Opinion: The growing number of depressed regions arises from the flaws in Belarus’ economic model

In 2015, real wages declined everywhere in Belarus save Minsk, which easily explains why so many Belarusians are moving from the regions to the capital, Ryhor Astapenia writes.

The role of Minsk in the demography and economy of Belarus keeps growing, while the periphery is falling into depression. People there live worse and for fewer years than in the capital.

The authorities recognise a third of districts of Belarus as depressed, but they can only reverse this trend on condition that they fix the economy in the whole country and adopt a pro-growth package deal for the regions.

The European Union is currently helping the Belarusian authorities to produce Strategies for sustainable development of the regions 2016-2025. So far, these documents remain vague, but with further revisions could serve many districts across the country well.

Growing role of Minsk

Belarus has six regions: Minsk, Viciebsk, Hrodna, Homiel, Mahiliou and Brest. Each is divided into districts, of which Belarus has 118 in total. Minsk stands apart, and its role in the country is becoming even more significant.

According to the Belarusian Statistical Committee, 20 years ago 16.5 per cent of Belarusians lived in the capital, while in 2016 more than 20 per cent do. In practice, the number of people living in Minsk is probably even bigger, because official statistics do not properly take account of students and other visitors. Even while in 1996-2016 the population throughout the country fell by 678,000, in the Belarusian capital it grew by 290,000.

Minsk's share in the economy has also increased. In January 2016, the contribution of Minsk in the country's GDP was 26.1 per cent. This is four times higher than that of Mahiliou region in the east of the country. According to a 2014 study by CASE Belarus, an economic think tank, labour productivity in Minsk is three times higher than in the Belarusian regions.

Minsk attracts the most active and capable Belarusians as well as investments - around 70 per cent of all investments in the country come to the capital. The regions are meanwhile becoming a "poverty belt" made up of elderly populations.

Similar processes are occurring in many countries in Eastern Europe, but in Belarus the problem is that the economic crisis exacerbates the phenomenon. Now, for many people from the regions moving to Minsk has become almost the only chance for a decent life. If a resident of Minsk earned $565 a month on average in 2015, people outside the capital earned a third less.

Life in the capital and regions

According to the Belarusian Statistical Committee, in 2015 real wages in Belarus decreased by a few per cent in all regions of Belarus except Minsk. Growth there was about 0.1 per cent.

The quality of life in the capital remains much better in many respects. People in the regions live two or three years fewer than in the capital on average, according to the official data. The number of secondary schools is declining in the regions, and the biggest medical staff shortages are there too. According to the Minister of Health, in some cities the lack of medical personnel reaches a 40 per cent shortfall. The likelihood of living below the poverty line is five times higher if a person does not live in Minsk.

Smaller towns are becoming even smaller in Belarus. According to a Ministry of Economy forecast, the number of districts with an unsustainable number of residents (15,000-20,000 people) will grow from 51 in 2013 to 77 in 2032. According to the authorities, every region needs more than 20,000 inhabitants for sustainable development.

The regions lack any sign of political life. The Belarusian opposition has not held massive rallies outside the capital for several years. There has in the last few years been a boom in public lectures in Minsk, but in the regions they remain rare.

Furthermore, Belarus, as well as many countries of the former Soviet Union and in contrast to many Western countries, remains overly centralised. All ministries and agencies are governed from Minsk. It gives the impression that public activities exist only inside the Minsk ring road.

Dealing with the new reality

It seems that until 2012 the Belarusian authorities had never used the term "depressed region" - it denotes an area with high unemployment and a low standard of living. But since then they have done so several times.

According to Ministry of Economy estimates from August 2012, one-third of the Belarusian regions appeared depressed at that time. That means that 31 per cent of districts had reduced their income by more than 35 per cent. The National Bank conducted its own study on tax collection and got the same result - about a third of areas were depressed.

Because of the economic crisis things have only become worse. In 2015, the Ministry of Finance published data showing that now every fourth region earns only 20-40 per cent of its budget and central government subsidies supply the rest.

The authorities are trying to do at least something. They have freed entrepreneurs in small towns and rural areas from the obligation to pay some taxes. Under an EU-funded project, Belarus together with international experts has developed strategies of development for the regions. While these strategies mark a step forward, they remain vague.

Anton Radniankou, manager at the Interakcia local foundation, told Belarus Digest that the EU-funded documents mostly repeat the same strengths for all regions (geographical position, industry, nature, etc.). Moreover, the strategies sound unrealistic, proposing the creation of many innovative clusters while many Belarusian regions lack money to keep themselves afloat.

While EU-funded projects can serve as a backbone, they should be updated with the inclusion of as many stake-holders as possible, working out of specific, smart specialisations for districts and scenario-planning.

Many regions these days desperately need a robust pro-growth strategy with stable tax regulations and incentives for innovative enterprises. While the authorities promised not to introduce new taxes in 2015-2020, they keep breaking this promise. Currently many entrepreneurs lack access to bank loans and business incubators.

The state authorities should attract foreign investment to the regions on very preferential conditions and even move some headquarters of the ministries to the regions. Minsk will not notice it, but relocating the National Bank outside Minsk will create new jobs and improve the quality of life in the regions.

Moreover, in order to save the regions, the government should take more radical steps to reform the economy. The increase in the number of depressed regions of Belarus is not a result of failures at the local level, but above all the flaws in the whole economic model of Belarus.

Originally published at BelarusDigest