“Around 70% of Exports to the EU Sub-Sanctioned”
- 28.03.2022, 10:49
What awaits the Belarusian economy.
What problems has the Belarusian economy already faced in a month of war? Will the IТ survive and to what extent will Russia help? A major analysis of how we are going to live, writes nn.by.
Belarus has become even more toxic partner than after 2020
Academic director Katerina Bornukova divides sanctions against Belarus into bans and restrictions with short-term and long-term consequences.
"One can observe the clearest example of short-term consequences from sanctions in the financial sphere. In particular, it''s about a number of banks disconnected from SWIFT. Such banks have been de facto cut off from foreign economic activity, which has led to their complete or partial non-competitiveness.
In addition, this is leading to a banking panic, with people withdrawing their deposits, not only from those institutions that have been hit by the sanctions but also from all others. Such actions strongly affect the stability of the financial system," the expert said.
The economist highlights trade restrictions by the EU among the most sensitive sanctions, which are of a long-term nature.
"These are restrictions ranging from the ban on the transit of potash from Lithuania to the new sanctions, which cover most of the Belarusian exports to the EU. These include timber, metals, rubber, potash and oil products. As a result, about 70% of the Belarusian export to the EU is under sanctions".
However, according to Ekaterina Bornukova, sanctions are not our main problem.
"The big problem is that Belarus has now become an even more toxic partner than after 2020. If after the protests, counterparties in the IT sector saw nothing wrong with continued work with our companies, now it is getting to the point where they are simply forcing them to relocate along with their staff. They no longer want to pay taxes in Belarus. In such a climate, of course, it is impossible to talk about new Western investors coming to other areas as well".
No one will replace the functions of the IT sector in the economy
According to a survey conducted by dev.by in March this year, about 30% of IT specialists have already left and another 30% are planning to leave within a year. Katerina Bornukova explains what this outflow will do to the Belarusian economy.
"I am not sure that two thirds of almost 100 thousand of those employed in IT will leave the country, but even if it is 30-40%, it will be a great blow to the economy. The share of the IT sector in Belarus is about 5% of GDP. This was an export revenue comparable to that of the same Belaruskali.
Besides, one should remember that it was the IT sector that was the driver of growth. It was one of the industries that grew itself and created prerequisites for growth in other spheres. Cuts in IT will lead to losses in retail, services and real estate. We will lose any hope of economic growth without IT development.
This is much more important than, for example, the problems with BelVEB. Yes, the bank will suffer but its functions will be replaced by others, and no one will replace the functions of the IT sector in the economy.
We will not see support in the form of real money
The Belarusian economy is highly dependent on the Russian one. And this dependence will become even greater.
"And the Russian economy expects a fall. According to various forecasts, it may fall by 7% to 20% in a year. Of course, the level of stagnation will largely depend on oil and gas trade and how the war situation develops. But the fact that the Russian economy will fall is undeniable; the only question is what kind of fall it will be", the economist assures.
Another key issue is the focus of the industrial part of the public sector on the Russian market and, to a great extent, on the Ukrainian market.
"Ukraine used to be one of the top three export partners. For instance, it accounted for 13% of Belarusian export in 2021. We have lost this market. The loss of that 13% could mean a reduction of GDP by several per cent. All these consequences will lead to a significant reduction in Belarusian export revenues.
As for the Russian market, despite all the talks that they will support us and create super conditions, there are no real actions in this direction. The only thing to note is the deferral of loan repayments, which helps Belarus overcome this year without a default. On the other hand, previously instead of restructuring, Russia always refinanced its loans for Belarus (gave new loans for repayment of old ones). Hence, we will not see support in the form of live money. Nevertheless, this decision will in no way compensate us for the lost export revenues.
We need to realize that Russia will not say: "Let our KAMAZ idle and we will buy MAZs instead to support Belarus," the interlocutor says.
The situation is somewhat reminiscent of 2015-2016, when the Russian ruble fell and exports to Russia dropped by 30%. Against this backdrop, Belarus lost more than 6% of its GDP in two years.
Will settlements in rubles save Russia?
As for the prospects of the Russian ruble, the expert notes that its strengthening against the background of the requirement to pay for gas in rubles will be temporary.
"First of all, it does not change the external trade balance, and secondly, one should understand that strengthening of the exchange rate in this situation is a normal phenomenon. In this case, nothing has changed conceptually, Russia will sell as much gas as it used to sell. This does not change the foreign trade balance, but only the unit of calculation. So, the gas importer has to buy 100 per cent in roubles in the short term. The demand for the ruble has thus increased, and the exchange rate has appreciated.
In the long term, this 100% export revenue will come to Gazprom and say that they need foreign currency to buy equipment, pay for maintenance, etc. As a result, the same Gazprom will buy back some of the currency".
Russia's behaviour will be another signal to Europe that Russia is an unreliable trading partner.
"If your partner changes the terms of the contract, it will probably encourage Europe to look even faster for alternatives to reject Russian gas," argues Katerina Bornukova.
Europe keeps a close watch on sanctions
Belarus may become a territory for Russia to circumvent sanctions.
"But we must realize that Europe thoroughly monitors the implementation of sanctions. Therefore, if one imagines that demand for iPhones will increase 10-fold in Belarus, the channel will be shut down. At least, if the information about it reaches the media," said the economist.
The living standards of the Belarusians may get worse because of the counter-sanctions imposed by our country.
A serious outflow of population will also have a negative impact on the economy.
"As a rule, young and active people leave the country, while pensioners and state employees stay in the country more often. All this undermines the long-term growth potential."