COMPLEX SITUATION

“We are good students, we are ready to learn. Moreover, when I became president, I said that I will build my country so it will look like Sweden and Germany. As a historian, I know economy, social sphere, how people are being treated in these countries. I want Belarusians to live approximately like people in Sweden and Germany. What else is needed?! And for all these years I was building my policy in this manner”, – Alexander Lukashenka unexpectedly confessed in an interview to “Die Welt”. 

Germany has nothing against possible similarity. Moreover, recently Berlin has been persistent in tying the official Minsk fulfilling the political recommendations of the EU to the perspectives of the economic bonds’ development between Belarus and Germany, which is traditionally among our three leading trade and investment partners. And while until recently the political dialogue hasn’t been that important for Belarusian government – thanks God the economic relations were showing good dynamics, now that the economy displays worse results, Minsk had corrected the tone when talking to the Germans. The Vice-minister on Foreign Affairs of Belarus Valery Voronetsky while giving a speech during the X Minsk forum, which was in session from 22 to 25 of November, spoke about the special role of Germany in improving relations with the EU, noting that Germany as one of our main trade partners can male an impact enough to “set the Belarus – European Union relations on the rails of pragmatic and effective cooperation”.   
  
There’s less trade

Since the beginning of the year there are significant deviations in the economy: Belarusian export is frozen on the average level of the previous year, and that is in terms of cost. And, minding the growth of the export prices by 11%, it means that the actual volume of the goods, supplied to the external markets has dropped. According to the Statistics Ministry, the trade between Belarus and Germany is 1,513 billion dollars, – a 18,5% growth compared to January-July of 2006. It looks good, but Belarusian import dropped by 36,2% making now only 308,5 million dollars. Import, on the contrary, “jumped” by 51,8% (1,204 bln. dollars). During the first shock month of the shock year only the import from Germany grew three times and is now 250 mil. dollars. If this trend continues, the yearly import volume could make 3 bln. dollars, and this is 10% of Belarusian GDP.

Though Germany is in the leading economic positions in Belarus, our country is only 49^th in German exports and 69^th in imports. “We built our economic interests with Germany a little incorrectly, – Leonid Zaiko, an economist thinks. – Of course, we can say that the current situation isn’t typical because a serious investment in metallurgy was made. It is so, but nevertheless our export to Germany is only 59% of the previous year”.

There is an imbalance in the structure of Belarusian export to Germany and it is not in favour of the ready-to use products: most of our shipments to Germany are timber, chemical materials. Their share in the volume of Belarusian export to FRG (plus precision mechanics and optics and textile products) is almost 70%. The reasons are simple: failure to meet the quality standards, energy consumption norms, ecological regulations… Moreover, there is obvious growth in internal and, in relation, export prices that finishes the already unstable position of Belarusian goods on the European market. Thus, after the oil supplies to Belarus shrunk at the beginning of the year, our export to our second most important trade partner – the Netherlands – halved (according to the Ministry of Economy, the share of Russia is 48,1% of all the trade, the Netherlands – 7%, Germany – 6,1%).

“But after this loss we ought to have restrained our “import appetites”, – L. Zaiko thinks. – We started importing 36 times more cyclic hydrocarbons, 6 times more metal constructions, 3,5 times more freezers and refrigerators from Germany. 16,8 times more money was spent on agricultural machinery. In January only the preparations for field activities cost 23,5 million dollars. The cost of one acquired metalworking device – 81 million dollars. We bought over a hundred tractors, each costing 159 thousand dollars, from our German partners”.

Overall, Belarus is getting the unexpected trade results, which are definitely unfavourable. The disproportion in buying and selling will have their results on currency market and exchange rates. Belarusian authorities decided to change the situation with negative trade balance by giving up one of the traditional article of import from Germany – buying the modern agricultural machinery. The import, worth 200 million dollars a year will stop in 2008. This was announced by Belarusian president during the managing staff seminar in November. As Lukashenka explained, “we would gladly buy millions of dollars worth of foreign machines. But we’ve invested millions of dollars in our own facilities, so we should rely on our own vehicles”.

If only German energy was used for Belarusian purposes

This year there were 236 million “German” euro invested in Belarusian economy. There are over 360 companies with German capital and over 80 offices of FRG companies – 10% of the foreign companies, working in Belarus are German. The volume of their funds is almost 75 mln. dollars and the number of workplaces, created is about 3 thousand. Usually German business invests in trade, lumber mills, automotive industry, software, often using tolling schemes in light industry.

As a whole, there are more short-term credits than investments, going to Belarus from Europe. During the first half of the year, the volume of these investments was 10.6 million dollars. Altogether since 1992 there were over 550 million euro received from Germany on guarantee of Belarusian government. The syndicated crediting by German banks is also on the rise. Last year the volume of such credits grew up to 402 million dollars.

“The German investors should enter Belarusian market more actively”, – vice-prime minister Andrej Kobyakov appealed to German businessmen during an opening ceremony of the Days of German economy in Belarus in November. For FRG, which is leading the development of the alternative energy, the most interesting sphere of investment is, according to Kobyakov, energy. And Belarus is interested in creation of private energy objects, as vice-prime minister noted.

“We have the largest field for mutually beneficial business”, – A. Kobyakov assures. – In the new conditions the foreign investment attraction is more important than ever” – our own financing sources aren’t enough. And the share of foreign investments in the whole investment structure in Belarus today is just 2,5-3% (!).

“We are ready to meet and discuss the widest spectrum of the investment questions. We will do everything to make the investment environment in Belarus better”, – Kobyakov promised.

As for the desired conditions, the Germans name more freedom of enterprise, guarantee of no intervention of the state in the private investment affairs, improvement of the customs regulations and in long-term – privatization and liberalization of the economy. Though, as Claus Bayer, the head of German-Belarusian economic club, “if the investor is able to evaluate the degree of risk and is sure of his profits, he will work with the company no matter who the owner is”.

Peter Lorenz, the head of the CIS department in Federal Ministry of Economy is far more radical: “Reforms first – cooperation second”, he firmly stated at the Days of German Economy, later explaining that Germany has a market economy and it’s impossible for a state to order a company to work somewhere until there are suitable conditions for business.

Ricardo Giucci, the expert of the German consulting group on economic reforms in Belarus, also emphasized the need for Belarus to attract foreign money to modernize the energy sphere, saying that the country “is only at the first stage of the energy shock. A month later another rise in gas prices is expected – by as much as 60 percent” (Germany itself this year paid 240-250 dollars for 1000 cubic meters of Russian gas).

The expert thinks that by 2011 the gas price for Belarus will be over 200 dollars. By that time the losses in the economy of the country will be 1.7-2.4 billion dollars, “and it is a significant sum for Belarusian economy”.

“The new conditions, where the prices for energy resources are approaching the world level will have serious consequences for Belarus’ financial balance. The negative dynamics will badly affect the currency market and will cause an imbalance between supply and demand, pressing the exchange rate of Belarusian ruble down”, – R. Giucci forecasts, thinking that there are significant opportunities for Belarus to raise its energy effectiveness level. “Increase in internal energy prices is a necessary condition. It will allow for the necessary level of security of the investments in energy-saving projects”, – he assures.

Attention! Germany is talking!

The Bundestag representative Carl-Georg Wellemann continued the thought about the Belarus’ absence of choice in terms of modernization of the economy. “The time for Russia subsidizing Belarusian economy is long gone. In future Belarus will pay the world price for energy resources and spending on them will grow dramatically”, – the German politician noted. In his opinion, the hopes for change of Russian policy of the subsidizing cuts are vain because at least for five years after the presidential elections “Putin will be a key figure in Russian politics”. According to Mr. Wellemann’s calculations, next year the spending of Minsk on fuel will make about 4.5 billion dollars, at the same time Belarus “is out of the interest focus of both East and West”, because the projects on diverting the oil and gas shipments from the territory of Belarus. “And cooperation with Chavez and Ahmadinejad is not an alternative”, – German deputy assures.

The vice-head of the Federal Ministry on Foreign Affairs of FRG Gernot Erler, invited to participate in the Minsk forum, also described the “complex situation” of Belarus, forced to “make many decisions simultaneously” in an interview to BelaPAN.

“The relations with Russia and economic partnership were hampered by the Russian government’s actions in the beginning of the year. Many questions have risen. Should we go European way? How to preserve stability in conditions when problems in social and economic spheres become worse? – the vice-head of German Foreign Affairs ministry defined the sacramental questions. – The sad role of Germany in the Belarusian history implies a special responsibility to Belarus. Now, when the country is in a difficult situation, we offer help as a discussion partner. We have made special observations, we have ideas on how should the development of Belarus continue, but we are not going to impose any plan of action. It is dialogue that is important, like the one in a framework of Minsk forum, where experts from different countries communicate”.

According to Erler, during the first half of the current year FRG as the head of the Council of Europe paid special attention to strengthening the European Neighbourhood Policy, “but together with the importance and effectiveness of this regional policy, our regret about the inability of Belarus to participate in it formally for known reasons. We are afraid that the lack of access to such benefits of this policy as cooperation and certain integration is only making Belarus more isolated. Germany is interested in quite the opposite, in improving the situation within the framework of the 12 recommendations of the EU. We seek ways to continue the dialogue. Mattias Platzek, the prime-minister of Brandenburg land, Manfred Schtolpe, former federal minister, have already visited Minsk. Now I come”.

The full-fledged participation in the European Neighbourhood Policy implies advanced preferential trade agreements and broader financial and technical assistance on the EU side.

“It seems to me, – the vice-minister on Foreign Affairs of Germany says, – we should mind that Minsk will have to make fundamental decision. Some expectations of Belarusian side were vain, perhaps because of the mechanical perception of the relations with Brussels as “give-receive”. I want to help understand how is it possible to go further in talks with the EU, which moves will definitely be perceived as positive. The question is not to set up an action plan, but to organize a process which could shorten the distance between Brussels and Minsk. This is the ultimate goal”.

In an interview to Russian “Pravda” while describing the current state of Belarusian-German and Russian-German relations, Mr. Erler found “major differences” in them: “We are strategic partners with Russia, there is a great exchange going on both in economy and politics. What regards the relations with Belarus, – we look forward to normalization of the relations between this country and the EU. But it will depend on the government in Minsk”.

Note: Since 2000 there is a Representative Office of German economy – a part of world network of German Foreign Trade Houses of German Trade and Industrial Houses’ Union, which includes 120 bureaus and offices in 80 countries of the world, The Union bands 81 regional trade and industry houses and represents the interests of 3.6 million German enterprises.

Besides that the German-Belarusian economic club is representing its members’ interests in Belarus for over a decade, promoting the improvement of business and investment environment in Belarus.

The above organizations are a part of the Consulting Council on Foreign Investments with the Council of Ministers of Belarus and take an active part in work of the permanent committee of CCFI and in its workgroups’ activities. The Club is also a co-chairman of the workgroup on forming the attractive investment image of Belarus abroad.