Belarus may be getting a raw deal from Eurasian Economic Community

Recently, an association of SMEs in Belarus declared a one-day strike, responding to the stifling business climate established as a result of Belarus' integration project with the pro-Moscow EEC.

Other factors also indicate that Belarus may be getting a raw deal in the Kremlin's latest pet project. In parallel with its economy becoming further entrenched in the Customs Union, Belarus is continuing to drift into further isolation, making its economy extremely vulnerable to the whims of its benefactor.

Growing discontent

On 25 June, a spokesman from the association Perspective, Anatol Shumchanka, spoke to reporters at the Forum of Sole Traders to announce that they were calling on other entrepreneurs to carry-out a one day strike on the 27 June. They also initiated a gathering of signatures to call for Belarus' removal from the Customs Union. Many regions participated in the strike throughout the whole country, most of them bringing regional market places to a standstill.

While on the surface such a gesture may appear to be relatively inane, particularly considering the small number of SMEs at work in Belarus' economy, the announcement was telling. Business in Belarus is, on the whole, not seeing the benefits that they were expecting upon joining the Eurasian Economic Community (EurAsEC), also known as the Customs Union. On the contrary, Belarus' economic situation does not appear to be gaining much from it.

The action carried out on 27 June throughout Belarus also shows the frail nature of the EurAsEC, as well as the poorly constructed policies and mechanisms for promoting economic growth. While for Belarus it holds some political benefits by raising the countries stature on the global arena, the benefits to society as a whole are not at all obvious. It has, however, provided Lukashenka with a new rationale for asking for influxes of Russian subsidies and loans.

Belarus, much like many other nations that emerged out of the collapse of the Soviet Union, retains many of its business inhibiting features: a tedious bureaucratic state, little or no access to credit or loans, a stifling regulatory and legal environment, an irresponsive system of education to produce skilled workers for the labor market etc.

Add to this the requirement, which came into effect in Belarus on 1 July, to go through an expensive process of getting light-industry products – the bread and butter of SMEs – certified by authorities for sale on the Customs Union's general market, and you have the recipe for the collapse of SMEs as a whole in Belarus.

A regional non-player

According to the OECD's 2012 SME Policy Index: Eastern Partner Countries report, SMEs make up only 20% of the Belarus' GDP, with 70% being attributed to state-run enterprises. In comparison, in Poland it makes up for about 47% of its GDP, with France at 62%.

Similarly, Russia and Kazakhstan SMEs account for roughly 20% of its visible economic activity, though it should be noted that they have less state-run enterprises. While other measures can be employed to show an economy's growth, the percentage of SMEs in an economy is an indicator of its strength and stability. SMEs tend to fill the gaps that larger companies, particularly state-managed companies, cannot by providing regular employment opportunities at the local level and are key players when it comes to innovation. Belarus' numbers indicate that its economy remains uncompetitive, prone to global economic fluctuations in prices, and lacks the infrastructure essential to sustainable economic development.

The rationale for joining the Eurasian Economic Community appears to have been two-fold: becoming part of an influential economic bloc to strengthen the Belarusian economy and presence internationally, and more deviously, to maintain a platform for the Belarusian government to continue to extract rents from Russia in the name of mutual economic ties and regional stability.

Although the Eurasian Economic Community is still young, with its underdeveloped institutions and policies, projections would seem to indicate that its competitiveness with other regional powerhouses, China and the EU, is limited. Without serious changes in Russia, Kazakhstan and Belarus' own economic development, it will continue to struggle both regionally and globally outside of the energy market.

China's successes in Central Asia, including in Kazakhstan, was part of the logic in forming the new economic bloc – creating an authorative body that would be able to protect the "interests" of Kazakhstan via Moscow.

With the EU's growing trade prowess and formal agreements on developing trade with Ukraine, Moldova, Armenia and Georgia through its Deep and Comprehensive Free Trade mechanism, indicates the limited attractiveness of the EurAsEC even within areas considered to be within Russia's sphere of influence.

What is Belarus' endgame?

Russia's long-awaited accession to the WTO in 2012, Kazakhstan's membership in 2013, and EurAsEC observer Ukraine's own membership are evidence of each countries' respective leadership looking to further integrate into the global economy and boost their own competiveness.

Belarus' own relations to the WTO have come to almost complete standstill. How precisely the EurAsEC will deal with this issue, or how Belarus will be able to overcome the marked improved capacities of all of their neighbours, remains to be seen.

Between its political isolation and dependency on Russia, Belarus can choose from essentially two options. Either it will continue its feudal arrangement with Russia and make itself increasingly vulnerable to encroachment or it can begin to seriously undertake the multilateral approach of its EurAsEC partners.

As both President Putin and President Nazarbayev have shown, the West is quite willing to work with authoritarian governments who do not observe its standards of democracy and freedom. Unlike Russia and Kazakhstan, whose energy resources and military cooperation in relation to Afghanistan have normalised their ties with the West on some level, it would appear that Belarus has only political prisoners to offer in exchange.

Its ability to attract substantial foreign direct investment from parties that will not place conditions on them, such as Iran or Indonesia, have been few and far between. Even China, with its increased presence, will not put at risk its very fruitful economic ties with Russia for the modest gains to be made in Belarus.

While Belarus was able to avoid the shock therapy that many of its neighbours endured in the 1990s, a worse fate may await it, should the Belarusian government not take drastic steps to stem the simmering economic crisis. Perhaps it could start by listening to its citizens. They might have a few ideas worth listening to. 

BelarusDigest