Belarus needs an immediate plan to address its economic woes. A failure to deliver on this could leave the country once again in free-fall, writes Paul Pryce.
Minsk is in the midst of a panic. In early August, Russia’s potash company Uralkalij announced that it would be ending a long-standing partnership with Belaruskalij, Belarus’ state-owned potash producer. This has jeopardized efforts to stabilize the Belarusian rouble, especially as potash accounts for €2.4 billion or 7.1% of the country’s total export earnings. The cancellation of the partnership with Uralkalij will certainly not bring an end to Belarusian potash exports but it is expected to result in a loss of some €675 million in export revenue this year.
This follows reports that a recent devaluation in the Russian rouble will result in a significant slump for Belarusian exports across most industries in 2013 and 2014. Currently more than 25% of all Belarusian exports are to the Russian Federation, but this has been in part due to the competitive advantage afforded by Belarus’ weaker currency. As the Russian rouble devalues, the Belarusian rouble loses its competitive advantage. This means Belarusian goods will become more expensive for Russian consumers, who may turn to domestic products or goods imported from elsewhere.
This comes less than two years after Belarus accepted a €2.25 billion loan from Russia to avert an economic free-fall. According to Belarusian sources, government authorities have not yet developed a strategy to ensure that the country is still able to uphold the conditions of the loan agreement despite the staggering loss of export revenue. It seems there are two possible options which could be employed at this stage. The first is to devalue the Belarusian rouble, tying the currency to the depreciation of the Russian rouble. This would allow Belarus to maintain its competitive advantage in the Russian marketplace, no matter the state of Russia’s economy.
A second option would be to find a new export commodity which foreign markets simply cannot do without. The end of the partnership with Uralkalij has clearly made potash too unreliable for Belarus’ troubled economy, but other resources could offer stable growth in years to come. Belarusian authorities may already be exploring this option, as evidenced by the recent announcement that Belarus intends to establish a new nuclear power plant near Astravets. This facility would be located near the Lithuanian border, less than 60 kilometres from Vilnius. Whereas the Astravets plant is currently being touted by Belarusian authorities as a means by which to secure the country’s energy independence, it could become a major source of export revenue by supplying nearby European Union member states. If the Astravets facility is completed, and if the concerns of the Lithuanian public can be adequately addressed, Belarus could position itself as an important alternative to Russia for the supply of energy.
The relationship between Aliaksandr Lukashenka and Vladimir Putin has always been tumultuous. Whether Belarus is serious about becoming an exporter of nuclear energy, and whether Russia will refrain from intervening to prevent such a development, remains to be seen. If the current plans for Astravets proceed, however, there could be an important shift in the trajectory of Belarus. While Russia remains a significant trading partner for Belarus, almost 50% of all Belarusian exports wind up in the European Union. If the EU also becomes a consumer of Belarusian energy, the economic incentive for Belarus to pursue European integration may be too great to pass up, even if that may mean running afoul of Russia.
Yet Astravets cannot serve as Belarus’ economic salvation alone. Ground has only just been broken on the intended site of the nuclear power plant. If construction is to begin in earnest, the reactors may only be completed in 2019. Belarus needs an immediate plan to address its economic woes. A failure to deliver on this could leave the country once again in free-fall.
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