

The transition of Belarus away from a land of state-run retail monopolies, where centralized TsUMs and GUMs (central department stores and state department stores, respectively) sell all consumer goods, has been long and slow, but this sector continues to progress.

Although the rural retail market remains under the control of state corporations like the Belarusian Cooperative Union or Belkoopsoyuz (a cash cow for the state that, in total earnings, still dwarfs the profits taken by any single private enterprise operating in the country today), private commercial enterprise long ago took over the market within Minsk and in the regional capitals. The days of smaller chains and shops appears to be limited by the success of larger chains buying them up, but choices for consumers continue to improve in Belarus’ major cities.

The first modern shopping center that appeared in Minsk, the Stolitsa, opened in 2007. Situated below Independence Square only walking distance from the main train station, this experiment in Western-style retail outletting echoed similar post-Soviet shopping experiences, such as the Globus set below the Maidan in Kyiv, and the shopping mall set below Manezh Square in Moscow. It covers some 75,000 square meters and hosts 100 shops, including grocery stores, clothing retailers, electrical goods outlets, various eateries, banks, and a cinema. At one time, it provided tourists with one of the most accessible internet cafes, run by the Coffeeberry chain; this has since closed down in part because of government regulations requiring improved control over public computer users, and in part because of competition by cafes (such as Coffeebox) that provide wifi situated in other easily accessible areas of the city.

Its multilevel design served as a precursor to other shopping centers, such as the Galileo, which opened in the past couple years above the Central Bus Station and adjacent to the main train station. This newer shopping experience offered such conveniences as a food court and free public bathrooms that were much cleaner than those that charged a fee at the train station. Both sites offer, along with similar retail outlets and cinemas, free parking.

One of the individual retail brands that emerged from Minsk to enjoy the greatest success in today’s market actually involves women’s undergarments. Forsaking burlap, the material that the U.S. comic strip Bloom County joked in the mid-1980s that somehow served as the characteristic, but prohibitively itchy, fabric used in lingerie produced in Soviet Minsk, Milavitsa actually gives Victoria’s Secret a run for its money internationally. As an aside, it also provided a successful vehicle for the launch of several Belarusian supermodel careers.

 

Energy sector in Belarus

Currently, Belarusian power plants provide some 80 percent of the nation’s domestic needs, with the balance of energy used imported from Russia. In 2009, the Republic decided to improve its energy portfolio by constructing two new atomic power stations near the Lithuanian border outside of Hrodna region’s most distant district center, Astravets. The project, an effective reversal from the 1986 decision to halt new nuclear plant construction following the Chernobyl disaster in neighboring Ukraine, intended to transform the country from an electricity importer to a net energy exporter. After supplementing local cement production and building new transportation infrastructure, ground broke on the project in 2011.

Meanwhile, by agreement with Russia under the new Eurasian Customs Union treaty, the country’s refineries process Russian oil for domestic gasoline consumption and export at a lower price than Russia sells its crude resources internationally. Most of the facilities for this industrial sector operate from around Mazyr in Homiel Region, not far from the Russian border.

 

Banking, insurance, and finance in Belarus

As with much of the rest of the world, the banking and finance sector suffered in the global economic meltdown of 2008, albeit not to the extent of the more connected economies within the Schengen Zone. In 2007, before the crisis, Belarus’ sovereign credit rating achieved a high of “B+”, according to Standard & Poor, and a “B1” rating according to Moody’s. By 2012, this dropped to a “C” rating on the S&P, and a “B3” rating from Moody’s as a result of the government’s refusal to make recommended spending adjustments in the aftermath. Since 2012, the credit rating improved, even while the Russian economy, upon which Belarus greatly depends, suffers under sanctions and other costs from its as yet undeclared war in Ukraine.

However, Belarus continues to carrying a sizeable external debt, mostly to Russia. Between 2006 and 2014, the nation’s external debt increased eightfold, from 5.1 billion to 40.5 billion USD. This included a 500 million USD loan extended through Eurobonds during the build-up to the presidential elections held in December of that year.

Currently, the sovereign credit rating hovers around the level that Greece maintained prior to the election of the Syriza Party, the populist political movement that has made that country an even riskiest prospect for extending credit. However, political expediency may trump Belarus’ lackluster credit rating as the IMF considers new loan requests that would diversify Belarus’ external debt away from Russian dominance.

Meanwhile, six banks dominate the banking sector in Belarus, four of which authorities recently been privatized. These include Belagroprombank, Promstroibank, Vneshekonombank, Belarusbank, Priorbank, and Belbusinessbank. Belagroprombank used to be the bank of an agricultural sector, while Promstroibank handled finances for the industrial sector. Vneshekonombank used to be the bank of foreign trade for Belarus, while Belarusbank was the main savings bank for individuals. Today, all six stand as commercial banking operations, though they still act in accordance with the wishes of the government.

At the start of 2012, Belarus created the Belkart system, a national payment card that was issued to some 4.4 million people (slightly less than half of the 9.8 million residents of Belarus). New automatic teller machines likewise opened across the country in order to handle the increased volume of bank card users.

The National Bank of Belarus continues attempts to encourage Belarusians to keep savings in Belarusian rubles in order to maintain sufficient demand on the currency. Interest rates for Belarusian currency accounts pay a significantly higher percentage than those maintained for foreign currencies, such as the dollar or the Euro. Sometimes this effort provides a mixed level of success, while during the rumor-based panic that usually takes place prior to an actual exchange rate change, it fails altogether to prevent foreign currency runs.