Location: Belarus

Belarus Economy Monitor

Posted on November 10, 2023 |

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How is the economy in Belarus? Join the presentation about the Belarussian economy, consumer confidence, small and medium business performance and macroeconomic situation presented by researchers from the Belarusian Economic Research and Outreach Center (BEROC). The Belarus Economy Monitor presentation will take place on November 14 where BEROC experts will share findings from October’s population and business surveys, along with a comprehensive analysis and forecast of the macroeconomic landscape.

️ Speakers and Topics

  • Viyaleta Panasevich – Consumer Confidence Index, Household Survey Results (October).
  • Radzivon Marozau – Small and Medium Business: Autumn 2023, Firms Survey Results.
  • Dzmitry Kruk – Macroeconomic Situation: Main Trends.
  • Anatoly Kharitonchik – Inflation and Monetary Environment.

Event Details

  • Location: Offline at Create Culture Space, Vilnius, Karmelitu g., 5 | Online via ZOOM.
  • ⏰ Time: 16:00 (Minsk), 15:00 (Vilnius), 14:00 (Warsaw).
  • ️ Languages: Russian and English.

Registration

To participate, kindly register before 11:00 on November 14. The ZOOM meeting link will be sent to registered participants one hour before the event.

Don’t miss this opportunity to gain valuable insights into Belarus’ economic landscape!

Belarusian Business in Turbulent Times

Posted on October 23, 2023 | Policy Brief

20231023 Belarusian Business Challenges

In the past three years, the Belarusian private sector appears to have been caught between a hammer and an anvil, experiencing domestic repressions and de-liberalization as well as collateral damage from sanctions and a deterioration of the country’s image. This policy brief discusses the challenges that Belarusian businesses have been facing since the onset of the Covid-19 pandemic and argues that the private sector may be the last hope for sovereignty and transformation of the country.

The years that have passed since the onset of the Covid-19 pandemic and the subsequent economic shocks have significantly altered the entrepreneurial landscape in Belarus. This period has seen the emergence of private businesses’ social and political activation during the pandemic, as well as during the 2020 election campaign and post-election protests (Bornukova & Friedrich, 2021). Businesses have also had to adapt to reactionary government policies, cope with sanctions against Belarus and deal with issues related to the Russian invasion of Ukraine. In the face of these challenges, the reactions and responses from small and medium-sized businesses signals that the private sector still has the potential to remain a driving force for socio-economic development in Belarus – despite the current political forces in power.

Private Sector Development; Liberalization and Regulation

The liberalization of the business environment, which lasted more than a decade and ended in 2020, allowed the private sector (enterprises without any state ownership share) to become the most dynamic part of the economy (see Figure 1).

From 2012 through 2020, the share of the private sector in employment increased by 7.7 percentage points. Similarly, the contribution from the private sector to the export of goods and services, as well as to GDP, exceeded the contribution from state-owned commercial enterprises. Moreover, even in the absence of significant privatization and restructuring of state-owned enterprises, the private sector took over the “social” function as an “employer of last resort”, absorbing workers released from the public sector (including from fully and partly state-owned enterprises) (IPM Research Center, 2020).

In addition, the development of the private sector increased the diversification of Belarus’ foreign trade. Private companies in the IT sector, advanced instrument manufacturing, electronics, and other high-value-added industries shifted their focus to developed countries’ markets, which reduced the dependency on Russian resources and markets. This increased Belarus’ economic sovereignty and its resilience to political tensions and other external shocks. The year 2020 however marked the end of the liberalization of entrepreneurial activities, as private businesses and private capital started to be seen as a threat to the political system (Bornukova & Friedrich, 2021).

Figure 1. Contributions from the Belarusian private sector to main economic indicators.

Source: Own elaboration based on Chubrik (2021) and IPM Research Center (2020).

Although there are no uncontestable figures describing business’ attitudes and activities during the political crisis in 2020, several non-academic projects documented that 58 percent of people protesting the fraud elections in 2020 worked within the private business sector (Devby.io, 2020). Dozens of businesses also openly supported the anti-regime strikes (The Village Belarus, 2020). As a consequence, legislation and law enforcement have since been steadily tightened, the tax burden has increased, and the possibility for using simplified taxation and accounting systems by small-scale businesses, in particular for sole proprietors, have been substantially reduced.

Against this backdrop, the government has also suppressed the publication of detailed statistical data including those on entrepreneurial activity. Since 2020, the Belarusian Research and Outreach Center (BEROC)’s quarterly enterprise surveys have become the main source of information and analysis on the business development situation.

In general, BEROC’s surveys demonstrate that, despite a reduced safety cushion and the lack of substantial state support during the pandemic, Belarusian businesses had, by the end of 2021,  adapted to the shocks from the post-election crisis and harsh de-liberalization, by realizing  their ability to cope, and finding creative solutions in the turbulent environment (Marozau, Akulava and Panasevich, 2021). Before Russia’s aggression against Ukraine, Belarusian entrepreneurs’ optimism about overcoming external barriers – i.e., factors that are out of a firm’s control such as macroeconomic instability, etc. – was the highest since 2015. However, increased uncertainty forced Belarusian businesses to focus primarily on maintaining the achieved scale of activity, halting investments (Kastrychnicki Economic Forum (KEF) & BEROC, 2022).

Optimism In Challenging Times

In general, the institutional environment for doing business in Belarus has deteriorated in recent years, both due to actions such as changes in tax legislation, price regulation and pressure on disloyal businesses, and due to negligence from the state, such as lack of significant support measures for private business, an outflow of businesses due to sanctions and an increasingly negative image of the country (KEF & BEROC, 2022). The Business Confidence Index (BCI, ranging from 0 – “extremely negative” to 100 – “extremely positive”), developed by BEROC and the Kastrychnicki Economic Forum based on OECD methodology, documented that at the end of 2020, the confidence level of business representatives regarding future developments was in the negative zone – arguably due to the political unrest and the Covid-19 pandemic. As firms accepted a new normality and adjusted their businesses, the BCI steadily grew before comfortably settling in the neutral zone at the end of 2021 (see Figure 2).

In March-April 2022, however, macroeconomic instability, disruption of supply chains, and shortages of raw materials and/or components following the Russian war on Ukraine became serious external barriers for Belarusian businesses. This lowered the BCI and businesses’ perception of their economic situation.

Quite surprisingly, the risks of doing business in Belarus in the second half of 2022, until early 2023, were estimated to be lower than in 2021 (see Figure 3). This may be explained by the fact that (for companies remaining in Belarus) many of the potential risks (inflation, exchange rate instability, sanctions, counter-sanctions, disruption of supply chains, tightening of price regulation, etc.) had already realized (BEROC, 2023).

Figure 2. Business Confidence Index and GDP growth rate, October 2020-March 2023.

Source: KEF & BEROC (2023) and the National Statistical Committee of the Republic of Belarus.

Figure 3. Risk perception by Belarusian Businesses.

Source: BEROC (2023).
Note: Risks were scored on a five-point scale, 1-5, where 1 denotes “very low” and 5 “very high”. Dotted lines denote the 95 percent confidence intervals.

The New Reality

The reaction from most Belarusian businesses to both pandemic- and war-related challenges has manifested in their search for new business models, an introduction of new products/services, and the entry into new export markets. Despite a bundle of powerful shocks to the economy stemming from the Russian war on Ukraine and related sanctions, some factors have dampened the anticipated drop in the economy: in particular, the increase in Russian support, export re-orientation to Russia and developing markets, alongside monetary stimuli, and interference with the activity of state-owned enterprises as well as artificial price controls (Kruk & Lvovskiy, 2022). As a result, the standard of living has remained at pre-war levels: in January-April 2023, real household disposable income and real salary grew by 1.6 percent and 3.8 percent respectively. With sanctions on Belarus being comparatively softer than those on Russian businesses, Belarusian businesses may have gained a comparative advantage and additional opportunities in both the domestic and Russian markets (BEROC, 2022). This caused optimism among entrepreneurs and in March 2023 – for the first time in the considered period – the composite BCI turned out to substantially exceed the neutral zone (see Figure 2). These positive spillovers are however likely to be bound in time – they will end both if the state of the Russian economy worsens (as this would reduce Russian support and decrease export revenues for Belarusian firms), and in the unlikely scenario that Russia’s current isolation is reduced. Whether Belarusian businesses will withstand the current protracted crisis depends on the ability of state authorities (current or new) to restore a constructive dialogue with the business community, return to the rule of law and create a business environment conducive to entrepreneurship.

According to business, the key factor needed to expand business activity is a reduction of external barriers (such as disruptions to supply chains, shortages of raw materials and/or components), rather than government support (e.g., financial, informational, etc.) (KEF & BEROC, 2022). Thus, “We do not need state support, but need the state not to worsen legal conditions for doing business” has become a motto of Belarusian entrepreneurs. Even in the context of war and political instability in the region, it allows looking at the prospects of the private sector in Belarus with some positive expectations.

At the same time, factors such as political repressions, sanctions against Belarus, problems with logistics, and the refusal of business partners to work with Belarusian companies due to the Russian aggression towards Ukraine have forced many Belarusian businesses, especially in high-tech sectors, to relocate. While the scale and direction of Belarusian business emigration is still difficult to assess (Krasko & Daneyko, 2022), these processes devastate entrepreneurship capital in Belarus and jeopardize the prospect of entire sectors such as the IT sector. In addition, the popular opinion about the lack of business opportunities implies that, unless conditions improve in terms of state policy and public confidence in the future, the socio-economic effects (employment, value added, tax revenue, innovations) from entrepreneurial activity in Belarus will diminish (GEM-Belarus 2021/2022). With operations severely affected by external barriers and restrictive legislation, halted investments and limited, if any, commercial contacts with Western countries and individual businesses, Belarusian private enterprises can hardly be seen as a source of stability for the current regime.

Conclusion

To promote an increased role of the private sector in the Belarusian economy, and to ensure high-quality and sustainable growth of the same, two prerequisites are critically necessary.

Firstly, a resolution of the political crisis and a restoration of authorities’ and state institutions’ legitimacy will significantly increase the populations’ confidence in state policy on business and economics. The principle of rule of law must be recognized and public and private actors must be treated equally in all spheres. It is also necessary to ensure the stability of tax legislation and economic law and the mitigation of excessive state control of business activities. All the above would lower external barriers and create stimuli for long-term business investments that, in turn, would facilitate economic transformation.

Although the sanctions’ packages imposed on Belarus by most developed countries due to domestic repressions, and complicity in the aggression against Ukraine, were directed towards the public sector, the private business suffered substantial macroeconomic and reputational consequences in their wake. The refusal of many foreign partners (suppliers, customers, banks, transport companies etc.) to work with Belarusian businesses – regardless of their affiliation with the state and attitude towards Lukashenko’s regime as well as towards the war on Ukraine – also substantially undermine businesses’ potential and Western soft power in Belarus. Such refusal is often driven by the argument that, by paying taxes, private businesses in Belarus support the current regime, when they should instead undermine the regime by halting operations (and thus tax revenues). At the same time, with the complete liquidation of civil society organizations and the termination of international projects and initiatives, the Belarusian private business may serve as the last resort in the hope of achieving independent, decentralized, and autonomous decision-making – all cornerstones of modern democracy (Audretsch & Moog, 2022).

From this perspective, the preservation of the private sector in Belarus may be of decisive importance in the future political processes, necessary to take into account by policymakers and business elites alike in developed countries.

In addition, relocated Belarusian businesses can play an important role in transforming the country by developing social ties between entrepreneurs and civil society, by providing support when solving problems related to doing business outside of Belarus and by investing in the Belarusian economy in the future. In this regard, establishing non-partisan Belarusian business associations abroad creates preconditions for consolidation of the most active part of the Belarusian community and its involvement in the envisaged economic transformation of the country.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes. 

What Drives Belarus to Be One of the Most Optimistic Nations in Europe?

Posted on March 6, 2023 | Policy Brief

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War in Ukraine, imposed sanctions on Belarus and the worst yearly GDP drop since the 1990s. Despite these challenges, Belarusian households were the third most optimistic in Europe in late 2022, following Lithuania and Montenegro. The Belarusian Consumer Confidence Index, calculated on the basis of four household surveys conducted in Belarus by BEROC’s Belarus Monitoring Project in 2021 and 2022, shows surprising resilience among Belarusians – especially in Q3 and Q4, 2022.  This brief shortly describes the components of the index and their evolution and discusses what factors might have been driving this high index. The brief argues the found optimism among Belarusians could have been driven by a state-owned media influence and by the Belarusian economy performing better than expected.

Optimism Without Grounds?

In 2022, Belarus experienced a 4.7 percent yearly GDP drop, the worst since the 1990s. The main reasons behind the decline is the Russian war on Ukraine and Belarus’ involvement in it, and, consequently, the severe sanctions imposed on Belarus and its main trade and economic partner: Russia. A surge of exports to Russia to counter the sanctions helped prevent the severity of the drop, although it still remains large. Forecasts for 2023 are also not encouraging. The World Bank expects the Belarusian economy to shrink by 2.3 percent. The European Bank for Reconstruction and Development’s forecast is -1 percent, the International Monetary Fund (IMF)’s is +0.2 percent, and the Eurasian Development Bank’s +0.3 percent, whereas the announced official target is +3.8 percent. In total, the GDP decrease could be as large as -6.9 percent in the two coming years, following the World Bank’s worst prognosis. The question is; Is this a lot?

The last GDP decline occurred in 2020 and amounted to a moderate -0.7 percent, despite the apex of Covid-19 related shutdowns, the decrease in the world economy, and the political crisis following the rigged elections in August. The most recent severe GDP drop happened between 2015 and 2016 with a decline of 3.8 percent in 2015 and 2.5 percent in 2016.

Figure 1. A comparison of GDP changes and the CCI values in Belarus in 2021 and 2022.

Note: Based on Eurostat methodology. Source: Belstat, BEROC.

Surprisingly, the lower the GDP, the higher the consumer confidence, as measured by the Consumer Confidence Index (CCI). For example, the CCI was -18.7 percent in Q4 2021, while the GDP increased by 2.3 percent in 2021. On the contrary, the CCI in Q4 2022 was -15.0 percent, while the GDP dropped by massive -4.7 percent (see Figure 1).

The experience from numerous financial crises in the 2010s may play an important role here by moving the expectation baseline and conclusively undermining confidence in the country’s economic institutions. However, even if this is the case, it would not explain the dynamics of consumer confidence in Belarus in relation to the country’s economic performance. In this brief we dig deeper into the determinants of this seemingly ungrounded consumer optimism.

The Consumer Confidence Index

The Consumer Confidence Index (CCI) used for this brief is based on four household surveys conducted in Belarus by the Belarusian Economic and Outreach Center (BEROC)’s Belarus Monitoring Project. The online surveys were conducted in December 2021, and in April, August and November in 2022. The surveys are representative for the urban population aged 18-64 (approximately 5 million people). They have also been weighted by region, sex and age.

The index is designed to measure consumer confidence from -100 percent to + 100 percent (0 being neutral). Consumer confidence is defined as the degree of optimism regarding the state of the economy which consumers express through their saving and spending patterns.

A few approaches for calculating the index can be used. One of them is the Eurostat methodology, which includes answers to four questions about households previous and expected financial position, the expected economic situation in the country, as well as the propensity to buy durable goods. Another approach is the Rosstat methodology, which, in addition to the Eurostat approach, includes one extra question on the previous economic situation in the country. We considered both methodologies to allow for a comparison of Belarus to countries in Europe as well as to Russia.

Belarus Compared to Russia

The CCI value, applying the Rosstat methodology, was -19.4 percent in Belarus in November 2022 (a 3.6 percentage point growth as compared to August 2022), while the index value in Russia was -22.7 percent (a 0.3 percentage point growth).

It is worth mentioning that there was a sharp drop in Q2 2022 in both countries. However, the index values recovered in Q3 2022 to Q4 2021 values, i.e., to the index values prior to the introduction of large-scale economic sanctions and prior to the war.

The pattern is somewhat similar to that during Covid-19-related restrictions, displaying a sharp drop and then a strong recovery. The magnitude of the drop was however much higher in 2020: 20.3 percent in 2020 compared to 10.3 percent in 2022 for Russia. No data is available for Belarus prior to Q4 2021 but the trajectory was likely similar. Apparently, households in neither country appear be desperate (see Graph 1).

Graph 1. The CCI in Belarus and Russia.

Note: Q1 2022 data not available for Belarus. Source: BEROC, Rosstat.

Belarus Compared to Europe

The Belarusian CCI, when excluding the component of the past state of the economy (i.e. applying the Eurostat methodology), was -15.0 percent in November 2022. This was 3.4 percentage points higher than the value in December 2021 and the third highest value in Europe, following Lithuania (-9.2 percent) and Montenegro (-8.6 percent). Moreover, the index was the highest observed for the entire period of observations by BEROC (from December 2021), as depicted in Graph 2.

Graph 2. The CCI in Belarus and the EU.

Source: BEROC, Eurostat.

The index values of the European Union and the Eurozone have not changed significantly from Q2 2022 and currently stand at -26.3 and -24.9 percent, respectively. Naturally, some countries have faced slight reductions, while others have seen slight increases, for instance, the indices for Italy, Croatia and Cyprus had all increased by more than 4 percentage points in Q4, 2022.

As evident from Graph 2, Belarus has since Q4 2021, moved from a below average position to become a leader in optimism on the European continent.

The Past and the Future

Throughout all four surveys, evaluations of the current state of the country and of personal wellbeing contrasted the projections for the future (see Graph 3). The projections for the future are much more positive, which is evident if we compare question 4 and 2 to question 3 and 1. At the same time, the share of negative answers is higher than the share of positive answers for all questions, and the term “optimism” should therefore be taken as the lack of strong negative views on the past and future.

A higher share of “difficult to say or do not know” answers is unsurprisingly found for questions regarding the future.

Graph 3. The composition of the CCI in Belarus for Q4 2022.

Note: All answers to the questions are distributed along a Likert scale from “will improve (has improved)” or “very good” to “will decline (has declined)” or “very bad”. For question 1 (Q1) and question 2 (Q2), the answer options range from “has improved” and “has declined”; and for question 5 (Q5), the answer options range from ”very good” to “very bad”. Source: BEROC.

The largest negative contribution to the index was the question on the current assessment of the country’s economic situation in relation to the previous year (question 1). The share of negative answers was 72 percent in December 2021, and it decreased only to 63 percent in November 2022, even though the economic performance prior to those periods was a 2.3 percent GDP growth and 4.7 percent GDP decline, respectively. Apparently, the worse the economy performed, the better was the perception of the past.

This is however not the case regarding the state of the household’s financial position. The share of negative answers was 48 and 47 percent, and the share of positive answers was 13 and 14 percent in December 2021 and November 2022, respectively.

The answers concerning the future standing of the economy and one’s personal financial position follow the same logic, with large disparities between the evaluation of the country’s economy – which one is negative about – and personal finances – where respondents are more optimistic.

What could influence the changes? We hypothesize that there are at least four possible explanations for the improvement in the CCI from Q1 to Q4, 2022:

a) a stabilization of the situation on the foreign exchange market
b) a slowing GDP decline, reaching a “local minimum”
c) an influence from Belarusian and Russian state-owned mass media outlets
d) failed negative expectations in previous periods

As discussed in a previous FREE Network Policy Brief by Luzgina (2022), the Belarusian currency market has stabilized since April, 2022. The Belarusian exchange rate is somewhat of a “Holy Grail” and a crucial factor for Belarusians after numerous financial crises in 2010s, so its stabilization could act as a positive signal for households. Indeed, when asking respondents about the factors influencing their income, the share of those who attributed this to the exchange rate had in August 2022 decreased by 25 percentage points, as compared to April the same year (from 45 to 20 percent, respectively).

The GDP decline slowed in the second half of 2022, from -4.9 percent in August to -4,7 percent in November. An additional positive development for Belarusians was that the inflation declined in November.

Media consumption is another essential factor in understanding consumer confidence. State-owned and independent media consumers showed significant differences in their assessments of the economy. Only 22 percent of state-owned media consumers rated the economy as “bad” or “very bad” compared to 68 percent of independent media consumers.

In April 2022, the World Bank estimated a possible Belarusian GDP change at -6.5 percent, the IMF
-6.4 percent and S&P -15 percent. The CCI in April was also at the lowest throughout BEROC’s observations at -23.0 percent. Despite these extremely negative forecasts for Belarus’ GDP, the actual outcomes were less catastrophic than expected. This might have improved respondents’ assessment of the future economic situation.

Conclusion

Data from the online household surveys show that imposed sanctions, the Russian war on Ukraine, and a declining economic growth in 2022 have not yet significantly affected the sentiments of Belarusians on a large scale. Rather, Belarusians’ expectations have improved despite serious current and future challenges to the Belarusian economy. In fact, Belarus is among the most optimistic nations in Europe, according to the surveys.

This is arguably due to a financial stabilization and an economic performance above expected, as well as exposure to state-owned media.

With this in mind, we may see an increase in households’ consumption in the following months, which will contribute to a slowdown in the GDP decline or even a slight economic recovery in 2023 – pending no new shocks occur.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Climate Risk Perception and Green Behavior in Belarus

Posted on January 23, 2023 | Policy Brief

Toxic smoke stacks emitting carbon pollution and causing climate change and representing climate risk perception

Understanding how people perceive climate risks and what factors influence this perception is important for a shift towards more sustainable consumer behavior and thus a reduction of greenhouse gas emissions. This policy brief presents the results from a survey  on the attitudes to climate change and environmentally responsive behavior among the urban Belarusian population aged 18-75. The findings show that 72.7 percent of the respondents consider climate change as a threat to the country in the coming 20 years. This climate risk perception, however, does not fully result in more sustainable consumer behavior in Belarus. The survey also reveals that the mass media, with the exception of the Internet, have no influence on the formation of people’s attitudes toward climate change.

Global warming constitutes one of the major threats to humanity and an obstacle to achieving sustainable development. 72 percent of global greenhouse gas emissions are attributed to households (IPCC, 2022), underlining the importance of individual behavioral changes to tackle global warming.

Acknowledging climate change as a risk is a precondition to shift people’s behavior towards sustainable practices (Le Coq and Paltseva, 2021). Thus, the objective of the study underlying this brief is to analyze whether the population in Belarus considers climate change as a threat, and which factors and media channels might have an effect on such perceptions. Additionally, the brief will explore whether climate change risk perceptions actually translate into more environmentally sustainable consumer behavior.

Climate Change as a Threat

The online-survey was conducted in April, 2022 among the urban population in Belarus aged 18-75. The purpose of the survey was to collect individual data on environmentally responsible behaviors and climate change perceptions. The sample includes 1029 individuals and is representative by age, gender and region. According to the survey, 72.7 percent of the respondents consider climate change as a threat to the country in the coming 20 years.

To explore which demographic and socio-economic variables (e.g., education, age, gender, income, and mass media) influence the perception of climate change as a risk among the Belarusian population, we employ a logistic regression model. The results reveal that gender, personal experience of extreme weather events and exposure to climate change information on the Internet play an important role in forming climate change risk perceptions among Belarusians, as depicted in Table 1.

Table 1. Determinants of Climate Change Risk Perception

Note: Media channels are measured on a 5-point Likert scale where 0 denotes “Don’t use this media”; 1 “never” up until 4, “very often”, answering the question “How often do you come across the information about climate change, environmental problems or sustainable lifestyle on the following media?”. Standard errors are in parentheses, *** p<0.01, ** p<0.05 and * p<0.1

Women are 6.1 percent more likely to consider climate change as a threat than men. This could be due to a higher level of empathy exhibited by women, making them more worried about consequences of extreme weather events and environmental protection and more sensitive to the risk of environmental degradation (Milfont and Sibley, 2016). Respondents with personal experience from, or those who have close persons having suffered significant damage from severe weather events such as floods or violent storms in the past two years, are 25.2 percent more likely to perceive climate change as a risk. Thus, personal experience of severe weather events is one of the main factors that impact climate change risk perception. The literature also confirms that climate beliefs are linked to these experiences (see for instance Spence et al., 2011; Dai et al., 2015; Demski et al., 2017 and Bergquist et al., 2019).  Interestingly, out of all types of mass media included in the analysis (TV, newspapers, radio and the Internet), only exposure to environmental information on the Internet makes individuals 5.5 percent more likely to take climate change seriously. This indicates that nowadays people in Belarus get independent analytical and expert information on climate problems mainly from the Internet.

Environmentally Responsible Behavior

The same survey data was used to analyze environmentally responsible behavior among the Belarusian population. Although more than 72 percent of the respondents consider environmental change as a threat, the climate risk perception does not fully project into more sustainable behaviors – even within this subgroup. As illustrated in Figure 1, this belief is very well translated into such environmentally responsible actions as water saving, energy saving, mobility and repairing. The share of people engaged in these activities on a regular basis account for 62-73 percent.  These behaviors are however financially beneficial to the practitioner, and may largely be because of economic reasons rather than an effort to minimize the impact on the environment. At the same time, the survey shows that people in Belarus less often engage in such environmentally friendly actions such as waste separation, reduced use of plastic bags or use of own bag when shopping (see Figure 1). These actions are not linked to any financial benefits and are often associated with higher time costs (e.g., waste separation) or loss of convenience (e.g., decreased plastics use). This suggests that environmentally responsible behavior among the Belarusian population is largely determined by external factors, rather than a product of intrinsic care of the environment.

Figure 1. Frequency of Environmentally Responsible Behaviors Among the Respondents who Consider Climate Change as a Risk

Note: Distribution of the answers to the question “Could you please evaluate on a scale from 1 (never) to 4 (always) how often you engage in these behaviors for environmental reasons?” Mobility represents walking, biking or using public transportation instead of a car. Repairing means choosing to reuse or repair something (e.g. clothes) rather than to throw it away.

Conclusion

Survey results show that the urban population in Belarus recognizes global warming as a serious problem, with 72.7 percent of the respondents seeing climate change as a threat to the country in the next 20 years. However, these beliefs have not yet fully projected into green consumption behavior.

With this in mind, efforts to shift Belarusians towards environmentally responsive behavior should be strengthened. Endeavors need to be made to raise public awareness of environmental issues and to promote a sustainable lifestyle among the Belarusian population. In particular, and in addition to the Internet, the role of mass media (such as television, radio and print media) to deliver the message on the need for more sustainable consumption and greater involvement in environmentally friendly actions, ought to be increased.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

How to Sustain Support for Ukraine and Overcome Financial and Political Challenges | SITE Development Day 2022

Posted on January 9, 2023 | Policy Brief

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The Russian war on Ukraine has turmoiled Europe into its first war in decades and while the effects of the war are harshly felt in Ukraine with lives lost and damages amounting, Europe and the rest of the world are also being severely affected. This policy brief shortly summarizes the presentations and discussions at the SITE Development Day Conference, held on December 6, 2022. The main focus of the conference was how to maintain and organize support for Ukraine in the short and long run, with the current situation in Belarus and the region and the ongoing energy crisis in Europe, also being addressed. 

War in Ukraine, Oppression in Belarus

Starting off the conference, Sviatlana Tsikhanouskaya, Leader of the Belarusian Democratic Forces, delivered a powerful speech on the necessity of understanding the role of Belarus in the ongoing war in Ukraine. Tsikhanouskaya argued that Putin’s war on Ukraine was partly a result of the failed Belarusian revolution of 2020. The following oppression, torture, and mass arrestations of Belarusians is a consequence of Lukashenka’s and Putin’s fear of a free Belarus, a Belarus that is no longer in the hands of Putin – who sees not only Belarus but also Ukraine as colonies in his Russian empire. Amidst the fight for Ukraine, we must also fight for a free Belarus, Tsikhanouskaya added. Not only Belarusians fighting alongside Ukrainians against Russia in Ukraine, but also other parts of the Belarusian opposition need support from the free and democratic world and the EU. The massive crackdowns on opponents of the Belarusian regime today and the war on Ukraine are not only acts of violence, but they are also acts against democracy and freedom. The world must therefore continue to give support to those fighting in both Belarus and Ukraine. Ukraine will never be free unless Belarus is free, Tsikhanouskaya concluded.

Johan Forssell, Minister of Foreign Trade and International Development Cooperation continued Tsikhanouskaya’s words on how the Russian attack must be seen and treated as a war on democracy and the free world. Belarus, Moldova and especially Ukraine will receive further support from Sweden, Forssell continued, adding that the Swedish support to Ukraine has more than doubled since the invasion in February 2022. Support must however not be given only in economic terms and consequently Sweden fully supports Ukraine on its path to EU-membership, which will be especially emphasized during Sweden’s upcoming EU-presidency.  Support for the rule of law, democracy and freedom will continue to be essential and, in the forthcoming reconstruction of Ukraine, these aspects – alongside long term sustainable and green solutions – must be integrated, Forssell continued. Forssell also mentioned the importance of reducing the global spillover effects from the war. In particular, Forssell mentioned how the war has struck countries on the African continent, already hit with drought, especially hard with increased food prices and increased inflation, displaying the vital role Ukrainian grain exports play.

Andrij Plachotnjuk, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Kingdom of Sweden, further talked about the need for rebuilding a better Ukraine, emphasizing the importance of involvement from Kiyv School of Economics (KSE) and other intellectuals and businesses in this process. Plachotnjuk also pinpointed what many others would come to repeat during the day; that resources, time and efforts devoted to supporting Ukraine must be maintained and persevered in the longer perspective.

Economic Impacts From the War and How the EU and Sweden Can Provide Support

During the first half of the conference, the Ukrainian economy and how it can be supported by the European Union was also discussed. On link from Kiyv, Tymofiy Mylovanov, President of the Kyiv School of Economics, shared the experiences of the University during wartime and presented the work KSE has undertaken so far – and how this contributes to an understanding of the damages and associated costs. Since the invasion, KSE has supported the government in three key areas; 1) Monitoring the Russian economy, 2) Analyzing what sanctions are relevant and effective, and 3) Estimating the cost of damages from the war. For the latter, KSE is collaborating with the World Bank using established methods of damage assessment including crowd sourced information on damages complemented with images taken by satellites and drones. According to Mylovanov, the damage assessment is crucial in order to counter Russia’s claims of a small conflict and to remind the international community of the high price Ukraine is paying to hold off Russia.

The economic impact from the war was further accentuated during the presentation by Yulia Markuts, Head of the Centre of Public Finance and Governance Analysis at the Kyiv School of Economics. Markuts explained how the Ukrainian national budget as of today is a “wartime budget”. Since February 2022, the budget has been reoriented with defense and security spending having increased 9 times compared to 2021, whereas only the most pressing social expenditures have been implemented. This in a situation where the Ukrainian GDP has simultaneously decreased by 30 percent. Although there has been a substantial inflow of foreign aid, in the form of grants and loans, the Ukrainian budget deficit for 2023 is estimated to 21 percent. Part of the uncertainty surrounding the Ukrainian budget stems from the fact that the inflow from the donor community is irregular, prompting the government to cover budget deficits through the National Bank which fuels inflation and undermines the exchange rate. Apart from the large budget posts concerning military spending, major infrastructural damages are putting further pressure on the Ukrainian budget in the year to come, Markuts continued. As of November 2022, the damages caused by Russia to infrastructure in Ukraine amounted to 135,9 billion US Dollars, with the largest damages having occurred in the Kiyv and Donetsk regions, as depicted in Figure 1.

Figure 1. Ukrainian regions most affected by war damages, as of November 2022.

Source: Kiyv School of Economics

The infrastructural damages constitute a large part of the estimated needed recovery support for Ukraine, together with losses to the state and businesses amounting to over one trillion US Dollars. However, such estimates do not cover the suffering the Ukrainian people have encountered from the war.

The large need for steady support was discussed by Fredrik Löjdquist, Centre Director of the Stockholm Centre for Eastern European Studies (SCEEUS), who argued the money needs to be seen as an investment rather than a cost, and that we at all times need to keep in mind what the consequences would be if the support for Ukraine were to fizzle out. Löjdquist, together with Cecilia Thorfinn, Team leader of the Communications Unit at the Representation of the European Commission in Sweden, also emphasized how the reconstruction should be tailored to fit the standards within the European Union, given Ukraine’s candidacy status. Thorfinn further stressed that the reconstruction must be a collective effort from the international community, although led by Ukraine. The EU is today to a large extent providing their financial support to Ukraine through the European Investment Bank (EIB). Jean-Erik de Zagon, Head of the Representation to Ukraine at the EIB, briefly presented their efforts thus far in Ukraine, efforts that have mainly been aimed at rebuilding key infrastructure. Since the war, the EIB has deployed an emergency package of 668 million Euro and 1,59 billion for the infrastructure financing gap. While all member states need to come together to ensure continued support for Ukraine, the EIB is ready to continue playing a key role in the rebuilding of Ukraine and to provide technical assistance in the upcoming reconstruction, de Zagon said. This can be especially fruitful as the EIB already has ample knowledge on how to carry out projects in Ukraine.

During a panel discussion on how Swedish support has, can and should continuously be deployed, Jan Ruth, Deputy Head of the Unit for Europe and Latin America at Sida, explained Sida’s engagement in Ukraine and the agency’s ambition to implement a solid waste management project. The project, in line with the need for a green and environmentally friendly rebuild, is today especially urgent given the massive destructions to Ukrainian buildings which has generated large amounts of construction waste. Karin Kronhöffer, Director of Strategy and Communication at Swedfund, also accentuated the need for sustainability in the rebuild. Swedfund invests within the three sectors of energy and climate, financial inclusion, and sustainable enterprises, and hash previously invested within the energy sector in Ukraine. Swedfund is also currently engaged in a pre-feasibility study in Ukraine which would allow for a national emergency response mechanism. Representing the business side, Andreas Flodström, CEO and founder of Beetroot, shared some experiences from founding and operating a tech company in Ukraine for the last 10 years. According to Flodström there will, apart from a huge need in investments in infrastructure, also be a large need for technical skills in the rebuild. Keeping this in mind, bootcamp style educations are a necessity as they provide Ukrainians with essential skills to rebuild their country.

A recurring theme in both panel discussions was how the reconstruction requires both public and private foreign investments. Early on, as the war continues, public investments will play the dominant part, but when the situation becomes more stable, initiatives to encourage private investments will be important. The potential of using public resources to facilitate private investments through credit guarantees and other risk mitigation strategies was brought up both at the European and the Swedish level, something which has also been emphasized by the new Swedish government.

Impacts From the War Outside of Ukraine – Energy Crisis and Other Consequences in the Region

The conference also covered the effects of the war outside of Ukraine, initially keying in on the consequences from the war on energy supply and prices in Europe. Chloé Le Coq, Professor of Economics, University Paris-Pantheon-Assas (CRED) & SITE, gave a presentation of the current situation and the short- and long-term implications. Le Coq explained that while the energy market is in fact functioning – displaying price increases in times of scarcity – the high prices might lead to some consumers being unable to pay while some energy producers are making unprecedented profits. The EU has successfully undertaken measures such as filling its gas storage to about 95 percent (goal of 80 percent), reducing electricity usage in its member countries, and by capping market revenues and introducing a windfall tax. While the EU is thus appearing to fare well in the short run, the reality is that EU has increased its coal dependency and paid eight times more in 2022 to fill its gas storage (primarily due to the imports of more costly Liquified Natural Gas, LNG). In the long run, these trends are concerning given the negative environmental externalities from coal usage and the market uncertainty when it comes to the accessibility and pricing of LNG. Uncertainties and new regulation also hinder investments signals into new low-carbon technologies, Le Coq concluded. Bringing an industrial perspective to the topic, Pär Hermerèn, Senior advisor at Jernkontoret, highlighted how the energy crisis is amplified by the increased electricity demand due to the green transition. Given the double or triple upcoming demand for electricity, Hermerèn, referred back to the investment signals, saying Sweden might run the risk of losing market shares or even seeing investment opportunities leave Sweden. This aspect was also highlighted by Lars Andersson, Senior advisor at Swedenergy, who, like Hermerèn, also saw the Swedish government’s shift towards nuclear energy solutions. Andersson stated the short-term solution, from a Swedish perspective, to be investments into wind power, urging policy makers to be clear on their intentions in the wind power market.

Other major impacts from the war relate to migration, a deteriorating Belarusian economy and security concerns in Georgia. Regarding the latter, Yaroslava Babych, Lead economist at ISET Policy Institute, Georgia, shared the major developments in Georgia post the invasion. While the Georgian economic growth is very strong at 12 percent, it is mainly driven by the influx of Russian money following the migration of about 80 000 Russians to Georgia. This has led to a surge in living costs and an appreciation of the local currency (the Lari) of 12,6 percent which may negatively affect Georgian exports. Additionally, it may trigger tensions given the recent history between the countries and the generally negative attitudes towards Russians in Georgia. Michal Myck, Director at CenEa, Poland, also presented migration as a key challenge. While the in- and outflow of Ukrainian refugees to Poland is today balanced, the majority of those seeking refuge in Poland are women and children and typically not included in the workforce. To ensure successful integration and to avoid massive human capital losses for Ukraine, Myck argued education is key, pointing to the lower school enrollment rates among refugee children living closer to the Ukrainian border. Apart from the challenges posed by the large influx of Ukrainian in the last year, the Polish economy is also hit by high energy prices, fuel shortages and increasing inflation. Lev Lvovskiy, Research fellow at BEROC, Belarus, painted a similar but grimmer picture of the current economic situation in Belarus. Following the invasion, all trade with Ukraine has been cut off, while trade with Russia has increased. Belarus is facing sanctions not only following the war, but also from 2020, and the country is in recession with GDP levels dropping every month since the invasion. Given the political and economic situation, the IT sector has shrunk, companies oriented towards the EU has left the country and real salaries have decreased by 5 percent. At the same time, the policy response is to introduce price controls and press banknotes.

Consequences of War: An Academic Perspective

The later part of the afternoon was kicked off by a brief overview of the FREE Network’s research initiatives on the links between war and certain development indicators. Pamela Campa, Associate Professor at SITE, presented current knowledge on the connection between war and gender, with a focus on gender-based violence. Sexual violence is highly prevalent in armed conflict and has been reported from both sides in the Donetsk and Luhansk regions since 2014 and during the ongoing war, with nearly only Russian soldiers as perpetrators. Apart from the direct threats of sexual violence during ongoing conflict and fleeing women and children risking falling victims to trafficking, intimate partner violence (IPV) has been found to increase post conflict, following increased levels of trauma and post-traumatic stress disorder (PTSD). While Ukrainian policy reforms have so far strengthened the response to domestic violence there is still a need for more effective criminalization of domestic violence, as the current limit for prosecution is 6 months from the date crime is committed. An effective transitional justice system and expertise on how to support victims of sexual violence in conflict, alongside economic safety measures undertaken to support women and children fleeing, are key policy concepts Campa argued. Coming back to the broader topic of gender and war, Campa highlighted the need for involvement of women in peace talks and negotiations, something research suggests matter for both equality, representativeness, and efficiency.

Providing insights into the relationship between the environment and war, Julius Andersson, Assistant Professor at SITE, initially summarized how climate change may cause conflict along four channels: political instability and crime rates increasing as a consequence of higher temperatures, scarcity of natural resources and environmental migration. Conflict might however also cause environmental degradation in the form of loss of biodiversity, pollution and making land uninhabitable. As for the negative impact from the war in Ukraine, Andersson highlighted how fires from the war has caused deforestation affecting the ecosystems, that rivers in conflict struck areas in Ukraine and the Sea of Azov are being polluted from wrecked industries (including the Azovstal steelworks) and lastly that there is a real threat of radiation given the four major nuclear plants in Ukraine being targeted by Russian forces. Coming back to a topic mentioned earlier during the day, Andersson also emphasized potential conflict spillovers into other parts of the world due to the war’s impact on food and fertilizer prices.

Concluding the session, Jonathan Lehne, Assistant Professor at SITE, reviewed how war and democracy is tied to one another, highlighting that while studies have found that democracies per se are not necessarily less conflict prone, it is still the case that democratic countries almost never fight each other. As for the microlevel takeaways from previous research, it appears as if individuals and communities having experienced violence and casualties actually reap a democratic dividend in some respects, such as greater voting participation. On the other hand, while areas with a large refugee influx also experience an increased voter turnout, voting for right-wing parties also increase with politicians exploiting this in their communication.

Book Launch – Reconstruction of Ukraine: Principles and Policies

The Development Day was also guested by Ilona Sologoub, Scientific Editor at VoxUkraine, Tatyana Deryugina, Associate Professor of Finance at the University of Illinois at Urbana-Champaign, and Torbjörn Becker, Director of SITE, who presented their newly released book “Reconstruction of Ukraine: Principles and policies”. Sologoub started off by giving an overview of the mainly economic topics covered in the book and pointing out that the main purpose of the book is to inform policy makers about the present situation and to suggest needed reforms and investments. Becker outlined the four key principles recommended to stem corruption during reconstruction; 1) Remove opportunities for corruption and rent extraction, 2) Focus on transparency and monitoring of the whole reconstruction effort, 3) Make information and education an integral part of the anti-corruption effort, and 4) Set up legal institutions that are trusted when corruption does occur. Deryugina focused on the energy sector and related back to what had previously been discussed throughout the day, the need to “build-back-better”. Deryugina mentioned that Ukraine, previously heavily reliant on coal and gas imports from Russia, now have the opportunity to steer away from low energy efficiency and bottleneck issues, towards becoming a European natural gas hub. The book is available for free here. There will also be a book launch on the 11th of January 2023 at Handelshögskolan.

Concluding Remarks

Via link from Kiyv, Nataliia Shapoval, Head of KSE Institute and Vice President for Policy Research at Kyiv School of Economics closed the conference by emphasizing the urgency of continued education of Ukrainians in Ukraine and elsewhere to avoid loss of Ukrainian human capital. Shapoval also stressed how universities can act as thinktanks, support policy makers in Ukraine and Europe to come up with effective sanctions against Russia and provide a deeper understanding of the current situation – a situation which will linger and in which Ukraine needs continued full support.

This year’s SITE Development Day conference gave an opportunity to discuss the need for continued support for Ukraine and the implications from the war in a global, European, and Swedish perspective. Representatives from the political, public, private and academic sectors contributed with their insights into the challenges and possibilities at hand, providing greater understanding of how the support can be sustained, with the goal of a soon end to the war and a successful rebuild of Ukraine.

List of Participants in Order of Appearance

  • Anders Olofsgård, Deputy Director at SITE
  • Sviatlana Tsikhanouskaya, Leader of the Belarusian Democratic Forces
  • Johan Forssell, Minister of Foreign Trade and International Development Cooperation
  • Andrij Plachotnjuk, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Kingdom of Sweden
  • Tymofiy Mylovanov, President of the Kyiv School of Economics (on link from Kyiv)
  • Yuliya Markuts, Head of the Centre of Public Finance and Governance Analysis, Kyiv School of Economics
  • Jean-Erik de Zagon, Head of the Representation to Ukraine at the European Investment Bank
  • Cecilia Thorfinn, Team leader of the Communications Unit at the Representation of the European Commission in Sweden
  • Fredrik Löjdquist, Centre Director of the Stockholm Centre for Eastern European Studies (SCEEUS)
  • Jan Ruth, Deputy Head of the Unit for Europe and Latin America at Sida
  • Karin Kronhöffer, Director of Strategy and Communication at Swedfund
  • Andreas Flodström, CEO and founder of Beetroot
  • Chloé Le Coq, Professor of Economics, University Paris-Pantheon-Assas (CRED) & SITE
  • Lars Andersson, Senior advisor at Swedenergy
  • Pär Hermerèn, Senior advisor at Jernkontoret
  • Ilona Sologoub, VoxUkraine scientific editor (on link)
  • Tatyana Deryugina, Associate Professor of Finance at the University of Illinois at Urbana-Champaign (on link)
  • Torbjörn Becker, Director at SITE
  • Michal Myck, Director at CenEa, Poland
  • Yaroslava Babych, Lead economist at ISET Policy Institute, Georgia
  • Lev Lvovskiy, Research fellow at BEROC, Belarus
  • Pamela Campa, Associate Professor at SITE
  • Julius Andersson, Assistant Professor at SITE
  • Jonathan Lehne, Assistant Professor at SITE
  • Nataliia Shapoval, Head of KSE Institute and Vice President for Policy Research at Kyiv School of Economics (on link)

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

The Belarusian Currency Market During War in Ukraine: Hidden Problems and New Trends

Posted on December 5, 2022 | Policy Brief

20221205 Belarusian Currency Market Image 01

Belarus has faced unprecedented sanctions during the last year and the new economic conditions have led to a GDP decline and inflation growth. At the same time, the situation on the currency market has been stable since April 2022. The Belarusian Ruble demonstrated a gradual appreciation to the US Dollar and the Euro and a decline to the Russian Ruble. The appreciation of the Belarusian Ruble against the US Dollar has given households the illusion that the economic situation is not that bad. This brief analyses the main factors of the current situation on the currency market as well as describes the challenges which might destabilise the market. The importance of changing selected currencies in the currency basket and the start of a reorientation of the Belarusian economy from Western to Eastern partnerships, are also described.

The National Bank of the Republic of Belarus’ Policy on the Currency Market

In Belarus, currency has always played an important role as an indicator of economic stability. Household’s reactions to sharp fluctuations of the Belarusian Ruble have been expressed in an immediate demand growth for foreign currency (US Dollar and Euro mostly). After the war in Ukraine started and the exchange rate of the Belarusian Ruble began declining, people tried to make currency deposits from banks and buy foreign currency. In contrast to the Central Bank of Russia, the National Bank of the Republic of Belarus (NBRB) introduced no restrictions on the currency market. However, Belarusian financial institutions imposed their own limits on carrying out non-cash exchange operations, cash withdrawals from ATMs and from bank accounts. Financial institutions also limited the availability of currencies in exchange offices and imposed limits on payment transactions by credit card outside of Belarus. All these processes took place under the condition of a sharp devaluation of the Russian Ruble.

The dynamics in the Russian Ruble have affected the Belarusian Ruble fluctuation (see Figure 1). The correlation between the currencies was strong even before the war, given that the Russian Federation is a dominant economic partner for Belarus, and has since become stronger.

The share of Russian Ruble in the Belarusian currency basket is at 50 percent. Moreover, in Q1-Q3 2022 the Belarusian dependency on the Russian economy increased in the aftermath of losing the Ukrainian market and facing European export shortages. Between January and August 2022, the share of export of goods to CIS countries (where the main share of exports goes to Russia) was 65,7 percent, as compared to 58,4 percent for the corresponding months in 2021. The same tendencies are apparent when considering the import of goods. The share of import from CIS countries reached 64,7 percent between January and August in 2022, as compared to 61,3 percent for January-August in 2021 (BSCBR, 2022).

Figure 1. The weighted average exchange rate of the Belarusian Ruble, in Belarusian Rubles.

Source: Statistical Bulletin #9 (279) 2022.

Sanctions and the Russian Central Bank’s policy have led to a stabilisation on the Russian currency market. The Central Bank of Russia has introduced restrictions on capital outflow from the country, limited cash withdrawals from bank accounts and foreign currency purchases in exchange offices (Tinkoff, 2022). The cancelation of budget rule has further supported the Russian Ruble exchange rate. But the main reason for the Russian currency exchange rate reversal post March 2022, relates to the situation regarding foreign trade. Due to sanctions, imports had significantly decreased. At the same time, high energy prices allowed for export growth. Between January and June 2022 Russia displayed a high positive trade balance (169,62 billion USD), the largest in the last 7 years (CBR, 2022). As a result of sanctions, the Central Bank of Russia started to prepare the market to work with currencies of friendly countries.

Similar tendencies can be seen in Belarus. NBRB has changed the composition of the foreign currency trade to turn the Belarusian economy from a Western to an Eastern direction regarding economic cooperation. In July 2022 the Chinese Yen was included in the currency basket. At the same time the share of Russian Ruble was at 50 percent, the US Dollar at 30 percent, the Euro at 10 percent and the Chinese Yen at 10 percent. In August 2022, the NBRB began to define daily exchange rates for the Vietnamese Dong, Brazilian Real, Indian Rupee and UAE Dirham. Finally, since October 2022, the exchange rate for the Qatari Riyal has been defined on a monthly basis (The National Bank of Belarus, 2022). These changes are indicators of ongoing and planned structural changes to the economy to accommodate increased cooperation with the Eastern economies.

Currency Market Stabilisation and Current Risks

The Belarusian Ruble has not repeated the fluctuation of the Russian currency. It did however copy its tendency to appreciate to the US Dollar and the Euro, as of April 2022. Besides the appreciation of the Russian Ruble and personal bank’s restrictions on national currency markets, the stabilisation of the Belarusian Ruble can be explained by the positive trade balance. In contrast to Russia, the growth of net export in Belarus was due to a faster decline of imports than exports. There are several reasons why this can be a problem for currency market stabilisation in the future.

First, Belarus’ foreign trade has become more and more oriented toward the Russian market. If the main trade partner experiences difficulties (for example, oil price caps) this could lead to a devaluation of the Russian Ruble and, as a result, declining competitiveness of Belarusian goods on the Russian market.

Second, reorientation of Belarusian exports from Western to Eastern countries require time and additional financial resources and exports are not always profitable due to high logistical costs. Any additional sanctions may further limit such opportunities.

Third, main export-oriented services, such as the Transport and ICT sectors, are affected by sanctions and their consequences. In Q3 2022, the transport turnover was equal to 68,3 percent, as compared to the same period 2021. The ICT sector is still having a positive impact on GDP growth. However, in January-September 2021 the positive contribution from this sector to the Belarusian GDP was 0,9 percent, while it between January and September 2022 was only 0,2 percent.

Recent success in foreign trade is mostly due to the continuation of selling potash, nitrogen fertilisers and other products on the global market, a strong Russian Ruble and Russian market openness towards Belarusian companies, low levels of Belarusian imports, and cheap Russian gas (the special price for Belarus is 128 US Dollars for 1000 cubic meters). If the terms of trade with Russia worsen and key export-oriented industries suffer from sanctions and reputational risks, the currency market could however be destabilised.

Another problem for the Belarusian Ruble stability in the middle and long term is related to household behaviour. In January-August 2022 Belarusians sold more foreign currency than they bought. Despite the Ruble fluctuation, the high levels of net sales in March was due to bank restrictions. In June, the net purchase was related to seasonal factors (see Figure 2). For the other months of the period the net selling can be explained by a stable situation on the currency market and real incomes declining. People sold currency in an attempt to maintain their previous standards of living.

Figure 2. Balance of purchase and sale of foreign currency by households (+ “net purchase”, – “net sale”), mln. USD.

Source: Based on data from the National Bank of Belarus.

In September-October 2022 Belarusian households bought more than (an equivalent of) 300 mln. USD on net basis, primarily in USD or Euro, which is very unusual for the Belarusian market situation. There are several possible explanations for such behaviour:

  1. Despite difficulties with obtaining visas Belarusians are going to Poland and other European countries to shop. Because of sanctions, retaliatory sanctions as well as a high price control on the domestic market, the range of goods has shrunk, and prices have risen. In European countries Belarusians can purchase much cheaper goods both for personal use and for resale.
  2. Partial mobilisation in Russia has increased the uncertainty of further political steps in Belarus. Households thus purchase foreign currency to establish an extra safety cushion.
  3. In Q3 2022 there was a net cash outflow on international remittances, for the first time since 2017. Traditionally, Belarus has seen a net inflow of foreign remittances. In 2022 Belarusian banks were switched off from the SWIFT system which incurred problems with operations in foreign currencies for banks under sanctions. As a result, cash inflow has declined (see Figure 3). Cash outflows however remained on the same level as in previous years. This can be explained by high-level specialists and people employed within ICT leaving the country. During relocation people have sold apartments and cars and exchanged accumulated incomes from Belarusian Rubles to US Dollars or Euros and sent to foreign bank accounts (even under the conditions of facing difficulties with conducting money transfers).

Figure 3. Net cash inflow (+)/ outflow (-) for international remittances, USD mln.

Source: Based on data from the National Bank of Belarus.

Maintaining the trend of net currency purchase together with possible trade balance deterioration may exacerbate the situation on the domestic currency market. Another risk to the currency market stability is posed by the insufficient size of FX reserves (in the amount of less than 3 months of import). Moreover, the 900 mln. US Dollars in reserves, given by the IMF in 2021 as support to fight Covid-19, can’t be used as this financial support is given in the form of SDR (Special Drawing Rights), and the exchange of SDR to US Dollars or other currencies is challenging due to sanctions (Congress, 2022).

At the same time, the Government’s decision to make external debt payments in Belarusian Rubles supports the FX reserves level. It has also been decided that payments on Eurobonds to the Nordic Investment Bank, the European Bank of Reconstruction and Development and the International Bank of Reconstruction and Development are to be paid in Rubles. These decisions have decreased the country’s long-term rating on foreign liabilities to the Restricted Default level. In that sense, short-term gains can lead to significant financial losses in the long term. In the future it will be necessary not only to pay outstanding debts but also to improve Belarus’ reputation on the international financial market. Today, the Russian Federation is the main investor in the Belarusian economy. But since its support is limited, it is likely to be insufficient for the safe functioning of the Belarusian economy.

Conclusion

The stability of the Belarusian currency market is not the result of economic success, but rather a reflection of the tightening of the economy. The appreciation of the Belarusian Ruble to the US Dollar and Euro has taken place during an accelerated reduction in Belarusian imports. At the same time the weakness of the Belarusian currency to the Russian Ruble entails competitiveness of Belarusian products on the Russian market. Foreign exchange reserves, although insufficient, have maintained in size due to the low demand for foreign currency and foreign debt payments in Belarusian Rubles. Disruptions to economic and political relations with Western countries stimulates the Belarusian authorities to reorient the economy towards Eastern partners, which has led to a modification of the currency basket composition. In the long run, the current stability of the Belarusian currency can quickly disappear in case one or several risks are realised. If the Russian Ruble devaluates or trade balance deteriorates and demand for foreign currency increases, the stability of the Belarusian Ruble exchange rate can be ruined.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Intergenerational Occupational Mobility in Belarus

Posted on November 14, 2022 | Policy Brief

20221113 Intergenerational Mobility Belarus Image 01 representing Intergenerational occupational mobility

This brief presents an analysis of the magnitude of the intergenerational occupational mobility in Belarus, taking into account a differentiated gender effect. The analysis considers movements along the occupational scale for individuals with respect to their parents, both through an aggregate magnitude (using transition matrices and mobility rates) and in detail (using a multinomial logit model), using data from the 2017 Generations and Gender Survey for Belarus. The findings show, firstly, that the downward intergenerational changes of occupational status have a strong gender bias: downward mobility is higher for men than for women. Secondly, the probability of moving up the social ladder is higher for women than for men in Belarus. Additionally, the results verify the important role of education as a mechanism towards reaching a society with more equal opportunities. In particular, the effect is more intense for individuals with higher education.

Introduction

Intergenerational social mobility is defined as the movement of individuals from the social class of the family in which they lived when they were young (the origin class) into their current class position (the destination class), where social class is determined by as decided by income, occupation, education etc. (Ritzer, 2007; Scott and Marshall, 2009).

One of the main results from the economic literature on intergenerational social mobility shows that the degree of social mobility depends on the characteristics of an individual’s family background. These characteristics include an individual’s choice to acquire human capital and corresponding type of education, innate and acquired abilities, gender differences, or the knowledge people acquire through lifelong learning or work experience (Behrman & Taubman, 1990; Dutta, Sefton & Weale, 1999).

However, such characteristics may encourage children to work in the same occupations as their parents, slowing down intergenerational change. Research on intergenerational mobility can help identify and remove barriers to mobility which could improve the effective distribution of human skills and talents, in turn increasing productivity and promoting competitiveness and economic growth.

This brief summarizes the results of the first research focused on intergenerational occupational mobility in Belarus (Mazol, 2022). The research attempts to obtain new empirical evidence on intergenerational social mobility in Belarus by examining the movements of individuals along the occupational scale in relation to their parents, while taking into account other relevant factors such as gender differences and educational background of the individuals. Two specific gender dimensions are introduced: on the one hand, this study analyzes whether mobility in occupational categories differs for men and women; on the other hand, it examines whether there is a difference in the transmission of occupational categories from fathers to sons in comparison to mothers to daughters.

Data and Methodology

The study makes use of data from the Generations and Gender Survey (GGS) conducted in Belarus in 2017 by the United Nations Population Fund (UNFPA) and the United Nations Children’s Fund (UNICEF) within the framework of the Generations and Gender Program of the United Nations Economic Commission for Europe. The survey provides information on a range of individual characteristics (age, gender, marital status, educational attainment, employment status, hours worked, wages earned, etc.) as well as household-level characteristics (household size and composition, religion, land ownership, location, asset ownership, etc.).

The research considers the subsample of respondents between 25-79 years old and utilizes the information on occupation of the respondent and his/her parents. In order to evaluate the intergenerational occupational mobility, occupations are ranked by their position in the occupational ladder according to the National Classification of Occupations, based on the International Standard Classification of Occupations (ISCO-08) This defines a ranking of occupations based on the performance area and qualification required to carry out the occupation, from armed forces occupations (ranking the highest), through  a manager, a professional, a technician or professional associate, a clerk, a sales worker, a skilled agricultural worker, a craft worker a plant and machine operator, ending with an elementary occupation ranking the lowest. The influence from the father’s/mother’s occupation on that of the son’s/daughter’s is then estimated.

The analysis is carried out partly by estimation of transition matrices and mobility rates, and partly by the use of a multinomial logit model that aims to analyze the impact of a set of covariates on intergenerational occupational mobility. The explanatory variables are: the highest degree of education an individual has achieved (educational attainment), gender, potential labor experience (calculated as the number of years an individual has regularly worked), status in the labor market (full-time or part-time), and region of residence. The choice of these independent variables relies on channels identified from relevant sociological and economic literature.

Figure 1. Intergenerational occupational transitions in percent, by gender lines

Source: Author’s estimates based on GGS.

The intergenerational transmission of occupational immobility is almost equal for men and women (31 percent and 30,1 percent respectively). Occupational upward mobility is far more common as compared to downward mobility. 39.7 percent of men, compared to their father’s, and 50.6 percent of women, compared to their mother’s, have better occupations. The gender differences may be explained by the high proportion of women with higher educational levels in Belarus.

The estimates of the marginal effects obtained by the multinomial logit model indicate that social occupational mobility in Belarus depends on personal and labor characteristics. Three possible states are considered in relation to father-son and mother-daughter gender lines: the individual experiences downward intergenerational occupational mobility as compared to their parent of the same gender (Y = 0); they remain in the same occupation (immobility) (Y = 1) or they experience upward intergenerational occupational mobility (Y = 2) (see Table 1).

Table 1. Estimates of the marginal effects corresponding to the multinomial logit model

Notes: Estimates reflect weighted data. Standard errors in square brackets. Significance: *** – 1% level, ** – 5% level, * – 10% level. OV – omitted variable. Source: Author’s estimates based on GGS.

As evident from Table 1, gender is an important determinant of intergenerational occupational mobility. In particular, the results show that women are more likely to move up the social ladder than their male counterparts, as men are 10 percentage points less likely to have upward occupational mobility than women with similar (on average) socio-economic characteristics, with all coefficients being statistically significant.

In terms of educational attainment, the findings show that, on the one hand, higher educational attainment has a positive and significant influence on upward occupational mobility, with the highest values displayed for higher education. The probability of moving up to the occupational ladder is around 27 percentage points higher for an individual within this educational group than for an individual with primary studies and similar (on average) socio-economic characteristics. On the other hand, higher education has a negative and significant influence on downward occupational mobility, indicating that the probability of moving down the occupational ladder is around 13 percentage points lower for a highly educated individual compared to an individual with primary education.

Considering human capital, there is a positive impact of potential labor experience on upward intergenerational occupational mobility. Specifically, the probability of moving up along the occupational ladder increases on average by about 0.3 percentage points for every additional year of labor experience.

Finally, the results show that full-time workers are more likely to move up the social ladder than their part-time counterparts. Full-time workers are about 12 percentage points more likely to experience upward occupational mobility and 11 percentage points less likely to face downward occupational mobility compared to their part-time working counterparts.

Conclusion

This brief summarizes the findings for the first study on intergenerational occupational mobility in Belarus.

Firstly, the findings indicate, from a gender perspective, that the probability of moving up the social ladder is higher for women than for men in Belarus.

Secondly, the research results verify the important role of education as a mechanism to reach a society with more equal opportunities. In particular, the effect is more intense for individuals with higher educational attainments.

Thirdly, potential labor experience positively influences the upward intergenerational occupational mobility. This may reveal an underlying effect from training (however an unobservable variable given the data provided by the GGS).

Lastly, the impact of employment status on intergenerational occupational mobility in Belarus depends on the stability of labor relations, where possessing a part-time job worsens one’s probability of accomplishing a social class advancement.

References

  • Behrman, J., and P. Taubman. (1990). The Intergenerational Correlation between Children’s Adult Earnings and Their Parents’ Income: Results from the Michigan Panel Survey of Income Dynamics. Review of Income and Wealth, 36(2), pp. 115-127.
  • Dutta, J., Sefton, J., and M. Weale. (1999). Education and Public Policy. Fiscal Studies, 20(4), pp. 351-386.
  • Mazol, A. (2022). Intergenerational Occupational Mobility: Evidence from Belarus. BEROC Working Paper Series, WP no. 79.
  • Ritzer, G. (2007). The Blackwell Encyclopedia of Sociology. Malden: Blackwell Publishing Ltd.
  • Scott, J., and G. Marshall. (2009). A Dictionary of Sociology. Oxford: Oxford University Press.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Belarus Under War Sanctions

Posted on October 17, 2022 | Policy Brief

Image of farm tractor loaded on a freight train representing Belarus Under War Sanctions

Numerous developed countries have imposed tough sanctions on Belarus, as the Belarusian regime has become part of the Russian aggression against Ukraine. At the same time, economic relations with Ukraine have been disrupted. These shocks have simultaneously disturbed the Belarusian economy and triggered a severe recession. Thanks to several positive effects from the external environment, some success from measures undertaken by the authorities to stabilize output, and some degree of resilience – all seasoned with a large portion of good luck – the situation of the Belarusian economy is however “not that bad”. Nonetheless, the Belarusian economy is experiencing its worst economic crisis since the mid-1990s, and the current path of the economy is highly unstable and associated with numerous risks and threats. In economic terms, it is likely the case that the full costs from the sanctions are yet to be paid.   

Sanctions, Multiple Shocks and Their Potential Implications

As the Belarusian regime has become part of the Russian war on Ukraine many developed countries have adopted tough sanctions against Belarus. These sanctions include an embargo on a large share of Belarusian exports and imports, prohibitions and restrictions on transportation of goods of Belarusian origin, restrictions on and/or blocking actions regarding financial operations and settlements, a freeze of parts of the Belarusian international reserves, and numerous restricting and blocking actions against banks, companies and individuals. Such sanctions, combined with a new external environment, cause powerful indirect effects with foreign companies exiting the Belarusian market and refusing business with Belarusian counterparts. Additionally, some Belarusian businesses and employees have left the country. On top of this, economic relations with Ukraine, formerly Belarus’s second largest trading partner, have been virtually reduced to zero.

In economic terms, the above mentioned may be treated as a bundle of simultaneous powerful shocks to the national economy, differing in direction, mechanics, size, and persistence. These shocks may be grouped into three clusters.

The first cluster covers demand shocks, and in particular export shocks. According to our assessments, the exogenous demand shock following the sanctions may reduce Belarusian exports (in physical terms) by 40 percent, compared to previous steady-state levels. This figure should however be seen as a potential lower bound which may be realized if no measures to mitigate the impact from the sanctions are undertaken. Belarusian authorities and businesses are however doing their best trying to find new buyers for the “vanishing” exports, bypass restrictions in order to connect to “old” buyers, and establish new logistic and financial chains. The extent to which these attempts may be successful depends on the global environment, the degree of the price competitiveness of Belarusian producers, and numerous non-economic factors. Additionally, all factors affecting exports are unstable and volatile. Exports under these new conditions are therefore less sustainable and may fluctuate in an extremely wide range. Shocks to consumption and investments stemming from weakened sentiment and expectations further amplify the demand shocks.

The second cluster of shocks relates to the supply side of the economy. It includes business closures, emigration that weakens labor supply, and production bottlenecks due to the inaccessibility of imports. Supply shocks are hard to quantify, but we perceive them as persistent and cumulative. Business closures and emigration have irrevocable effects on the national economy (at least in the medium-term), and a continuation of such drop-outs will likely amplify the size of the shock.

The third cluster combines different primarily nominal shocks: price, exchange rate, financial stability and fiscal ones. Such shocks have become permanent companions to the Belarusian economy under the sanctions, and they are volatile in terms of size. As a result, the corresponding economic indicators are likely to also become highly unstable.

This bundle of adverse shocks shifts the economy down from the previous, close to steady-state, trajectory. A new trajectory is however far from predetermined. Firstly, it depends on the effectiveness of the government in curbing the shocks stemming from the sanctions, as the actual path of the economy may be considerably affected by monetary or fiscal policy and other interventions. Secondly, some positive exogenous shocks may partially offset the effects from adverse ones. Lastly, the economy, at least for a while, may resist through exploitation of accumulated buffers (such as, international reserve assets, financial reserves of State-owned enterprises that were accumulated under favorable conditions in 2021 etc.).

Considering the worst possible assumptions regarding the above mentioned issues, our model-based simulations predict a severe recession of about 20 percent (as compared to the output peak in 2021-Q2). This recession is accompanied by a sharp increase in inflation (which in turn is highly likely to be supplemented by a full-fledged financial crisis). This simulation should however be regarded as the potential rock bottom. Whether it will become reality or not critically depends on the Belarusian government’s policies.

Policy Response by the Authorities

The root cause of the problem, namely the provision of Belarusian territory for the Russian army, has never been publicly discussed by Belarusian officials. Instead, the government has focused on strategies which treat the symptoms, rather than focusing on curing the disease itself. The main coping strategies that were publicly discussed include: 1) expected increase in Russian support and exports to Russia 2) re-orientation of exports towards Asian and developing markets 3) greater mobilization of domestic resources and 4) monetary, fiscal and other stimuli.

The Russia-related initiatives are often beyond convention and include some radical proposals. These are, for instance, accelerating the establishment of sea terminals in Russian ports, promoting exports to Russia, and requesting greater financial support from Russia linked to the so-called “deep integration” package (mainly in the form of energy subsidies, import substitution investments and direct subsidies). Adherence to these proposals would mean that Belarusian authorities de facto accept serving as a Russian protectorate and correspondingly take on the role of a puppet government.

Belarusian authorities have reached some success from choosing the “Russian track” as the debt payments to Russia were postponed, new cheap gas and oil prices were granted and export to Russia increased by 15 percent in the first 8 months of 2022. The Belarusian regime’s $7 billion compensation claim for incurred economic losses due to the war has however been rejected by Russia so far.

The coping strategy of export re-orientation serves primarily as a rhetoric intervention as China and other Asian countries considered by the government cannot fully replace the European market. For many Belarusian exports, the EU was a premium, high-margin market while re-orientation means at best lower margins. The success of re-orientation depends on the degree of price competitiveness, which can change greatly over time.  The only success from this strategy to date is the re-orientation of 10 percent of potash exports to China via railroad (incurring greater transportation costs).

The third strategy “greater mobilization of domestic resources” firstly assumes more interference with the business activity of State-owned enterprises (SOE). Despite severe demand shocks these are pressured by the government to maintain production and/or salaries, the latter in order to support output via sustained consumer demand. Further, a “discipline” component of the strategy is implemented through renewed catch-pay-and-release practices. In effect, businessmen are arrested based on anti-corruption or tax fraud criminal charges. They are then offered to pay certain amounts to the state and released if they choose to pay.

Since late spring, when direct financial shocks have been suppressed, the authorities have intensified stimulus measures to the economy. In the fiscal sphere, these are aimed at promoting exports and mainly provided on an individual or sectoral basis. To a large extent, these stimuli may be seen as partial compensation to SOEs for their output-supporting role. In the monetary sphere a specific environment in which the Russian ruble is appreciated vs. the US dollar, despite the worldwide strength of the latter, has allowed the authorities to implement a “magic” (but highly likely temporary) solution: The Belarusian national currency is manipulated to depreciate vs. the Russian ruble (both in nominal and real terms) but appreciate vs. the US dollar. The former leads to a great increase in price competitiveness (as Russia is today the dominant trading partner), while the latter serves as a buffer for fragile prices and provides financial stability. Moreover, the authorities have excessively softened monetary policy, trying to spur domestic credit. These measures lead to heightened inflation pressure, which is however somehow suppressed by reinvigorated direct price controls.

Current Situation and Future Implications

Until now, the Belarusian economy places far from the potential rock bottom. By the end of the second quarter in 2022, output losses (vs. the output peak in 2021-Q2) amounted to about 5.5 percent. By the end of 2022, they are however expected to increase to about 8.5 percent (vs. the 2021-Q2 output peak). The Belarusian economy is stuck in a heightened inflation environment – with the inflation being as high as 20 percent in annual terms. Although the inflation is considerably higher than in “normal times”, it is still not a disaster (considering the much higher projected level under the worst-case scenario and the background of 40-year peak in global inflation). Moreover, the current situation is still far from a full-fledged financial crisis, despite some financial turbulence.

The position of the economy as “not that bad”, is a result of existing buffers, positive effects from the external environment and some immediate efficiency from actions undertaken by the authorities to stabilize output – all seasoned with a large portion of good luck.  For instance, the jump in price competitiveness accounts for a large share of curbing efforts that counter the sanctions. This is, in turn, due to a combination of high global prices, low and frozen energy prices for Belarus, and a very specific and unstable stance on monetary policy underpinned by direct price controls. Some buffer savings that Belarusian SOEs succeeded to accumulate during the period of the so-called “foreign trade miracle” in late 2020 and 2021 also play an important role. Last but not least, the Belarusian authorities seem to have succeeded in the partial curbing of the export shock. Since the beginning of summer, there are some signs of recovery in exports which most likely reflects a partial recovery of exports within the most sensitive domains: oil products and potash fertilizers (corresponding statistics have been blocked out).

However, the “not that bad” position of the economy does not mean good. According to all standard metrics, Belarus is currently experiencing a severe economic crisis. The notion that it could be even more severe is bad news, not good ones. Moreover, the current situation is extremely unstable and fragile. The economy is facing numerous distortions, contradictions and risks, all of which can still shift the scenario of the crisis from the “not that bad” situation to the worst possible.

Conclusion

The Belarusian regime’s involvement in the Russian aggression against Ukraine have propelled Belarus into the most severe economic crisis since the mid-1990s. Until recently, fortunate external economic circumstances, a specific policy mix and a good portion of luck have allowed for a partial mitigation of the crisis. The situation is however extremely unstable and the full effects from the sanctions are likely yet to be realized.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Will Entrepreneurs Be Able to Reactivate the Belarusian Economy?

Posted on June 13, 2022 | Policy Brief

20220613 Will Entrepreneurs Be Able Image 01

Based on data from two recent waves of the Global Entrepreneurship Monitor (GEM), we demonstrate that the Coronacrisis gave birth to many new necessity-driven entrepreneurs who will likely alleviate the current challenges of unemployment and income losses in the short- and medium-term. The readiness and willingness of Belarusians to become entrepreneurs in a harsh business environment could be considered a good sign for the economy and society. However, such businesses may fail to deliver a positive long-term impact on the economy, while the detrimental consequences of the war in Ukraine undermine the potential and sustainability of growth-driving businesses with international and innovative orientation.

Crises and Entrepreneurial Activity in Belarus

During the past 15 years, the Belarusian economy and, in particular, Belarusian entrepreneurs have experienced several crises of different scopes, nature, and origins (in 2009, 2011, 2015-2016, 2020). During these periods, Belarusian private enterprises responded faster to both negative and positive trends in the economy compared to state-owned firms. This has for instance manifested itself in private sector firms being swifter in decreasing or increasing the size of the work force in recessions or recoveries (IMF, 2019).  Stagnating demand also led to deteriorating business opportunities that in turn incited a decrease in the number of both nascent and matured entrepreneurs. In line with Cowling et al. (2015), these circumstances suggest the presence of a procyclical trend in the entrepreneurship development in the country. In the same vein, the period of economic growth brought new entrepreneurs to the market to pursue business opportunities.

However, results from two waves of the Global Entrepreneurship Monitor (GEM), conducted in May-June 2019 and June-July 2021 demonstrate that notwithstanding the Coronacrisis, political unrest, and worsening business climate, the Belarusian economy experienced an influx of entrepreneurs (not necessarily officially registered as a firm or sole proprietor). These findings contribute to the discussion on the motivation, potential, and effectiveness of this wave of entrepreneurs for the economy.

Belarusian Context for Entrepreneurs in 2019-2021

After the 2015-2016 economic crisis, 2019 represented the third consecutive year of moderate economic growth in Belarus. The gradual liberalization of the economic activity, as well as the give-and-take relationship with Eastern-European neighbors and the West, fueled the enthusiasm of Belarusian entrepreneurs, especially in the medium- and high-tech sectors. The year 2019 was supposed to be highly conducive to entrepreneurship. These conditions were captured by the GEM Belarus 2019/2020 (2020).

However, as in most other countries, small businesses were more affected by the pandemic than large enterprises in Belarus. Moreover, many of them were left to fend for themselves in dealing with COVID-related challenges, as only a small portion of enterprises benefitted from state support measures (Marozau et al., 2021). The recovery period was abrupted by the political crisis that broke out after the presidential elections in August 2020. This political unrest resulted in increased pressure on the private sector and NGOs as well as tensions with EU countries and Ukraine. Many famous entrepreneurs were forced to immigrate and re-locate their businesses. Consequently, GEM Belarus 2021/2022 (2022) captured a new reality of the Belarusian entrepreneurial ecosystem.

How the Entrepreneurship Indicators Changed

According to the GEM 2021/22 survey, Belarus experienced an increase in the percentage of the adult population (18-64 years old) involved in all stages of the entrepreneurial process (Figure 1). Nevertheless, the level of the total early-stage entrepreneurial activity (which includes nascent entrepreneurs – up to 3 months old businesses and baby businesses – 4–42 months old) is still lower than one might predict based on the country’s level of economic development (Figure 2).

These positive changes are paradoxical because, according to the survey, Belarusians were not enthusiastic about the opportunities to start a business – respondents reported a high level of fear of business failure, and that the entrepreneurial framework conditions had deteriorated.

Figure 1. Percentage of the adult population involved in the entrepreneurial process

Source: GEM Belarus 2019/2020 & 2021/2022

Figure 2. Early-stage entrepreneurship rates and GDP per capita.

Source: GEM 2021/22 Global Report (Hill et al., 2022)

Moreover, the GEM survey reveals that the profile of early-stage entrepreneurs changed between 2019 and 2021 – the educational level of early-stage entrepreneurs increased, while their income level followed a negative trend. A plausible explanation for these changes could be that a relatively well-educated part of the population, employed in the sectors that were harshly hit by the pandemic (HoReCa, Sport & Leisure, etc), decided to start a business out of necessity due to wage shrinkages or layoffs. Therefore, neither a low level of opportunity perception nor an aggravating business climate kept them from starting an enterprise.

Support for this argument can be found if we examine the reasons why Belarusians started businesses in 2021 (Figure 3). The shares of both nascent entrepreneurs and owners of baby businesses that report ‘earning a living because jobs are scarce’ increased by about 20 percentage points. This phenomenon, when a depressive market reduces employment opportunities and forces individuals into becoming entrepreneurs, is regarded as necessity-driven entrepreneurship (Gonzalez-Peña et al., 2018).

Figure 3. Reasons to start a business

Source: GEM Belarus 2019/2020 & 2021/2022. Note: Respondents could strongly agree, somewhat agree, neither agree nor disagree, somewhat disagree, or strongly disagree with statements reflecting the reasons they were trying to start a business. Figure 3 provides the cumulative share of those who strongly agree and somewhat agree.

Keeping in mind that the unit of analysis in the GEM is on the individual and not the enterprise level, we can suggest a cautious hypothesis that the trend in entrepreneurship development in Belarus has changed from being pro-cyclical to countercyclical in the short term.

It is already obvious that the negative impact of the pandemic and political unrest on Belarusian businesses cannot be compared with the devastating effects of the Russian invasion of Ukraine. In this context, the countercyclical trend or, in other words, the readiness and willingness of Belarusians to become entrepreneurs against all odds, could be considered a good sign for the economy and society. However, such necessity-driven entrepreneurs are more focused on achieving a sufficient standard of living than on expansion and innovation. It is known that the growth and innovative orientations of businesses (product and process innovation, activity in technologically intensive sectors) are important predictors of technological change and total factor productivity (Erken et al, 2018). From this perspective, according to the GEM 2021/2022, Belarus is still doing relatively well in terms of impactful early-stage entrepreneurship (international and innovative orientation, growth expectations, and technological intensity). However, businesses with these characteristics are usually led by opportunity-driven entrepreneurs and are more sensitive to changes in the external environment. Therefore, the detrimental consequences of the Russian aggression against Ukraine (difficulties with payments and logistics, export/import restrictions, and tarnished reputation of Belarus) have already undermined the potential and sustainability of most such businesses and jeopardized the socioeconomic development of the country.

So, the answer to the question of whether Belarusian entrepreneurs will be able to reactivate the economy is rather ‘no’. Based on GEM 2021/2022 data, we argue that the augmented entrepreneurial activity rate will plausibly alleviate the problems of unemployment and income losses in the short- and medium-term, but may not have a strong and long-lasting effect on the economy as a whole.

Conclusion

The 2021 wave of the GEM survey has documented an increase in the share of the population involved in the different stages of the entrepreneurial process in Belarus. This, however, appears to be the outcome of the pandemic-related economic crisis, which manifests itself in income losses and layoffs. As a result, the crisis produced new necessity-driven entrepreneurs with vague prospects.

In this regard, policymakers should realize that stimulating self-employment and small-scale entrepreneurship may indeed be a temporary solution to unemployment issues. If this is the aim, the toolkit to support such businesses is well elaborated and accessible to the government (it includes educational & consulting services, easy access to finance, etc.).

As for impactful entrepreneurship, hardly anything can be done by the current government to retain innovative and international business in Belarus against the backdrop of the consequences and global reactions to the war in Ukraine.

References

  • Cowling, M., Liu, W., Ledger, A., & Zhang, N. (2015). “What really happens to small and medium sized enterprises in a global economic recession? UK evidence on sales and job dynamics”, International Small Business Journal, 33(5), 488-513.
  • Erken, H., Donselaar, P., & Thurik, R. (2018). “Total factor productivity and the role of entrepreneurship”. The Journal of Technology Transfer, 43(6), 1493-1521.
  • GEM Belarus 2019/2020, (2020). “Global Entrepreneurship Monitor Report GEM Belarus 2019/2020”.
  • GEM Belarus 2021/2022. (2022). “Global Entrepreneurship Monitor Report GEM Belarus 2021/2022”.
  • González-Pernía, J. L., Guerrero, M., Jung, A., & Pena-Legazkue, I. (2018). “Economic recession shake-out and entrepreneurship: Evidence from Spain”. BRQ Business Research Quarterly, 21(3), 153-167
  • Hill, S., Ionescu-Somers, A., Coduras, A., Guerrero, M., Roomi, M. A., Bosma, N., … & Shay, J. (2022). “Global Entrepreneurship Monitor 2021/2022 Global Report: Opportunity Amid Disruption”.
  • IMF. (2019). “Reassessing the Role of State-Owned Enterprises in Central, Eastern, and Southeastern Europe”, 19/11.
  • Marozau, R., Akulava, M., & Panasevich, V. (2021). “Did the Government Help Belarusian SMEs to Survive in 2020?” FREE Network Policy Brief Series.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Understanding the Economic and Social Context of Gender-based and Domestic Violence in Central and Eastern Europe – Preliminary Survey Evidence

Posted on May 11, 2022 | FROGEE PROJECT, Policy Brief

20220511 Economic and social context of domestic violence Image 02

This brief presents preliminary findings from a cross-country survey on perceptions and prevalence of domestic and gender-based violence conducted in September 2021 in eight countries: Armenia, Belarus, Georgia, Latvia, Poland, Russia, Sweden and Ukraine. We discuss the design and content of the study and present initial information on selected topics that were covered in the survey. The collected data has been used in three studies presented at the FROGEE Conference on “Economic and Social Context of Domestic Violence” and offers a unique resource to study gender-based violence in the region.

While the COVID-19 pandemic has amplified the academic and policy interest in the causes and consequences of domestic violence, the Russian invasion of Ukraine has tragically reminded us about the gender dimension of war. There is no doubt that a gender lens is a necessary perspective to understand and appreciate the full consequences of these two ongoing crises.

The tragic reason behind the increased attention given to domestic violence during the COVID-19 lockdowns is the substantial evidence that gender-based violence has intensified to such an extent that the United Nations raised the alarm about a “shadow pandemic” of violence against women and girls (UN Women on-line link). Already before the pandemic, one in three women worldwide had experienced physical or sexual violence, usually at the hands of an intimate partner, and this number has only been increasing. The tragic reports from the military invasion of Ukraine concerning violence against women and children, as well as information on the heightened risks faced by war refugees from Ukraine, most of whom are women, should only intensify our efforts to better understand the background behind these processes and study the potential policy solutions to limit them to a minimum in the current and future crises.

The most direct consequences of gender-based and domestic violence – to the physical and mental health of the victims – are clearly of the highest concern and are the leading arguments in favour of interventions aimed at limiting the scale of violence. One should remember though, that the consequences and the related social costs of gender-based and domestic violence are far broader, and need not be caused by direct acts of physical violence. Gender-based and domestic violence can take the form of psychological pressure, limits on individual freedoms, or access to financial resources within households. As research in recent decades demonstrates, such forms of abuse also have significant consequences for the psychological well-being, social status, and professional development of its victims. All these outcomes are associated with not only high individual costs, but also with substantial social and economic costs to our societies.

This policy brief presents an outline of a survey conducted in eight countries aimed at better understanding the socio-economic context of gender-based violence. The survey, developed by the FREE Network of independent research institutes, has a regional focus on Central and Eastern Europe, with Sweden being an interesting benchmark country. The data was collected in September 2021 in Armenia, Belarus, Georgia, Latvia, Poland, Russia, Sweden and Ukraine. The socio-economic situation of all these countries irrevocably changed with the Russian invasion of Ukraine on 24 February 2022, the ongoing war, and its dramatic consequences. The world’s attention focused on the unspeakable violence committed by the Russian forces in Ukraine, the persecution in Belarus and Russia of their own citizens who were protesting against the invasion, and the challenges other neighbouring countries have faced as a result of an unprecedented wave of Ukrainian refugees. This change, on the one hand, calls for a certain distance with which we should judge the survey data and the derived results. On the other hand, the data may serve as a unique resource to support the analysis of the pre-war conditions in these countries with the aim to understand the background driving forces behind this dramatic crisis. In as much as the gender lens is necessary to comprehend the full scale of the consequences of both the COVID-19 pandemic and the war in Ukraine, it will be equally indispensable in the process of post-war development and reconciliation once peace is again restored.

Survey Design, Countries, and Samples

The survey was conducted in eight countries in September 2021 through as a telephone (CATI) survey using the list assisted random digit dialling (LA-RDD) method covering both cell phones and land-lines, and the sampling was carried out in such a way as to make the final sample representative of the respective populations by gender and three age group (18-39; 40-54; 55+). The collected samples varied from 925 to 1000 individuals. The same questionnaire initially prepared as a generic English version was fielded in all eight countries (in the respective national languages). The only deviations from the generic version were related to the education categories and to a set of final questions implemented in Latvia, Russia and Ukraine with a focus on the evaluation of national IPV legislation.

Table 1 presents some basic sample statistics, while Figure 1 shows the unweighted age and gender compositions in each country. The proportion of women in the sample varies between 49.4% in Sweden and 55.0% in Belarus, Russia and Ukraine. The average sample age is between 43 (Armenia) and 51 (Sweden), while the proportion of individuals with higher education is between 29.3% in Belarus and 55.4% in Georgia. The highest proportion of respondents living in rural areas could be found in Armenia at 62.9%, while the lowest was in Georgia at 24.1%. Figure 1 illustrates good coverage across age groups for both men and women.

Table 1. FROGEE Survey: samples and basic demographics

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Figure 1. FROGEE Survey: gender and age distributions

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Socio-economic Conditions and Other Background Characteristics

To be able to examine the relationship between different aspects of domestic and gender-based violence to the socio-economic characteristics of the respondents, an extensive set of questions concerning the demographic composition of their household and their material conditions were asked at the beginning of the interview. These questions included information about partnership history and family structure, the size of the household and living conditions, education and labour market status (of the respondent and his/her partner) and general questions concerning material wellbeing. In Figure 2 we show a summary of two of the latter set of questions – the proportion of men and women who find it difficult or very difficult to make ends meet (Figure 2A) and the proportion who declared that the financial situation of their household deteriorated in the last two years, i.e. since September 2019, which can be used as an indicator of the material consequences of the COVID-19 pandemic. We can see that the difficulties in making ends meet are by far lowest in Sweden, and slightly lower in the other EU countries (Latvia and Poland). The differences are less pronounced with regard to the implication of the pandemic, but also in this case respondents in Sweden seem to have been least affected.

 Figure 2. Making ends meet and the consequences of COVID-19

a. Difficulties in making ends meet


b. Material conditions deteriorated since 2019

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Perceptions and Incidence of Domestic and Gender-Based Violence and Abuse

Frequency of differential treatment and abuse

The set of questions concerning domestic and gender-based violence started with an initial module related to the different treatment of men and women, with respondents asked to identify how often they witnessed certain behaviours aimed toward women. The questions covered aspects such as women being treated “with less courtesy than men”, being “called names or insulted for being a woman” and women being “the target of jokes of sexual nature” or receiving “unwanted sexual advances from a man she doesn’t know”, and the respondents were to evaluate if in the last year they have witnessed such behaviours on a scale from never, through rarely, sometimes, often, to very often. We present the proportion of respondents answering “often” or “very often” to two of these questions in Figure 3A (“People have acted as if they think women are not smart”) and 3B (“A woman has been the target of jokes of a sexual nature”). We find significant variation across these two dimensions of differential treatment, and we generally find that women are more sensitive to perceiving such treatment. It is interesting to note that the proportion of women who declared witnessing differential treatment in Sweden is very high in comparison to for example Latvia or Belarus, which, as we shall see below, does not correspond to the proportion of women (and men) witnessing more violent types of behaviour against women.

Figure 3. Frequency of differential treatment (often or very often)

a. People have acted as if they think women are not smart


b. A woman has been the target of jokes of a sexual nature

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Questions on the frequency of witnessing physical abuse were also asked in relation to the scale of witnessed behaviour. Here respondents were once again asked to say how often “in their day-to-day life” they have witnessed specific behaviours. These included such types of abuse as: a woman being “threatened by a man”, “slapped, hit or punched by a man”, or “sexually abused or assaulted by a man”. The proportion of respondents who say that they have witnessed such behaviour with respect to two of the questions from this section are presented in Figure 4. In Figure 4A we show the proportion of men and women who have witnessed a woman being “slapped, hit or punched” (sometimes, often or very often), while in Figure 4B being “touched inappropriately without her consent”. Relative to the perceptions of differential treatment the incidence of a woman being hit or punched (4A) declared by the respondents seems more intuitive when considered against the overall international statistics of gender equality. The proportions are lowest in Sweden and Poland, and highest in Armenia and Ukraine. However, the perception of inappropriate touching by men with respect to women (Figure 4B) shows a similar extent of such actions across all analysed countries.

Figure 4. Frequency of abuse (sometimes, often or very often)

a. A woman has been slapped, hit or punched by a man


b. A woman has been touched inappropriately, without her consent, by a man

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Perceptions of abuse

The questions concerning the scale of witnessed behaviours were complemented by a module related to the evaluation of certain behaviours from the perspective of their classification as abuse and the degree to which certain types of gender-specific behaviours are acceptable. Thus, for example respondents were asked if they consider “beating (one’s partner) causing severe physical harm” to be an example of abuse within a couple (Figure 5A) or if “prohibition to dress as one likes” represents abuse (Figure 5B). This module included an extensive list of behaviours, such as “forced abortion”, “constant humiliation, criticism”, “restriction of access to financial resources”, etc. As we can see in Figure 6, with respect to the clearest types of abuse – such as physical violence – respondents in all countries were pretty much unanimous in declaring such behaviour to represent abuse. With respect to other behaviours the variation in their evaluation across countries is much greater – for example, while nearly all men and women in Sweden consider prohibiting a partner to dress as he/she likes to be abusive (Figure 5B), only about 57% of women and 36% of men in Armenia share this view.

The questionnaire also included questions specifically focused on the perception of intimate partner violence. These asked respondents if they knew about women who in the last three months were “beaten, slapped or threatened physically by their intimate partner”, and the evaluation of how often intimate partners act physically violent towards their wives.

Figure 5. Perceptions of abuse: are these examples of abuse within a couple?

a. Beating causing severe physical harm


b. Prohibition to dress as one likes

Source: FROGEE Survey on Domestic and Gender-Based Violence.

A further evaluation of attitudes towards violent behaviour was done with respect to the relationship between a husband and wife and his right to hit or beat the wife in reaction to certain behaviours. In Figure 6 we show the distribution of responses regarding the justification for beating one’s wife in reaction to her neglect of the children (6A) or burning food (6B). The questions also covered such behaviour as arguing with her husband, going out without telling him, or refusing to have sex. As we can see in Figure 6, once again we find substantial country variation in the proportion of the samples – both men and women – who justify such violent behaviour within couples. This was particularly the case when respondents were asked about justification of violent behaviour in the case of a woman neglecting the children. In Armenia as many as 30% of men and 22% of women agree that physical beating is justified in those cases. These proportions are manyfold greater than what can be observed in countries such as Latvia, where 3% of men and women agreed that abuse was justifiable under these circumstances, or Sweden, where only 1% of men and women agreed.

Figure 6. Perceptions of abuse: is a husband justified in hitting or beating his wife

a. If she neglects the children


b. If she burns the food

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Seeking help and the legal framework

The final part of the questionnaire focused on the evaluation of different reactions to incidents of domestic and gender-based violence. Respondents were first asked if a woman should seek help from various people and institutions if she is beaten by her partner – respondents were asked if she should seek help from the police, relatives or friends, a psychologist, a legal service or if, in such situations, she does not need help. In Figure 7 we show the proportion of people who agreed with the last statement, i.e. claimed that it is only the couple’s business. The proportions of respondents who declare such an attitude is higher among men than women within each country, and is highest among men in Armenia (48%) and Georgia (25%). Again, these proportions are in stark contrast to men in Sweden, or even Poland, where only 4% and 8% of men agreed, respectively. Nevertheless, looking at the total survey sample, a vast majority believe that a woman who is a victim of domestic violence should seek help outside of her home, indicating that at least some forms of institutionalised support for women are popular measures with most people.

Figure 7. Proportions agreeing that domestic violence is only the couple’s business

Source: FROGEE Survey on Domestic and Gender-Based Violence.

The interview also included questions on the need for specific legislation aimed at punishing intimate partner violence and on the existence of such legislation in the respondents’ countries. The latter questions were extended in three countries – Latvia, Russia and Ukraine – to evaluate the specific sets of regulations implemented recently in these countries and to facilitate an analysis of the role IPV legislation can play in reducing violence within households. Legislation on domestic violence is relatively recent. During the last four decades, though, changes accelerated in this respect around the world. Legislative measures have been introduced in many countries, covering different aspects of preventing, protecting against and prosecuting various forms of violence and abuse that might happen within the marriage or the family. Research strives to offer evaluations on what legal provisions are most effective, in a setting in which statistics and information are still far from perfect, and as a consequence of the dearth of strong evidence the public debate on the matter is often lively. For legislation to have an effect on behaviour through shaping the cost of committing a crime, on the one hand, and the benefit of reporting it or seeking help, on the other, or more indirectly through changing norms in society, information and awareness are key. For how can deterrence be achieved if people do not know what the sanctions are? And how can reporting be encouraged if victims do not know their rights? The evidence on legislation awareness is unfortunately quite scarce. A survey of the criminology field (Nagin, 2013) concludes that this is a major knowledge gap.

Figure 8 shows the proportions of answers to questions concerning the need for and existence of legislation specifically targeted towards intimate partner violence. We can see that while support for such legislation is quite high (Figure 8A), it is generally lower among men (in particular in Armenia, Russia and Belarus). Awareness of existence of such laws, on the other hand, is much lower, and it is particularly low among women. It should be pointed out that all countries have in fact implemented provisions against domestic violence in their criminal code, but only around half of the population, sometimes much fewer, are aware of that.

Figure 8. Need for and awareness of IPV legislation

a. State should have specific legislation aimed at punishing IPV


b. Country has specific legislation aimed at punishing intimate partner violence

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Recent reforms of DV legislation that were implemented in Russia in 2017, in Ukraine in 2019 and in Latvia just a few months ago (at the time of the survey, the changes were at the stage of a proposal) were the subject of the final survey questions in these countries. We find that awareness of these recent reforms is very low in all three countries, and knowledge about the reform content (gauged with the help of a multiple-choice question with three alternative statements) is even lower. Our analysis suggests that gender and family situation are the two factors that most robustly predict support for legislation, while education and age are associated with awareness and knowledge of the reforms. Minority Russian speakers are less aware of the reforms in both Ukraine and Latvia, in Ukraine are also less likely to answer correctly about the content of the reform, and in Latvia are less supportive of DV legislation in general.

Analyses of this type are useful for policy design, to better understand which groups lack relevant knowledge and should be targeted by, for example, information campaigns to combat DV, such as those many governments around the world implemented during the covid-19 pandemic.

Future Work Based on the Survey

The above is just a small sample of the rich source of information that has resulted from conducting the survey. Already from this simple overview we can see some interesting results. There are, for example, clear differences between men and women in perceptions of how common certain types of abusive behaviour are. However, for many questions differences between countries are larger than those between men and women within a country. Interestingly such differences are also different depending on the severity of the abuse or violence. In Sweden the perception of women being victims of less violent abuse is higher than in some other countries where instead some more violent types of abuse are reported as being more common. This could, of course, be due to actual differences in actual events but it is also possible that there are differences in what types of behaviour are considered to represent harassment and abuse in different societies. More careful data work is needed to try to answer questions like this and many others. Currently there are a number of ongoing research projects based on the survey results, three of which will be presented at the FREE-network conference on “Economic and Social Context of Domestic Violence” in Stockholm on May 11, 2022. Our hope is that this work will help in taking actions to prevent gender-based abuse and domestic violence based on a better understanding of underlying cross-country differences in social norms and attitudes and their relation to socio-economic factors.

About FROGEE Policy Briefs

FROGEE Policy Briefs is a special series aimed at providing overviews and the popularization of economic research related to gender equality issues. Debates around policies related to gender equality are often highly politicized. We believe that using arguments derived from the most up to date research-based knowledge would help us build a more fruitful discussion of policy proposals and in the end achieve better outcomes.

The aim of the briefs is to improve the understanding of research-based arguments and their implications, by covering the key theories and the most important findings in areas of special interest to the current debate. The briefs start with short general overviews of a given theme, which are followed by a presentation of country-specific contexts, specific policy challenges, implemented reforms and a discussion of other policy options.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.