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The evolution of
Belarusian public sector:
From command economy
to state capitalism?
Aliaksandr Papko
Piotr Kozarzewski
CASE WORKING PAPERS
WARSAW BISHKEK KYIV TBILISI CHISINAU MINSK
No. 12(136)/2020
The opinions expressed in this publicaon are those of the authors and do not necessarily re-
ect the views of CASE.
This publicaon is a connuaon of a “CASE Network Report” series. Previous works in this
series are available on CASE website: www.case-research.eu
This work was supported by the Naonal Science Centre of Poland
under Grant no. 2017/25/B/HS4/01103 ‘The Phenomenon of «The Return of State-Owned
Enterprises» in Contemporary Economy: Idencaon, Characteriscs, and Consequences for
the Economic Theory and for the Theory of Economic Policy.’
Keywords: state-owned enterprises, post-communist transion, state capitalism, instuons,
Belarus.
JEL codes: L53, O17 P21, P31
© CASE – Center for Social and Economic Research, Warsaw, 2020
Graphic Design: Katarzyna Godyń-Skoczylas | grafo-mania
DTP: Campidoglio
ISBN: 978-83-7178-694-5
Publisher:
CASE-Center for Social and Economic Research
al. Jana Pawla II 61, oce 212, 01-031 Warsaw, Poland
tel.: (48 22) 206 29 00, fax: (48 22) 206 29 01
e-mail: case@case-research.eu
hp://www.case-research.eu
3
Contents
Authors............................................................................................................................... 4
Abstract.............................................................................................................................. 5
1. Introducon .................................................................................................................. 6
2. Literature overview and conceptualisaon........................................................... 7
3.1. The ‘Belarusian economic model’: From rise to the crisis
(1991-2006) ........................................................................................................11
3. From command economy to reluctant reforms ..................................................11
3.2. Limited aempts of market reforms (2007-2015) .....................................14
3.3. Towards stability based on market mechanisms (since 2015) ...............16
4.1. How big is the state? The share of the public sector in the
Belarusian economy ..........................................................................................19
4. State sector in Belarus: Data and analysis ........................................................... 19
4.2. Away from the command economy? The evoluon
of the public sector since 2007 ......................................................................22
5.1. Ownership funcon of the state ....................................................................25
5. Wrien and unwrien rules: The state as a main actor
in the Belarusian economy ....................................................................................25
5.2. State planning system .......................................................................................26
5.3. Discriminaon of the private sector: Subsidies, trade
proteconism and formal and informal barriers .........................................28
5.4. Interests in relaonships between the state and enterprises ..................30
6. Conclusions and discussion .................................................................................... 33
References ....................................................................................................................... 35
4
Aliaksandr Papko is a journalist and polical analyst working for Belsat TV (Minsk/Warsaw) and
the Eurasian States in Transion Research Center (Minsk). He holds a PhD in sociology and an
MA in polical science and European interdisciplinary studies. The topics of his research include
polical, social and economic transion in Russia, Ukraine and Belarus; informal economic ins-
tuons in post-Soviet countries; and the European Neighbourhood Policy and Eastern Partner-
ship.
Piotr Kozarzewski is an economist and polical scienst and an Associate Professor in the Fac-
ulty of Economics at the Maria Curie-Skłodowska University in Lublin. He is a member of the
CASE Supervisory Council and a parcipant of many research and advisory programs in Poland,
the former Soviet Union, and Central and Eastern European countries on instuonal reform,
ownership transformaon, and internaonal knowledge transfer. He is the author and co-author
of over 120 publicaons primarily devoted to the post-communist transion.
Authors
5
Abstract
Belarus was among the few post-communist countries to resign from comprehensive market
reforms and aempt to improve the eciency of the economy through administrave means,
leaving market mechanisms only an auxiliary role. Since its incepon, the ‘Belarusian economic
model’ has undergone several revisions of a de-stasaon and de-regulaon kind, but sll the
Belarusian economy remains dominated by the state. This paper analyses the characterisc fea-
tures of the Belarusian economic system – especially those related to the public sector – as well
as its evoluon over me during the period following its independence. The paper concludes
that during the post-Soviet period, the Belarusian economy evolved from a quasi-Soviet system
based on state property, state planning, support to inecient enterprises and the massive re-
distribuon of funds to a more exible hybrid model where the public sector sll remains the
core of the economy. The case of Belarus shows that presently there is no appropriate theore-
cal perspecve which, in an unmodied form, could be applied to study this type of economic
system. Therefore, a new perspecve based on an already exisng but updated approach or
a muldisciplinary approach that incorporates the duality of the Belarusian economy is required.
6
Aer the fall of the communism, Belarusian authories built a very peculiar economic system
which preserved many of the features of the Soviet period (e.g. the dominaon of state prop-
erty and central planning) and combined them with the features of a market economy (e.g. the
existence of private entrepreneurship and free prices in some areas). Unl the global economic
crisis of 2008/2009, the ‘Belarusian economic model’ proved to be quite successful, allowing
the country’s gross domesc product (GDP) to grow by 8%-10% each year. Belarusian enter-
prises, which, like in Soviet mes, remain predominantly state-owned, acvely exported ad-
vanced industrial products such as trucks, tractors, engines and electronic appliances, as well as
fuel processed from Russian crude oil. However, in the last decade, the Belarusian economy has
slowed down signicantly, demonstrang the limits of the economic model chosen in the 1990s.
The task of the paper is twofold. First, we analyse the characterisc features of the Belaru-
sian economy aer 1990 and their evoluon: from the perspecve of both economic policy
and real processes and outcomes. Special aenon is paid to the role of the government in the
economy, especially in the enterprise sector. Second, we try to nd a theorecal perspecve
which would help to analyse the variety of economic models in transion economies, especially
highly stased ones, as in Belarus. In parcular, we check the applicability of the state capital-
ism approach – which has recently gained popularity – in studying post-communist economies,
because it focuses on an above-the-norm state involvement in the economy.
We come to the conclusion that in this period the Belarusian economy has evolved from
a quasi-Soviet system based on state property, state planning, support to inecient enterprises
and the massive redistribuon of funds to a more exible hybrid model where the public sec-
tor sll remains the core of the economy. This system, however, can only parally be explained
from the perspecve of the state capitalism approach (in its present state); therefore, a new
perspecve based on an already exisng but updated approach or a muldisciplinary approach
that incorporates the duality of the Belarusian economy is required.
The structure of the paper is the following: Secon 2 is devoted to the conceptualisaon of
the study. Secon 3 presents a historical overview of the evoluon of the Belarusian economy
and economic policy. Secon 4 discusses the main features of the ‘Belarusian economic model’.
Secon 5 analyses the state-controlled enterprise sector in Belarus. Secon 6 concludes.
1. Introduction
7
In studies on post-communist economies, the ‘Belarusian economic model’ – its genesis, main
features, evoluon and eects – is largely neglected, especially when taking into account pub-
licaons wrien in English, i.e. those present in the world debate. Consequently, the Belarusian
economic model sll lacks a proper conceptualisaon. In the literature from the West, there are
only sporadic aempts to explain the logic of the funconing of the Belarusian economic mod-
el (Nu, 2005; Korosteleva, 2007). Western-based researchers (e.g. Korosteleva, 2013; Ioe,
2014; Dyner and Wańczyk, 2015) have mainly analysed the economic policy of the Belarusian
government, concentrang on the sustainability of the Belarusian economic system without
fully examining its genesis or fundamental principles. In Belarusian literature as well, most pub-
licaons (e.g. Kizima, 2010; Krishtapovich and Lepeshko, 2010; Bibik, 2011; Grechneva, 2014)
have focused on performance (achievements) and not the mechanisms or costs of the economic
system. These studies were largely aempts by ‘mainstream’ experts to jusfy the economic
policy of the government. There have been a few local authors (e.g. Dashkevich, 2005; Akulich,
2013; Yegorov, 2013) that have aempted to dig deeper and try to explain the logic of the
Belarusian economic model, but their aempts are sll only a paral examinaon. In summary,
exisng studies only focus on, at most, the essence of the model, concentrang on its manifes-
taons rather than its structural logic.
Taking into account this knowledge gap, in this secon of the paper we concentrate rst of all
on the literature which presents possible theorecal approaches towards studying the Belaru-
sian economic system rather than the publicaons specically devoted to the country.
Thus far, there is only one (relavely old) publicaon (Korosteleva, 2007) devoted specically
to the conceptualisaon of the Belarusian economic system. The author discusses the possibili-
es for its analysis from the ‘classical’ (Hall and Soskice, 2001; Amable, 2003) perspecve of the
variees of capitalism (VoC) approach. The author concludes that such analysis is impossible
because the Belarusian economy does not t the denions of both a liberal market economy
and a coordinated market economy. This was in line with the general conclusions on the ap-
plicability of the VoC approach to most post-communist economies made in the book in which
Korosteleva’s paper was published (Lane and Myant, 2007). Since then, the VoC approach has
evolved, taking into account the much wider diversity of market economies, and now admits
that there are more basic variants of capitalism than just the two. Farkas (2016) argues that in
the European Union (EU) alone one can disnguish four models of capitalism, with a h model
specic to some non-EU countries. However, despite the expansion of the VoC approach, most
2. Literature overview
and conceptualisation
8
CASE Working Papers | No. 12(136)/2020
former Soviet republics, including stased economies such as Belarus, are sll excluded from
VoC studies.
An opposite approach, which was largely unknown to internaonal academic circles unl re-
cently because the relevant studies were published in Russian only, rejects aempts to study the
economies of many former Soviet republics in the same way that market economies are studied
(Kordonsky, 2016). It stresses the peculiar non-market, resource-based and redistribuve char-
acter of the economic systems which have formed in these countries. Bessonova (2006) writes
about a ‘distribuve economy’ which originated in the Soviet Union and is characterised by sev-
eral basic features, among which are the abuse of property rights by the state, allocaon based
on the discreonal redistribuon of resources by the state and informaon feedback provided
not by market prices and prot but by complaints to state authories. Kordonsky (2008) applies
a similar approach and calls such a system a ‘resource-based state’. Its economy is not based on
a market exchange, but on the centralised accumulaon of resources from the populaon and
its organisaons with their redistribuon according to the government’s polical and economic
priories. The system is also characterised by a lack of rule of law and the omnipotence of infor-
mal instuons. This perspecve was used by Papko (2017a) in his analysis of the ‘state’ part of
the duality of the Belarusian economy.
Another perspecve is economic dualism, which lays somewhere between the two ap-
proaches described above. It draws aenon to the coexistence of several economic systems
within one economy (Boeke, 1953). From this perspecve, some post-communist economies
may be treated as hybrid systems where two sectors coexist: a prot-making private sector and
a subsidised state-controlled sector. Most transion countries – where this dualism existed to
some extent at the beginning of transion, especially in Central and Eastern Europe –gradually
abandoned this model, while Belarus remains ‘one of the paradigmac cases where a sizeable
backward sector of state-owned enterprises (SOEs) sll coexists with a small and viable sector
of compeve and modern companies, some of which are also controlled by the state’ (Bona
and Haiduk, 2014, p. 9). Thus far, this approach has been applied directly to the economy of
Belarus only in this publicaon and in an unpublished thesis by Papko (2017a), where he also
makes use of the distribuon economy perspecve in his analysis of the ‘state’ part of the eco-
nomic system. However, somemes the state-market duality of the Belarusian economic system
is put under queson by researchers. As Bekus (2010, p. 108) argues, it ‘strives toward preserv-
ing state property in its old, prereform condion, slightly diluted by market elements, but in
general it presupposes no real market system as it is’. It should be noted, however, that during
the 14 years following this statement, the Belarusian economy has made several steps towards
the market and there has been some expansion of private property.
The duality (hybridity) of the system may also be studied from the angle of the economic and
polical duality of patrimonial capitalism (Schlumberger, 2008). This approach has been applied
towards non-democrac transion countries by Robinson (2013) as a form of capitalism which
is ‘created as much by external pressure as by the organic development of a country’s economy,
and where there are constraints on economic development because of rapacious elite behav-
9
CASE Working Papers | No. 12(136)/2020
iours’ (p. 144). Despite looking quite promising, no analysis of the Belarusian case has been
performed from this perspecve.
Another possibility – which is explored in this paper – is the use of the state capitalism (SC)
approach. More than a decade ago, it was suggested by Korosteleva (2007) as an alternave to
the VoC perspecve; however, she hasn’t explored this possibility in detail. Furthermore, at that
me, studies on SC typically covered only one post-communist transion country – Russia (e.g.
Lane, 2008). Studies examining China in this context should be also menoned (although China,
while it may be a transion economy, can hardly be called post-communist), beginning with the
seminal work by Bremmer (2010). Since then, we have witnessed a growing body of literature
on SC, which reects a wider use of state intervenonist policies than before, including in devel-
oped market economies where in many cases the state played an acve role in combang the
global nancial crisis of 2008-2009.
Recently, transion countries have enjoyed more aenon in SC studies because, in some of
them, the tendency towards state intervenonism has increased, even to the point of inducing
changes in the their development paradigms. To start with, this applies to Poland and Hungary.
Bałtowski, Kozarzewski and Mickiewicz (2020) aempted not only to study growing state capi-
talism tendencies in these two countries, but also to contribute to the conceptualisaon of the
state capitalism approach, especially when it is applied to transion economies. Previously, the
term ‘state capitalism’ had many dierent interpretaons, and researchers applied it in a number
of dierent perspecves. Furthermore, there were even some authors that applied the term
state capitalism to diering approaches in their own research papers. The exisng denions
may be divided into broad and narrow ones. In the broad approach, SC is regarded as a market
economic system1 where state intervenon in the economy is much higher than in developed
capitalist countries and plays a key role in meeng polical and developmental goals (Bremmer,
2010; Spechler, Ahrens and Hoen, 2017). In the narrow approach, SC is regarded as a set of
policies allowing the government to have a strong and arbitrary impact on the enterprise sector
(Musacchio and Lazzarini, 2012; Kurlantzick, 2016).
Bałtowski et al. (2020) propose to merge these approaches in analysis and put forward
a concept of six basic features of state capitalism. These features each have specic goals, tools
and core groups of beneciaries who are chosen by the government (in market capitalism, the
main beneciaries are set by market mechanisms). The authors believe that their approach may
be used for studies on other Central and Eastern European countries, and probably on other
post-communist transion countries as well. These features are the following:
1) policisaon of SOEs: the government and polical elite use the state-controlled enter-
prise sector as a source of rents;
2) policisaon of SOEs à rebours: the state-controlled enterprise sector (their sta, execu-
ves and aliated trade unions, among others) is the main rent-seeker itself;
3) cronyism: the main beneciaries of SC are private agents from outside the public sector;
1 An enrely dierent approach exists where state capitalism does not assume the existence of the market; rather,
the state dominates the economy, which is essenally a planned socialist system (Mises, 2009; Fabry, 2019).
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CASE Working Papers | No. 12(136)/2020
4) oligarchy (a consolidated form of cronyism): very powerful private agents have a very sig-
nicant inuence on economic policy;
5) economic populism (clientelism): a patronage system where the polical elite transfers
goods to clients in chosen social groups expecng their polical support in return;
6) economic naonalism: the state exerts an impact on the economy the declared objecve
of which is to enhance, in the long run, the state’s polical capacity, military power or
internaonal importance. The state itself may be treated here as the major beneciary.
The authors also describe the main tools of state capitalism in Poland and Hungary: impact
through enterprises fully or partly belonging to the state, restricng the ownership rights of
private businesses, regulatory tools and persuasion (pressure, threats) measures.
This approach towards studying state capitalism in transion countries seems to be the most
developed thus far. Therefore, we believe that despite all the specicity of Belarus’ economic
system and economic policy, it is worth making an aempt to apply this approach in studies on
this country, if only as a rst step for further conceptualisaon eorts.
11
3.1. The ‘Belarusian economic model’: From rise to the crisis (1991-2006)
The economic structure of contemporary Belarus was formed long before the country gained in-
dependence in 1991 (Zaleski, 2002, p.11). It was built in the 1960s and 1970s as a result of rapid
industrialisaon, iniated by Soviet authories. Belarus was known as an ‘assembly shop’ of the
Soviet Union. Its economy was based on large enterprises in the machine building, electronics,
chemical, petrochemical and agriculture industries desned to supply the enre Soviet Union.
The industrial giants of Soviet Byelorussia crically depended on a supply of raw materials and
spare parts from other Soviet republics (Yanchuk, 2007, p. 51).
Thus, the disintegraon of the Soviet Union severely aected the Belarusian economy. In
1995, the country’s GDP fell by 34.7% as compared to 1990. The income of the populaon
decreased by half and the number of people living below poverty line rose from 5% to 80% (Yan-
chuk, 2007, p. 52). The government tried to support enterprises by money emission. As a result,
the inaon rate in 1994 reached 2200%2.
As several researchers (Havrylyshyn, 2007; Rovdo, 2009; Olechnowicz, 2010) argue, a com-
prehensive process of market transion never started in Belarus. The government never fully
liberalised prices or the exchange rate; privasaon was slow, hesitant and did not include large
enterprises. In 1994, amidst a deep economic recession, the rst presidenal elecons were
won by Alexander Lukashenko – an authoritarian polician with a strong an-market rhetoric.
By November 1996, Lukashenko dismantled the separaon of powers and consolidated con-
trol over the state in his hands. He also managed to restore non-market exchange with Russia
and re-launch producon capacies remaining idle since the dissoluon of the Soviet Union. In
April 1996, April 1997 and December 1999, the Belarusian authories concluded a series of
treaes the goal of which was to establish a common state with Russia. It was never created,
but these agreements guaranteed Belarus generous economic preferences from Russia for many
years ahead. Belarus was given unrestrained access to the Russian market; it was allowed to
buy oil and gas at the same prices as Russian consumers, which were twice below market prices
(Silicki, 2001, p. 64).
Such a policy brought quick results. In 1996-2001, Belarusian GDP grew by an average of
6.1% (World Bank, 2005, p. 5). Aer obtaining large preferences from Russia, Alexander Lukash-
enko openly contested market transion, reversing those few shallow and inconsistent reforms
2 hp://databank.worldbank.org.
3. From command economy to reluctant
reforms
12
CASE Working Papers | No. 12(136)/2020
which had been introduced by his predecessors. The regress started in 1996 (Figure 1) and was
observed in every single domain of economic transformaon assessed by the European Bank for
Reconstrucon and Development (EBRD).
Figure 1. Market transion progress in selected post-communist countries, 1989-2014
1,0
1,5
2,0
2,5
3,0
3,5
4,0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
EBRD transition score
BELARUS
ESTONIA
LATVIA
LITHUANIA
POLAND
RUSSIAN
FEDERATION
UKRAINE
-20
-10
0
10
20
30
40
50
60
2007
2008
2009
2010
2011
2012
2013
2014
2015
Percent
Inflation (annual %)
Current account balance (% of GDP)
GDP growth (annual %)
The advancement of reforms in each country is measured by the average of six EBRD transion indicators (large scale
privasaon, small scale privasaon, governance and enterprise restructuring, price liberalisaon, trade & forex
system and compeon policy).
Source: Own calculaons based on EBRD, 2015.
In 1996, Belarusian authories took control of the biggest commercial banks and re-intro-
duced ght price controls (Silicki, 2001, p. 60). Privasaon was virtually stopped. In March
1995, Lukashenko by his decree (dekret)3 cancelled the results of the rst voucher aucon.
Since the summer of that year, he made every privasaon deal subject to his personal deci-
sion (Silicki, 2001. p. 47). Addionally, privasaon deals usually kept the controlling stock in
the hands of the government. One of the most an-market decisions was the Presidenal edict
(ukaz)4 – which came into eect in January 1998 – granng the state a ‘golden share’ right of
any former state-owned enterprise which had been privased (EBRD, 1999, p. 154). Enterprise
restructuring was also frozen. By the end of the decade no single enterprise was declared bank-
rupt under the 1991 Bankruptcy Law (EBRD, 1999, p. 154).
3 In Belarusian law, a Decree (dekret) is a normave act issued by the President in exceponal cases, having the force
of law and aimed to regulate the most important social, polical and economic issues.
4 A Presidenal Edict (ukaz) it is a normave act having the force of law, issued by the President in order to implement
his mandate and seng (changing, cancelling) certain legal provisions.
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A huge blow to the development of the private sector was the adopon of new business
regulaons. In May 1996, the President issued a decree requiring the re-registraon of all pri-
vate enterprises in accordance with recent changes in the naonal legislaon. As a result, the
number of private rms dropped by 30% due to the administrave burden this re-registraon
entailed (EBRD, 1999, p. 155).
State authories nished the process of taking control over the economic system by the end
of 1996, when the main elements of central planning were re-introduced. The government ad-
opted a programme entled ‘Main direcons of social and economic development for the years
1996-2000’. It set targets for economic development including, among others, the GDP growth
rate, the increase in industrial and agricultural output, the inaon rate, the unemployment rate
and the naonal currency exchange rate (Silicki, 2001, p. 50). On the basis of this document,
various targets for each state enterprise were designed. Enterprises were obliged to meet tar-
gets concerning, among others, output growth, exports and wage growth (EBRD, 2008 p. 105).
By the end of 2002, the eects of smulang factors such as privileged access to the Rus-
sian market and export subsidies were exhausted (World Bank, 2005. p. 6). However, a rapid in-
crease in global oil prices as well as a revival in the Russian market re-launched economic growth
in Belarus (World Bank, 2012 p. 4). In 2001-2008, average annual GDP growth was 8.3%, while
in 2003-2008, the Belarusian economy grew by an astonishing 9.4% a year5.
However, Minsk did not manage to use the extremely posive external environment to re-
structure its industry and increase the compeveness of its products on foreign markets. Be-
larus became more dependent on exports of petrochemical products to the West and more
aached to the Russian market in regard to the export of other products. The possibilies to
increase exports were limited; therefore, the Belarusian government found a new source of
economic growth. Since 2005, about two-thirds of GDP growth is generated by the increase in
domesc consumpon (World Bank, 2012, p. 9).
The authories forced SOEs to increase wages, independent of labour producvity. At the
same me, state-controlled commercial banks provided loans to SOEs with interest rates below
the market level or even below the inaon rate (World Bank, 2012. p. 29, 36). The main recipi-
ents of these loans were SOEs in the agricultural sector, industry and construcon. Neverthe-
less, such generous lending did not help SOEs to work more eciently. Economists have proven
that the bulk of loans were provided to inecient enterprises and that this money was simply
lost (Kruk and Bornukova, 2014, p. 4). To compensate for non-payable loans, the state regularly
re-capitalised commercial banks through money emission (World Bank, 2012, p. 36).
By the end of the decade, this economic model formed as a result of President Lukashenko’s
ad hoc acvity had already exhausted its potenal. A new period in the economic development
of Belarus was triggered in 2007 by the signicant reducon of Russian energy subsidies.
5 hp://databank.worldbank.org.
14
CASE Working Papers | No. 12(136)/2020
3.2. Limited attempts of market reforms (2007-2015)
The second stage of the evoluon of the Belarusian economic system was triggered by growing
economic problems caused by its inecient economic model and by the decision of the Russian
government to cut energy subsidies as a response to the policy of the Belarusian government,
which evidently did not want to full its promises on establishing a common state with Russia
(Sokolov, 2007) and which would make the economic situaon even worse. In this situaon, in
order to prevent a crisis, the Belarusian government decided to modify its policy in two areas:
introduce some market elements into the economy in order to increase its eciency and restore
Russian economic preferences.
Within the rst area, the government parally re-launched market reforms. In 2007, it simpli-
ed procedures for the registraon of small and medium enterprises (SMEs) and for real estate
transacons and granted concessions and tax exempons for IT rms. In the area of ownership
policy, in 2008, it abolished the ‘golden share’ rule and announced a privasaon programme
which included selling the state-owned stakes in 147 industrial and agribusiness enterprises
during 2008-2010. Several Belarusian industrial giants, including MTZ, which produced tractors,
and MAZ, a truck factory, were corporased. In 2011, the Belarusian government approved
further plans for the privasaon of 245 SOEs and the corporasaon of 134 SOEs; however,
most of these were medium-sized communal enterprises with low protability.
In 2009, the Belarusian government liberalised all prices except for a limited number of ‘so-
cially important goods’ (e.g. basic food staples, pharmaceucals, medical services and children’s
goods). A progressive personal income tax with the highest rate of 30% was replaced by a at
tax of 12%. Considerable progress was made in the area of deregulaon: wage control was
abolished and in February 2009, the government introduced a policy of one-day registraon for
enterprises and individual entrepreneurs and simplied registraon procedures. As a result of its
deregulaon reforms, Belarus radically improved its posion in the World Bank’s Doing Business
ranking, rising from a ranking of 129 in 2007 to 58 in 20106.
However, most of these reforms were either inconsistent or short-lived, especially privasa-
on, where plans were fullled only marginally. And many policies remained unchanged, such as
the smulaon of internal demand and nancial support to SOEs as well as its xed exchange
rate policy.
In the second area – aempts to bring back Russian energy preferences – Belarus engaged in
new economic integraon projects iniated by Russia, such as the establishment of the Customs
Union of Belarus, Kazakhstan and Russia in 2009 and the Single Economic Space, which came
into force in 2012. This acvity proved to be successful, gradually restoring the preferenal re-
gime in oil and gas trade with Russia, and was Russia’s way of buying Belarus’ support for the its
integraonist policy among ex-Soviet republics. Among others, Russia abolished export dues
on oil exported to Belarus and introduced a generous gas price discount. In 2012, Russia also
provided Belarus with a USD 3 billion stabilisaon loan. However, part of the deal was the full
6 hp://www.doingbusiness.org/.
15
CASE Working Papers | No. 12(136)/2020
transfer of ownership rights of Beltransgaz, the Belarusian naonal gas transporng company,
to Russia’s Gazprom. It should be noted, however, that by the end of the discussed period, the
value of the subsidies started decreasing again.
Despite the substanal success of Belarus’ relaonship with Russia and some progress in
market reforms, the ulmate goal of increasing the growth potenal of the Belarusian economy
was not achieved. Aer Russian energy subsidies were increased in 2011-2012, the Belarusian
government apparently lost its movaon to connue the hesitant and paral reforms it started
four years earlier, especially in the enterprise sector. In May 2012, the government abolished
its previous privasaon plans and declared that new privasaon deals would take place on
ad hoc basis (EBRD, 2012, p. 101). By the end of 2012, however, the privasaon process had
been reversed, with two large enterprises that had been previously privased being taken over
by the state (EBRD, 2013). Belarusian authories boosted the pracce of wide-scale support for
internal demand through the increase of salaries and the massive emission of credits to SOEs.
Unl 2011, the internal demand factor indeed helped the Belarusian economy to grow, but it led
to a rapid increase of imports and, as a consequence, to the increasing current account decit
(up to 15% of GDP in 2010) and inaon, which skyrocketed to 53-59% in 2011-2012 (Figure
2). Together with the xed exchange rate policy, it created the grounds for the series of nancial
crises in 2009-2015, which eventually led to stagnaon and even recession in 2015 – for the
rst me since 1995. An important role was also played by external condions, for example, the
falling prices of major Belarusian export commodies, and the stagnaon of the economy of its
major trade partner: Russia.
The reacon of the authories to these crises was the successive devaluaon of the naonal
currency (by 25% in 2009, 56% in 2011 and 36% in 2015), which was aimed at smulang
exports and avoiding the depleon of internaonal reserves, and was accompanied by some
austerity measures such as the temporary ghtening of scal policy and liming the growth of
salaries. However, between the crises, the government kept returning to its previous pracce of
emission lending and forced wage increases (EBRD, 2009; World Bank, 2012; Naviny.by, 2015).
In 2015, when the Belarusian economy faced a recession, high macroeconomic disbalance,
stagnaon in main export markets, a connuous reducon of Russian energy subsidies and sev-
eral failed aempts to re-launch economic growth, it became obvious to the government that
such pracces were no longer sustainable and that a more substanal revision of its economic
policy towards one that was more market-oriented was imminent.
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Figure 2. Inaon, current account balance and GDP growth in Belarus, 2007-2015
1,0
1,5
2,0
2,5
3,0
3,5
4,0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
EBRD transition score
BELARUS
ESTONIA
LATVIA
LITHUANIA
POLAND
RUSSIAN
FEDERATION
UKRAINE
-20
-10
0
10
20
30
40
50
60
2007
2008
2009
2010
2011
2012
2013
2014
2015
Percent
Inflation (annual %)
Current account balance (% of GDP)
GDP growth (annual %)
Source: World Development Indicators (WDI) Database.
3.3. Towards stability based on market mechanisms (since 2015)
The major change to Belarusian economic policy occurred in 2015 with the government’s re-
fusal to smulate GDP growth at any cost. The government began to priorise macroeconomic
stability over increases in output and wages. The Council of Ministers appointed at the end of
December 2014, as well as their successors appointed in August 2018, included several mod-
erate reformers with liberal views. They immediately ghtened monetary policy in order to re-
duce inaon. The Naonal Bank increased the interest rate well beyond the inaon level. In
2015, for the rst me in the history of independent Belarus, the Naonal Bank liberalised the
exchange rate regime and refrained from intervenons in the market. A exible exchange rate
ended the persistent problem of the depleon of foreign currency reserves, which had previ-
ously resulted in shock devaluaons (Alachnovič, 2015).
Another important decision was reducing credit to the naonal economy (Figure 3). Howev-
er, the structure of the credit supply remained almost unchanged. The government connued to
support mainly SOEs in construcon, industry and services through state-controlled commercial
banks. But the volume of this lending decreased by one-third. Aer 2014, the government con-
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nued to reduce its support to state-owned farms, as the loans to the agricultural sector proved
to be the most inecient (World Bank, 2018, p. 23).
Figure 3. Credit supply to the economy: growth and sectorial composion, 2006-2016
0
10
20
30
40
50
60
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
percent
Agriculture, percent of bank credit
Construction, percent of bank credit
Industry, percent of bank credit
Services, percent of bank credit
Bank credit to economy, percent of GDP
0 10 20 30 40 50 60 70 80 90 100
Real estate
Retail
Other services
Information and communication
Accomodation and catering
Professional and technical services
Administrative services
Finance
Industry
Culture, recreation and sport
Transportation and storage
Construction
Agriculture, fishery and forestry
Water supply and waste management
Healthcare and social services
Education
Mining
Electricity and gas supply
Governance
Public
Domestic private
Foreign
Source: World Bank, 2018.
These measures allowed for the stabilisaon of the naonal currency and the reducon of
inaon from 18.1% in 2014 to 4.3% in 2018. However, the decrease in inaon was coupled
with stagnaon in real wages and quite anaemic economic growth. The external debt accu-
mulated in previous years reached 73.4% of GDP in 2017 and generates a constant need to
renance it (EBRD, 2018)
In order to stabilise public nances, Belarusian authories undertook several unpopular mea-
sures. In 2016, the authories increased household taris for the supply of water, electricity and
heang considerably and made a commitment to phase out all subsidies to communal services
for households by 2019. Another unpopular measure aimed at balancing public nances was the
increase of the rerement age for men from 60 to 63 and for women from 55 to 58 by 2023.
Austerity measures were combined with some liberalisaon steps. In January 2016, the gov-
ernment abolished price controls on socially important goods and eliminated volume output tar-
gets for SOEs (EBRD, 2016). In 2017, a favourable taxaon and regulaon regime was created
for IT rms and supporng services (EBRD, 2018).
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Decreasing state support of SOEs negavely aected their funconing and caused their em-
ployees to search for beer salaries in the private sector, mainly private SMEs. This inclined the
government to start perceiving SMEs as the main absorber of the released labour force and to
liberalise the regulatory environment for them (Sekhovich, 2018, p. 262). In 2017, the authori-
es radically reduced the formalies needed to open a business in 18 industries (e.g. retail, hotel
and tourist businesses and catering). However, in the opinion of business, the credibility of the
liberalisaon iniaves was undermined by the iniaon of criminal cases against several well-
known businessmen accused of corrupon and tax avoidance (Sekhovich, 2018, p. 263).
At the same me, the Belarusian authories demonstrated no interest in decreasing the
share of the state sector and reducing the role of big enterprises. Unlike in 2011, no plans of
privasaon were declared. The polical elites are sll trying to keep the economy under their
‘manual control’.
As before, economic policy measures were accompanied by aempts to gain as many Rus-
sian energy preferences as possible. The Belarusian government engaged in intensied disputes
with Russia over the price of gas and crude oil with rather unsasfactory results (Zajac, 2016;
World Bank, 2017; Stepanova, 2018). Eventually, Belarus managed to preserve a certain level
of preferenal treatment, but it became obvious that this resource for the Belarusian economy
had lost its importance: rst, because of the diminishing polical will of Russia to subsidise their
neighbour’s economy and second, because the economic base for such treatment has been
shrinking since 2015, as Russia has gradually increased oil prices in the domesc market in an
aempt to make oil trade more transparent and increase tax revenues. The President of Belarus
declared this policy will incur the economy of Belarus losses equal to USD 10.6 billion (Belta,
2019a).
There are also other factors which decrease the aracveness of Russia for the Belarusian
authories. First, due to stagnaon in the Russian market, it cannot absorb as many Belarusian
goods as before. Furthermore, Russia is becoming more and more insistent about full integraon
between the two states, which in fact would mean the incorporaon of Belarus by Russia – and
President Lukashenko strongly opposes this perspecve (Belta, 2019b). In this situaon, the
condions for obtaining Russian support become polically inacceptable.
It may be argued that this reversal of the role of Russia from a source of hope to a source
of threat is addional movaon for the Belarusian government to move towards cauous but
pro-market reforms.
19
4.1. How big is the state? The share of the public sector in the Belarusian
economy
A real assessment of the private sector’s role in the Belarusian economy is extremely dicult.
Ocial stascs do not allow for drawing clear boundaries between the private and the state-
owned sectors. According to the Naonal Stascal Oce (Belstat), only communal or state
unitary enterprises (unitarnoye predpriyae)7 belong to the public sector. At the same me, Bel-
stat classies all joint stock companies as private, even those where the state remains the only
shareholder. State-controlled joint stock companies are very common in Belarus, with truck fac-
tory MAZ or MTZ tractor plant being the most prominent examples.
This leads to signicant discrepancies in esmaons of the size of the Belarusian state sec-
tor. According to the EBRD (2015), it remains one of the largest among all post-communist
countries: about 70% of Belarusian GDP. At the same me, Belstat argues that the Belarusian
economy is mostly private8: in 2017, only 27.5% of the naonal value added was generated by
communal and state unitary enterprises, whereas an addional 18.5% was produced by the cor-
poraons where the state controlled over 50% of the shares.
The real role of the state in the enterprise sector may be even bigger than the EBRD esma-
ons. First, there are many opportunies for state authories to intervene in or assume control
of enterprises. Second, there are strong doubts about the independence of many formally purely
private companies subordinated to Belarusian state instuons which signicantly restrict the
property rights of the owners. Within the bundle of rights (Alchian and Demsetz, 1973), the
authority to use property is most commonly violated. Good examples of such enterprises are
Amkodor JSC, a large producer of road building, municipal and forestry equipment and Milavitsa
JSC, the biggest Belarusian lingerie producer. Both of these companies are privately owned.
However, they have to report to the state authories the results of their business acvity and
follow government guidelines to meet the goals set by the state authories. Amkodor JSC is
directly subordinated to the Ministry of Industry, whereas Milavitsa JSC, alongside 85 other
private and state-owned enterprises, belongs to the Bellegprom state consorum. In pracce, it
7 According to Art. 113 of the Belarusian Civil Code, a unitary enterprise is a business enty which has no ownership
rights to the assets it uses in operaons. It is a very common form of enterprise which operates state or municipal
property.
8 Data provided on the authors’ request.
4. State sector in Belarus:
Data and analysis
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CASE Working Papers | No. 12(136)/2020
means that the government may impose on these companies output volume, prices, salary levels
and other indicators.
In our study, the noon of state-owned enterprise, state-controlled enterprise or simply
state enterprise refers to an enterprise of any legal form where the signicant share of assets
remains in the hands of the state or municipality and where the managers are heavily controlled
by public authories. One needs to keep in mind that Belarusian authories exercise a dispro-
poronally strong power over the enterprises where they have only minority stakes, which is
leveraged mainly by the reporng requirements towards the relevant branch ministry and the
right of the state shareholder to interfere in the business decisions of the companies. Therefore,
in Figure 4, all enterprises having public authories among their shareholders are considered as
state controlled.
Figure 4. Share of gross value added produced by the public sector in various economic acvies, 2017
0
10
20
30
40
50
60
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
percent
Agriculture, percent of bank credit
Construction, percent of bank credit
Industry, percent of bank credit
Services, percent of bank credit
Bank credit to economy, percent of GDP
0 10 20 30 40 50 60 70 80 90 100
Real estate
Retail
Other services
Information and communication
Accomodation and catering
Professional and technical services
Administrative services
Finance
Industry
Culture, recreation and sport
Transportation and storage
Construction
Agriculture, fishery and forestry
Water supply and waste management
Healthcare and social services
Education
Mining
Electricity and gas supply
Governance
Public
Domestic private
Foreign
Source: Belstat, own calculaons.
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Based on Belstat data, one may conclude that the state sector in Belarus produces over 48%
of the gross value added and employs over 57% of the labour force, which seems to be a quite
conservave esmaon because according to another study (Akulova, 2015), the state sector
may produce 74-75% of the total producon volume and employ up to 69-82% of the work-
force. SOEs dominate in industry, mining, construcon, transportaon and agriculture. They
form vercally integrated corporaons composed of a big enterprise assembling nal products
and a multude of smaller units producing intermediate goods. This type of structure allows
loss-making enterprises to avoid bankruptcy by aaching them to more ecient producers
(World Bank, 2012, p. 43-44). Among SOEs, big rms prevail. For instance, an average industrial
SOE in Belarus employs 525 workers, while a private enterprise in industry – only 28 (Belstat,
2018b, p. 37).
In a developed market economy, an SOE usually has objecves other than just prot gen-
eraon for its owner and it pursues a general goal of maximising value for society through an
ecient allocaon of resources (OECD, 2015). In Belarus, the funcons of SOEs are set even
wider and include the direct provision of social services regardless their main area of operaon.
Like in Soviet mes, SOEs maintain hospitals, childcare and sport facilies, and even restaurants
and museums (Ehrke, Shymanovich and Kirchner, 2014, p. 11).
Therefore, the Belarusian economy is no longer just a simple copy of the Soviet economic
system. The private sector produces a substanal part of Belarusian GDP, although its distri-
buon across sectors of the economy is highly uneven. Such an ownership structure of the
economy is a clear result of delayed privasaon and the discriminave policies applied to the
private sector. Belarusian authories have managed to keep control over the overwhelming
majority of ‘old’ enterprises inherited from the Soviet period. This dominaon of state owner-
ship in industry, construcon and transport, combined with hundreds of thousands of people
employed in public administraon, state-owned educaon and the healthcare system, allowed
the government to keep direct economic and polical control over the majority of populaon.
Private enterprises, in their turn, had to develop in new niches, which emerged aer the fall of
communism and were not occupied by Soviet industrial giants. Private business has also taken
control of the few spheres from which the state has withdrawn, most probably, due to high
control and maintenance costs (e.g. road transport and retail). Private rms, which are predomi-
nantly domesc, are mainly concentrated in services and the informaon industry – e.g. in retail,
public catering, consulng, adversing and computer programming (Pelipas et al., 2014, p. 49).
Foreign direct investments (FDI) form just a ny part of the Belarusian economy: foreign-
owned companies contribute merely 3.5% of the gross value added. According to Naonal Bank
of Belarus data9, by the end of 2018, the total amount of FDI was only USD 13.1 billon. The
biggest foreign investor in Belarus is Russia (USD 4.0 billion, 30.1% of total FDI) and the second
biggest investor is Cyprus (USD 2.3 billion, 17.6%). Taking into account that Cyprus is widely
used as an o-shore investment plaorm for Russia (Repousis, Lois, and Kougioumtsidis, 2019)
and other former Soviet republics including Belarus (Sidoruk, 2017), Cyprian investments may
9 hp://www.nbrb.by/stascs/foreigndirecnvestments.
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largely be of Russian descent with many of them simply domesc investments that have taken
a round trip for tax avoidance purposes. The highest shares of foreign-owned companies (Figure
4) are found in IT and communicaon (Belarus became popular for outsourcing IT services for
European countries) and retail, with big chain stores entering the Belarusian market, whereas
the highest volume of FDI was directed to industry (40.1% of the whole FDI inow) (Mukha,
2019).
4.2. Away from the command economy? The evolution of the public
sector since 2007
SOEs sll dominate in the Belarusian economy; however, since the beginning of the 1990s, their
share in the economy has slowly but constantly declined. In the last decade, this process has
taken a new dynamic. According to ocial data, the contribuons of SOEs to the value added
declined from 61.4% in 2007 to 48.1% in 2017 while employment in the public sector fell from
68.3% to 57.7% during the same period. The most signicant ‘losses’ occurred in construcon
– one of the sectors with the highest presence of the state. The contribuon of state-owned
construcon enterprises to GDP contracted almost by half (both in relave and absolute terms),
while the number of employed decreased by one-third. It is important to note that the output of
state-owned construcon rms has shrunk much more than the output of private enterprises.
This faster decline of SOEs has allowed private business to increase its share from 35% to more
than 47% (Belstat, 2015, p. 332; Belstat, 2018a p. 323).
Very similar changes occurred in some branches of industry. The share of SOEs in the output
of the whole industrial sector has decreased only slightly: from 73.9% in 2011 to 70.4% in 2017.
At the same me, in the producon of vehicles and machine tools and in the woodwork industry,
the share of private rms has increased by more than 10 percentage points. It may signify that
private rms demonstrated higher eciency and resilience to the crisis caused by the decrease
of state support and stagnaon in the Russian market, which was the main desnaon for Be-
larusian exports (Belstat, 2016; Belstat, 2018b).
While the contribuon of state enes to the Belarusian economy since 2007 has evidently
shrunk, the contribuon of economic sectors dominated by private rms (retail, business ser-
vices and scienc acvies) has remained at least stable (see Figure 5). The IT sector even
managed to double its contribuon to GDP both in relave and absolute gures (although its
share is sll modest – about 5%).
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Figure 5. Employed by spheres of economic acvity (% of total)
0%
5%
10%
15%
20%
25%
30%
2010
2011
2012
2013
2014
2015
2016
2017
Industry
Information and communication
Construction
Professional, scientific and technical activity
Retail
Source: Belstat.
Very interesng changes occurred in the biggest sector of the Belarusian economy controlled
by private rms, namely in retail. Since 2010, big enterprises have increased their share from
40% to 56% of the total turnover.
On the one hand, one may see a natural process of concentraon in retail. The big chain
stores are winning the compeon with smaller and less ecient shops. On the other hand,
such concentraon corresponds to the interests of the Belarusian authories. They do not see
SMEs as the backbone of the naonal economy and thus try to establish good relaons with
big private rms. The government already makes such aempts, giving more space to the larger
private domesc and foreign investors in food producon, machine building, transportaon,
retail and IT (Belarus.by, 2019).
For instance, the largest employer in Belarus is no longer a Soviet industrial giant, but the
private retail company Eurotorg LLC, which is registered in Cyprus. In 2015, it employed more
than 30 thousand people, while the biggest state-owned enterprise, Minsk truck factory MAZ,
employed 18.6 thousand (Probusiness.by, 2015). Other examples of private investors who man-
aged to ‘build into’ the centralised and state-regulated economy of Belarus are Stadler Rail AG
– a large Swiss manufacturer of trains which opened its factory near Minsk in 2014 (Yaroshev-
ich, 2016), and VMG Group – a Lithuanian woodwork company producing furniture for IKEA,
which opened its factory in Mogilev in 2013 (Melekhovets, 2018). Since the beginning of the
24
CASE Working Papers | No. 12(136)/2020
2010s, the Belarusian government has made substanal eorts to aract Chinese investors to
the construcon, chemical, automove, energy, electronics and agriculture industries. However,
the results are yet to come (Manionok, 2018).
If the ocial gures are correct, the share of the private sector in Belarus in the last decade
is growing mainly due to the expansion of big domesc and foreign companies. One can draw
such a conclusion from the fact that the share of (predominantly private) SMEs in employment
remains unchanged since 2009, while the share of the public sector in employment is declining.
In 2011, almost 63% of all employed were working in the public sector, whereas in 2017, this
share decreased to 57.7% (Belstat, 2018a). A simple economic structure based on large private
enterprises may be considered by state authories as the ideal soluon, allowing for the reduc-
on of subsidies to whole sectors and keeping businesses under polical control. For the gov-
ernment, it is much easier to deal with several big players, even those of foreign descent, than
with a large number of small private businesses.
As it has already been menoned, the inuence of the state authories over the Belarusian
economy is not related to the share of the state sector alone. It is also related to the wrien and
unwrien rules of the game imposed by the state, which restrict the private sector and give the
advantage to SOEs. How Belarusian authories manage SOEs and ensure their dominaon in
the naonal economy will be described in the next secon.
25
5.1. Ownership function of the state
According to Belstat (2019) data, Belarusian authories exercise ownership of over 14.3 thou-
sand enterprises (p. 34). As it has already been menoned, the legal form of SOEs in Belarus is
either a unitary enterprise, which operates the assets belonging to local or central authories, or
a joint stock company, which has public authories among its shareholders. The State exercises
its ownership funcon according to a decentralised model (Vagliasindi, 2008). This means that
SOEs in Belarus are not placed under the responsibility of one body but rather under several
enes: relevant sectoral ministries, government commiees and local authories. Their own-
ership funcons are not separated from management funcons and are mixed with regulatory
funcons. The government and local execuves perform ownership funcons, inuence pro-
ducon process and have the power to modify the regulatory environment where SOEs operate
(Avtushko-Sikorskii, Burak, and Miroshnichenko, 2016, p. 29).
De jure, the main owner of state assets in Belarus is the governmental State Property Com-
miee (SPC). In pracce, ownership funcons are given to nine ministries (e.g. the Ministry of
Transportaon, Ministry of Healthcare, Ministry of Transport and Ministry of Communicaon,
among others.) as well as to regional and local execuves (Avtushko-Sikorskii et. al., 2016, p. 21).
Other managers of state assets are ve state consorums the origins of which can be traced
back to the ‘branch ministries’ of Soviet mes (Lavnikevich, 2015). Each consorum unites sev-
eral dozen large enterprises from ve dierent industries: petrochemicals, light industry, food,
mber and woodworking, as well as wholesale trade. State consorums do not have the status
of ministries but perform very similar funcons. They have an impact on economic policy, issue
legal acts and help to achieve the economic targets established by the government. The mem-
bership of private enterprises in state consorums is not obligatory, but state authories oen
force private companies to join (Avtushko-Sikorskii et al., 2016, p. 20).
In the last decade, the Belarusian government has established a second, lower level of this
ownership hierarchy. Since 2010, it has gathered about 800 SOEs into 102 state holdings (Min-
istry of Economy of the Republic of Belarus, 2016). The goal was to decrease the number of
enes under the direct supervision of the government (the SPC) and facilitate the process of
property management. The authories also wanted to improve the nancial condions of the
loss-making enterprises by aaching them to more protable enes. Avtushko-Sikorskii et al.
(2016, p.33) point out that by concentrang SOEs in state holdings, the authories expanded
5. Written and unwritten rules:
The state as a main actor in the
Belarusian economy
26
CASE Working Papers | No. 12(136)/2020
the management pracces previously used in state consorums onto the broader range of en-
terprises.
The managers of unitary enterprises are appointed directly by government bodies or local
authories. The system of appointment in the biggest state-controlled joint stock companies
is not very dierent. The funcons of the board of directors in the majority of such companies
have been signicantly constrained by the regulaons issued by the ministries and state con-
sorums. They do not act as independent supervisory and managing bodies, but as a channel to
receive government instrucons. Therefore, the boards of the majority of the state-controlled
joint stock companies have been abolished and supervision over these enterprises has been
transferred directly to government bodies (Avtushko-Sikorskii et al., 2016, p. 37).
5.2. State planning system
One of the fundamental features of the Belarusian economic model is the planning of economic
acvity by state authories. Every ve years, the Council of Ministers adopt long-term (15-
year) and mid-term (5-year) plans for the social and economic development of the country. All
economic development plan are prepared by the Ministry of Economy in cooperaon with the
Ministry of Finance, the Naonal Bank, other ministries and state consorums.
The Naonal Strategies designed for 15 years establish general priories in economic and
social development. Despite their long-term character, these documents provide detailed in-
formaon about the goals which the government expects to achieve in social, economic, eco-
logical and regional policies. For instance, the Naonal Strategy for the years 2015-2030 in its
chapter on the economy describes the industries the state will promote (such as IT, high-tech
and export-oriented industries). It provides targets for each industry (such as output growth,
producvity of labour and export growth, among others) and describes the way in which these
targets will be achieved. More precisely, the strategy species the investment projects, produc-
on pracces and policy reforms which are expected to bring success (Ministry of Economy of
the Republic of Belarus, 2014. p. 45-69).
The ve-year plan for social and economic development is very similar to the long-term plan.
It sets economic targets (GDP growth, export growth, increases in the producvity of labour,
xed capital investments and populaon income, among others) and species the policy reforms
and projects to be implemented on a mid-term perspecve (President of the Republic of Belarus,
2016). On the basis of this document, the Council of Ministers dras an Acon Plan which con-
tains a long list of precise measures to be implemented in each aspect of social and economic
policy. This Acon Plan includes dozens of quantave indicators the government expects to
achieve (Council of Ministers of the Republic of Belarus, 2017).
Finally, each year, the President of Belarus by his decree approves a Prognosis of Social and
Economic Development containing several growth targets (in such areas as GDP and exports,
populaon income, inaon and FDI, among others). Basing on these indicators, the govern-
ment composes ‘a comprehensive list of targets in nancial and export acvies’ (President
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CASE Working Papers | No. 12(136)/2020
of the Republic of Belarus, 2018). It is important to note that in recent years this list has been
reduced from 19 to 7 goals. Meeng these targets is obligatory for all SOEs, rms parcipang
in state consorums and especially for the group of ‘GDP-forming enterprises’. The laer group
includes approximately 100 of the largest state-owned Belarusian rms. They are named on
the list of enterprises where the implementaon of state plans is ‘a subject of the government’s
special control’ (Council of Ministers of the Republic of Belarus, 2005). Such parcular aen-
on to these enterprises results from the fact that they produce more than half of the country’s
industrial output (Zayats, 2010). In fact, these ‘naonal champions’ are the key element of the
economic planning system. They are the main agents implemenng the government’s plans and
the achievement of the targets specied in these plans is impossible without them.
On the basis of the prognoses adopted by the government, all SOEs are obliged to dra
their own development plans for both ve- and one-year perspecves. The plans of the ‘GDP-
forming enterprises’ must pass through a long line of approvals. They are consulted and adopted
by the heads of regional (oblast) administraons, state consorums’ boards of directors and
ministries (Council of Ministers of the Republic of Belarus, 2005). The implementaon of these
plans is supervised by the Ministry of Economy and the heads of the state consorums (Council
of Ministers of the Republic of Belarus, 2004).
The performance of other non-‘GDP-forming’ state enterprises is supervised by lower level
authories. However, this does not mean that they have more freedom in their economic ac-
vity. Economic development plans draed by ‘ordinary’ companies with state parcipaon
(though not necessarily with majority state stock) are consulted and adopted by the execuves
of rayons (districts) – administrave units of the lowest level (Vitebsk District Execuve Com-
miee, 2007). The implementaon of these plans is supervised by the vice-heads of the oblast
(region) administraon who are responsible for economic maers and by their analogues on
a district level (Vitebsk Regional Execuve Commiee, 2005).
Belarusian law clearly states that if a state enterprise fails to achieve its expected targets,
its director should be ‘brought to administrave responsibility’ and the ‘irregularies’ should be
immediately corrected (Council of Ministers of the Republic of Belarus, 2005). Failure in plan
implementaon can have negave consequences for state ocials on all levels. Final responsi-
bility for the realisaon of the Prognosis of Economic Development is the Prime Minister. Every
four months he reports to the President regarding the fullment of indicators provided in the
state plan (Zlotnikov, 2009, p. 72).
Such a rigid planning system makes it harder for these enterprises to adjust to the changing
economic environment, especially in mes of crises. Unl recently, they had to meet output
targets and maintain producon levels even when demand was falling. This resulted in growing
stocks of unsold goods. State plans also require SOEs to increase salaries even when producv-
ity stagnates, waste money on unnecessary equipment to meet investment targets, and retain
excessive labour force because it is forbidden to worsen employment stascs (Zayats, 2010).
However, the recent economic problems have caused the authories to reduce the list of eco-
nomic targets and start looking at ways to make enterprises more exible.
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5.3. Discrimination of the private sector: Subsidies, trade protectionism
and formal and informal barriers
The state in Belarus remains the main source of income for the majority of the populaon. To
start with, it pays salaries to those working for the public sector, which is nearly 60% of total
employment. Addionally, state contracts provide revenues for a large part of private rms, and
the policy of public authories strongly inuences the protability of the rest. It is the state
which denes the rules of the game in the Belarusian economy; the private sector is clearly
subordinated to the state-owned sector. Such dominaon is ensured due to the system of legal
and extra-legal barriers protecng the Belarusian public sector from domesc and foreign com-
petors.
The condions established by the state authories for private business signicantly dier
from the condions for SOEs. The majority of private enterprises work under hard budget con-
straints, i.e. the state does not bail them out or support them in another way if they incur losses.
State enterprises, in contrast, benet from various types of support and do not have to t into
hard budget frameworks (Yegorov, 2013. p. 78; Ehrke et al., 2014, p. 3).
As it has already been menoned, subsidised credits given by state-owned commercial banks
are the main instrument to support loss-making enterprises in Belarus. The adverse eect of the
cheap money given to SOEs is the expensive credit given to the private sector. The banks try to
compensate for the losses produced from supporng state companies by increasing the price of
loans to private rms (Yegorov, 2013, p. 78).
The toolkit for state aid is much larger than simple nancial support. As Valery Yanchuk
(2007) explains, state support may take the form of tax exempons, the sale of raw materials
and energy at reduced prices, the refund or remission of debt, the leasing of equipment at pref-
erenal terms and preferenal treatment during parcipaon in public procurement contracts,
among others (p. 60). Private enterprises are deprived of all these benets.
A very powerful tool helping the state to keep private enterprises out of the market is the rig-
id vercal integraon of SOEs and the non-market exchange among them. For instance, state-
owned farms are obliged to sell almost all their products to food processing SOEs at very low
prices set by the government. As a result, these farms do not receive enough funds for develop-
ment and become enrely dependent on state support (Babitski, 2003, p. 692). On the other
hand, the low prices of the raw materials smulate food-processing enterprises, many of which
sell their products abroad and receive high export revenues (Yegorov, 2013, p. 79). Therefore,
food processing SOEs have no need to buy more expensive products from private farms. As
a result, private farms have very lile space to develop. The situaon of private food-processing
enterprises is not much beer because they can hardly compete with SOEs beneng from
cheap raw materials. This discriminatory pricing policy is widespread in other export sectors, e.g.
in the machine building industry (Yegorov, 2013, p. 79).
However, the state authories do not always reward successful ‘naonal champions’ with
generous state aid. The SOEs the government considers as ‘highly protable’ have to pay an ad-
dional lump sum payment to the Naonal Development Fund. Such a policy discourages SOEs
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from undertaking potenally promising acvies. State giants are afraid to nd themselves in
the category of ‘highly protable’ and bear addional costs instead of making prots (Ehrke et
al., 2014, p. 20).
This policy of prot redistribuon does not only help to ensure the dominance of SOEs, but it
produces a chronic illness of the Belarusian economic system: high shares of loss-making enter-
prises and enterprises with low protability (Pyko, 2007, p. 22). About 50% of all enterprises in
Belarus have negave or low (less than 5%) protability of sales. This gure has remained stable
since the beginning of the 2000s (Yegorov, 2013. p. 79).
The government ensures the dominance of SOEs on the Belarusian market not only through
generous subsidies and prot redistribuon, but also through trade proteconism. The volume
of imports to Belarus is regulated by the decisions of the Council of Ministers and Presidenal
decrees. The President regularly orders domesc enterprises to replace imported goods with
domescally produced ones. Each year, the government approves a long list of ‘import subs-
tung goods’. The Council of Ministers gives tax breaks to the Belarusian enterprises producing
these goods and prevents foreign analogues from coming to the Belarusian market (Daneyko,
2012; Akulich, 2013).
The Belarusian market remains dicult to penetrate even for products from Russia and other
members of the Eurasian Economic Union (EEU). Due to the Customs Union exisng within
the EEU, Belarus cannot set high taris on imports from Russia and other EEU member states.
Therefore, the Belarusian government has to regulate the volume of imported goods by admin-
istrave measures. Among the greatest obstacles on the Belarusian market, the Russian Ministry
of Economic Development (2019) menons the Presidenal edicts and the government’s deci-
sions obliging SOEs to buy only domesc agricultural equipment, trucks and buses. The ‘prod-
uct range lists’ issued by the Council of Ministers of Belarus oblige shops, supermarkets and
restaurants to sell a ‘minimal number’ of domesc brands. These lists include all kind of goods
produced in Belarus – from dairy products to texles and electronics. A similar measure is intro-
duced in the pharmacy branch. Imports of popular consumer goods such as alcohol and tobacco
are reserved to several dozens of rms annually appointed by the President.
It is important to note that some of the powerful tools to apply pressure on the private sector
cannot be found in the ocial laws and regulaons. Recent studies of Belarusian SMEs (Papko,
2017b) have shown that Belarusian authories have developed a broad set of informal ways to
extract resources from private rms and control the expansion of the private sector:
1) scal and criminal repressions;
2) forced corporate responsibility;
3) restricng market access;
4) abuse of property rights.
Regarding scal and criminal repressions, this occurs when local authories and state agencies
rounely use real or alleged violaons of the complex regulaons to blackmail private enter-
prises and extract resources from them. Regular nes imposed on SMEs perform the funcon of
informal taxes (Papko, 2017b, p. 112). Owners of large enterprises oen face criminal prosecu-
on on tax avoidance charges. Belarusian experts point out that the persecuon of big business
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increases in mes of crises. In such a way, state authories punish those who are reluctant to
provide resources to the state. Repressions also help to discipline others and make them more
‘cooperave’ (Smok, 2017). These pracces aimed at entrepreneurs are not hard tasks because
the exaggerated legal requirements make full compliance virtually impossible, which exposes
rms to pressure from law enforcement bodies and inspecons.
Forced corporate responsibility is another extracve pracce, namely, forcing private enter-
prises to nance or directly implement public projects. Afraid of sancons, private enterprises
provide public authories with unpaid goods and services. They must nance the construc-
on of public facilies such as schools, hospitals, stadiums and roads and they are required to
sponsor cultural and sports events or support loss-making enterprises – for example, collecve
farms. As one of the richest Belarusian entrepreneurs has recently confessed, ‘If you want to
develop your business, once asked, you will build an ice hockey arena’ (Marcinovič, 2015). This
forced corporate responsibility results from the insucient amount of resources that local au-
thories have at their disposal as well as from the authoritarian tradions of the post-Soviet
administrave apparatus. If local authories do not have enough resources for the realisaon of
their tasks, they perceive taking these resources from SMEs as fully legimate.
Restricng market access to private companies began with the aempts of public authories
to support local SOEs. The authories may ban ‘outsider’ private enterprises from entering the
local market. Local private rms compeng with SOEs may be removed from the market under
the pretext of non-compliance with technical standards or sanitary requirements. Local authori-
es may informally forbid both private and state-owned shops to buy products from other re-
gions. These monopolisc pracces are especially visible in rural areas where there are much
fewer jobs than in cies (Papko, 2017b, p. 116).
Abuse of property rights also hampers the development of private enterprises. State bodies
may conscate the property of private rms and/or put them under the control of state ocials
(Papko, 2017b, p. 114). Since 2010, the Belarusian media has menoned at least seven cases
where large enterprises were taken over by the state (Loyko and Zayats, 2018). In the majority of
these cases, the government or President issued legal acts under various pretexts that suspend-
ed the managing and supervisory boards of the enterprises. This happened even to companies
where the state had no shares at all. Aer appoinng new managers, the authories iniated
the issue of stock which allowed them to buy the controlling stake. Filing a lawsuit to the court
by the shareholders had lile eect, because the judges were always taking the side of the gov-
ernment (Loyko and Zayats, 2018). The courts cannot ensure the protecon of private property
rights against the state because they are not independent: judges at all levels are appointed and
revoked by the President and their decisions are highly inuenced by the execuve power.
5.4. Interests in relationships between the state and enterprises
Although state ocials in Belarus have vast power over economic agents, relaons between
them are not permeated by corrupon and rent-seeking, as can be seen in many other post-
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communist countries, including those which were regarded as transformaon leaders, e.g. Po-
land and Hungary (Bałtowski et al., 2020). The study performed by Papko (2017a) shows that
the majority of resources extracted from businesses do not go into state ocials’ pockets. This
does not mean that patron-client relaonships do not exist; they are just of a quite unique kind.
From the governmental side, they are largely fuelled not by the private interests (especially -
nancial) of bureaucrats, but by their search for resources for the realisaon of the goals dened
by the state.
This precondions, rst, the selecve approach towards enterprises of dierent resource-
extracng potenals, which makes larger enterprises more aracve as clients of the state au-
thories. Second, the relaonships of dierent levels of the state apparatus with enterprises are
dierent. Two paerns can be idened here.
The rst paern covers the relaonships between local authories and SMEs. Their re-
source-extracng potenal is limited, so they do not aract the aenon of the central level of
the state administraon. But for the local administraon, SMEs are sll aracve and are used
as a milking cow to obtain resources for implemenng the socioeconomic policy of the govern-
ment. The peculiarity of this paern is that it is seldom based on patron-client relaonships.
Local authories use every pretext to extract resources from SMEs, mainly through repressions
such as nes (or threats to impose nes), giving nothing in return. Local bureaucrats usually re-
frain from breaching the law if they are asked to give favours to entrepreneurs because they are
ghtly controlled and may easily become the subject of a criminal prosecuon. It is very impor-
tant to note that in Belarus, contacts with state ocials are a necessary but not sucient condi-
on for business success. Indeed, the entrepreneurs who want to expand their business have to
enter into cooperaon with local authories and provide them with the resources they request.
However, local authories almost never give them a monopolisc posion on the market. Even
in exchange for regular extracon, these ‘cooperave’ SMEs do not receive enough protecon.
Moreover, local authories are just not able to guarantee protecon in case of serious problems
with law enforcement.
The second paern describes the relaonships of bureaucrats with large rms. This is the
domain of the central authories that are interested in relaonships with big business only, but
there are also many more possibilies (and much greater will) to reciprocate than with local bu-
reaucrats. If a rm managed to grow under the condions of regular extracon, it has a chance
to enter into a long-term benecial relaonship with the central government. The government
gives large companies signicant preferences in exchange for regular ‘help’ and the realisaon
of ‘socially important projects’. Pavel Topuzidis, one of the richest entrepreneurs in Belarus, is
the unique representave of big business who openly admits having such kind of relaons with
Belarusian authories (Marcinovič, 2015). The core of his business is the Tabak-Invest company
– one of the two rms producing cigarees in the country and the only private tobacco producer
in Belarus.
But the examples of big private rms beneng from a monopolisc posion and having
special relaons with state authories are much more numerous (Sekhovich, 2019). A private
Swiss company, Stadler, the only train producer in Belarus, was allowed to enter the Belaru-
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sian market under the condion that it would bail out Belkommunmash JSC – a state-owned
manufacturer of trolleybuses. President Lukashenko demanded Stadler invest in its modernisa-
on and produce trains in cooperaon with this company (TUT.BY, 2014). Mikhail Gutseriyev
– a Russian businessman who was given the right to build the only private potash mining com-
pany in Belarus, invested about USD 350 million in ‘socially important’ infrastructure projects.
His companies have built a terminal in the Minsk airport, a luxury hotel, a school in the capital,
a church and residenal houses in the Minsk region, and even a residence used by President
Lukashenko (TUT.BY, 2017).
Nevertheless, even proximity to power does not guarantee that benecial relaons will last
forever. A clear example would be the prosecuon of Yury Chyzh – one of the richest entrepre-
neurs in the country and a member of Alexander Lukashenko’s inner circle. Chyzh, who owned
a large construcon company which also helped to realise state projects, was arrested in 2016
under tax avoidance charges. Even aer repaying the damages and being pardoned by Alexan-
der Lukashenko, he never returned to the upper posions of Belarus’ richest people rankings
(Sekhovich, 2019).
All this represents a very interesng case of state-organised informality. It was borne neither
from the iniave of private actors nor from individual state ocials. It originates from the
specicity of the Belarusian economy, based on intervenonism with weak formal enforcement
mechanisms, where in order for the system to funcon, wrien rules must be supplemented
with unwrien ones.
33
During the last decade, the Belarusian economy has evolved from a quasi-Soviet system with
strong state planning, generous support to inecient enterprises and the massive redistribuon
of funds within and across the sectors, to a more exible model where the public sector sll
remains the core of the economy. Several tendencies have become parcularly visible in the last
decade.
The rst one is towards the reducon of subsidies, deregulaon and aempts to make the
state sector more ecient. The second one is the growing role of private enterprises, especially
in the new sectors which expanded aer the fall of communism and were not dominated by
SOEs (services, catering, IT). The share of private rms has also increased in some sectors se-
verely hit by the fall of demand on the domesc and Russian markets (construcon, woodwork
industry). Private enterprises proved to be more adapve to the changing economic condions.
The third tendency is the increasing concentraon of the emerging private sector. This sector
has not developed due to the expansion of SMEs, but due to the development of large private
rms. It seems that the government perceives the aracon of large private domesc capital as
a way to increase the eciency of the Belarusian economic system and preserve its ‘manage-
ability’ at the same me. State authories may give large private enterprises a monopolisc
posion on the market in exchange for prot sharing with the state (going far beyond ordinary
taxaon).
However, the state sector does not seem to lose its dominant posion in the economy in the
foreseeable future. The state has set a wide array of wrien and unwrien rules which secures
this dominaon through the means of a state planning and control system over the enre corpo-
rate sector and formal and informal discriminaon of the private sector. The laer is regarded by
authories not as a foundaon of the country’s economic development, but rather as a milking
cow which provides resources for the central and local governments.
The chances for large-scale market reforms in Belarus remain extremely low because the
Belarusian authoritarian regime does not want to lose control over the economy and populaon.
Privasaon and de-monopolisaon of the economy and the emergence of thousands of small
independent economic actors would extremely complicate the extracon and redistribuon of
resources. SOEs will remain the foundaon of the Belarusian economic system, although some
stabilisaon role may be given to a number of large private enterprises.
Regarding the second task of this paper – an aempt to nd the proper theorecal perspec-
ve to describe the Belarusian economy, at this stage of the research, we conclude that the
concept of state capitalism is only parally applicable to the Belarusian reality. First of all, we
6. Conclusions and discussion
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CASE Working Papers | No. 12(136)/2020
must answer the queson of whether an economic system where the state dominates both in
the ownership structure and regulaon of economic acvity can be called capitalisc. At rst
glance, it does not, because the most popular denions of SC in the ‘broad sense’ assume that
the economic system is sll market based. In fact, the Belarusian government severely restricts
market mechanisms even in non-monopolised sectors and where private businesses dominate.
Furthermore, the state, being the largest owner, acts not as an entrepreneur, but rather as an
administrator who pursues mostly polical goals.
However, if we look at SC in the ‘narrow sense’ – as a set of features and specic policies
(as dened by Bałtowski et al., 2020), many of its manifestaons can be found in the Belarusian
economy. One can witness the policisaon of SOEs, their role being a source of resources to
be distributed for meeng polical goals. The policisaon of SOEs à rebours is paramount, their
rents originate from their privileged posion set up by the state – although SOEs seem to play
a passive part here (unlike, e.g. in Poland – Kozarzewski and Bałtowski, 2017), being mainly an
object of the state’s economic populism acons. The laer seems to be one of the cornerstones
of Belarusian economic policy, with the authories trying to create the widest possible clien-
telist base. At least at the discourse level, economic naonalism is clearly visible as noons of
a strong and independent economy and a state that supports local producers. Cronyism exists
in the case of the (not numerous) big private companies which enter ‘mutually benecial’ rela-
onships with public authories. One should note however the peculiar character of rents and
rent-seeking in Belarus compared to other countries which manifest elements of state capital-
ism: due to the limited scale of outright corrupon, rents in Belarus are also limited in form and
scope, seldom leading to substanal personal enrichment. Basically, only one feature – oligarchy
– is virtually non-existent in Belarus (but it also does not exist e.g. in Poland which clearly heads
towards state capitalism). Besides, all the tools of state capitalism described by Bałtowski and al.
(2020) are present in Belarus.
It seems that this apparent contradicon between the lack of full-edged capitalism (i.e.
a market economy) in Belarus and the existence of numerous manifestaons of state capitalism
in this country may be resolved through dierent ways. One is further development of the SC
concept, maybe within the wider perspecve of the VoC approach. However, the fruiulness of
this way may depend on whether the Belarusian case is not unique and represents some pat-
tern found in other countries as well – and this requires further invesgaon. Another possible
soluon is to apply a muldisciplinary approach which takes into account the duality of the Be-
larusian economy, where market mechanisms and instuons exist but are not the core of the
system. In this case, the state capitalism perspecve would be used only as one of several tools
of analysis, together with other perspecves which have yet to be chosen, e.g. those dealing
with resource-based and redistribuve economies. Theories of hybrid regimes (Wintrobe, 2018)
may be of help as well.
Another important direcon of further research (which will be facilitated by choosing the
appropriate theorecal perspecve discussed above) is idencaon of the main driving forces
of the Belarusian system, including those that ensure its high sustainability (regardless of all the
obvious aws) – because only paral explanaons exist so far.
35
Transliteraon of names and tles in the Belarusian language sources is based on the ocial
instrucon of the Belarusian government (State Commiee for Land Resources, Geodesy and
Cartography of the Republic of Belarus, 2000). It is the only comprehensive transliteraon sys-
tem of the Belarusian language advised for use in the UN.
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