Tag: Belarus

Female Entrepreneurs in Transition: Social Norms, Double Burden and the Next Generation

Posted on December 6, 2021 | Policy Brief

Photo Of People Doing Handshakes representing Belarusian higher education

Nowadays, it is evident that equal participation of both men and women in entrepreneurial activity can boost the world economy, create more diverse teams, and decrease social inequality. While the subject of women-led enterprises is widely discussed and explored, the portraits of women who stand behind these companies are still not complete. This brief focuses on the social aspects a businesswoman faces in a transition economy such as Belarus: Who is she? What are her social roles? And how do entrepreneurial families differ from average families in Belarus?

Introduction

Female entrepreneurship is widely discussed as one of the potential engines of sustainable economic growth (World Bank, 2018; IFC, 2017). This brief utilizes a recent wave of the Global Entrepreneurship Monitor survey to shed light on the key aspects of female entrepreneurship in Belarus – a transition economy with a relatively short history of private entrepreneurship. It looks at the social status and social norms surrounding female businesses to better understand the current situation and future trends in this part of Belarusian society.

The data for the analysis is provided by the Global Entrepreneurship Monitor (GEM) surveys conducted in the summer of 2019:

  • Survey of the adult population of Belarus (GEM APS): 2002 respondents aged 18 to 64.
  • Survey of entrepreneurs based on GEM APS: 208 business owners (107 men and 101 women).

Women Are More Willing to Study Hard

Following a long-standing tradition, women in Belarus are likely to obtain higher education. Based on the GEM surveys of the adult population, 35% of respondents have completed a bachelor’s degree (42% of women versus 27% of men) and 1.5% have completed a master’s degree. Among entrepreneurs, 60% of respondents have the first stage of higher education and 15% have the second stage. While most of the interviewed entrepreneurs have higher education (bachelor’s degree), women are more inclined to continue their studies: 19% of female and 11% of male entrepreneurs choose to enroll in master’s programs.

Access to business education is not a problem in Belarus: almost half of the respondents claim that their education is related to the business they run. A similar fraction also report participating in business training programs (with no significant gender differences). A third of respondents report having had a mentor who helped them start a business (42% and 58% of men and women, respectively). Entrepreneurs in Belarus are not inclined to be members of business associations or (in)formal self-support groups for entrepreneurs.

Are Female Entrepreneur Families More Equal?

Most often, an entrepreneur is married and has 1-2 children under 18 years old (this pattern being the same across genders). The majority of Belarusian families are of the so-called “Soviet” type, in which the most important woman’s role is to be a mother and “keep home”. At the same time, it is perfectly normal for women to have a paid job. In the case of preparing food, cleaning the house, and washing clothes, a comparable share of male entrepreneurs and men in the general population answer that most of these responsibilities are usually carried by women (65-68%). In contrast, half of the female entrepreneurs report having an equal distribution of these household duties [Figure 1]. We observe similar patterns in the caretaking of children: 68% of women entrepreneurs claim to have an equal distribution versus 44% of non-business women. This greater intra-family equality of women-entrepreneurs can be partially explained by the fact that businesswomen earn more than Belarusian women do on average.

Figure 1. How do you and your spouse/partner divide the task of cleaning the house and washing clothes?

Source: based on GEM APS 2019

According to data on the daily time use of the population collected by the National Statistics Committee for 2014-2015, women spend twice as much time as men on housekeeping and childcare. But, surprisingly, only 40-45% of women note that the traditional distribution of social roles in the family imposes an unfair constraint on women’s work and career possibilities. Therefore, we document a trend towards equal relations between spouses in households where the wife is an entrepreneur. At the same time, even a typical businesswoman bears a large burden of unpaid work.

A Successful Woman is a Happy Mother and a Wife

The respondents were asked a rather controversial question of what defines a “successful woman” [Figure 2]. Both entrepreneurs and the general population of Belarus were in solidarity in understanding a successful woman primarily as a happy wife and mother (75% of respondents). In second place, in terms of importance, respondents answered that a woman should be an educated and highly qualified professional (about 50% men and 60% women). Only 23% of male and 42% of female entrepreneurs agreed with the statement that a successful woman is, first of all, a successful entrepreneur. Remarkably, 46% of men in the general population survey completely or to a greater extent disagree with this statement, at the same time,  67% of those with children would like their daughter to run a business.

Figure 2. A successful woman is first of all a/an..

Source: Author’s calculations based on GEM APS 2019

Parental Entrepreneurship or Are There Any Predispositions to Become an Entrepreneur?

According to the research on parental entrepreneurship, the probability that children in entrepreneurial families will also have a career in business is 30-200% above that of children from non-entrepreneurial families (Lindquist et al., 2015).  In the case of Belarus, half of the surveyed entrepreneurs indicated that their fathers were employees, while 5-10% and 17-25% reported having fathers in business and leadership positions. By comparison, out of the 2000 respondents in the general population survey, 4-8% and 14-15% reported having fathers in business and leadership positions, respectively. As the difference is not very significant, parental entrepreneurship cannot play a decisive role in becoming an entrepreneur. This fact can be explained by the relative juvenility of Belarussian businesses, the absence of entrepreneurship in the USSR, and the attitude of society towards entrepreneurship in the 90s.

Nevertheless, the Belarusian business environment is changing as well as the social attitude. Among the 2000 respondents in the general population survey, about 68% would like their daughter to own a business, and 82% want such a future for their son. Among entrepreneurs, aspirations about their children’s future are rather predictable: a third of respondents do not make plans for their children and the majority of the remaining want their children to run their own business. Moreover, among those having preferences for their children’s future, both male and female entrepreneurs reached almost 100% consensus regarding their sons. When it comes to their daughters, 95% of women and 80% of men prefer a future in business while 15% of men would like to see their daughter become a homemaker.

Conclusion

Several key findings can be noted when comparing women entrepreneurs in Belarus with those who are not in business. Entrepreneurs are more likely to obtain higher education, both first and second stage; household chores more equally shared in families with women entrepreneurs. Female entrepreneurs more often want a future in business for their children, especially their daughters. Based on the above, it can be expected that a greater involvement of women in business can positively affect the state of gender equality in Belarus and the quality of human capital.

Nowadays, the promotion of entrepreneurship (let alone female entrepreneurship) is not a priority of the current Belarusian government, and independent development actors, who used to support it in the past, are out of the country. For the future, however, I will outline some general recommendations for developing female entrepreneurship (based on Akulava et al., 2020). With regard to education, the popularization of STEM programs among women can positively affect female involvement in entrepreneurial activity. Additionally, promoting examples of successful women-led enterprises will help combat stereotypes and inspire women to venture into entrepreneurship. Last but not least, an equal division of domestic responsibilities will allow women to spend more time on their careers.

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.

Green Banking and Its Development in Belarus

Posted on October 12, 2021 | Policy Brief

20211012 Green Banking and Its Development in Belarus Image 01

Climate change and environmental protection are challenging both policymakers and society. People are getting increasingly concerned about the careful consumption of water and energy, use of biodegradable products, and biodiversity. In these conditions, more and more companies and industries adopt “green” and “sustainable” standards in their work. The financial sector is also involved in this process. For banks and other financial institutions, green activities require adopting new approaches, strategies, and instruments. This brief discusses green banking with a special focus on the development and challenges of this industry in Belarus. It concludes by providing policy recommendations for green banking development in the country.

Introduction

Sustainable development is one of the main global challenges, and an important role in facilitating and funding it belongs to green financing. The UN Environment Program defines green financing as “to increase the level of financial flows (from banking, micro-credit, insurance, and investment) from the public, private and non-profit sectors to sustainable development priorities”. Such financing can be provided by banks, financial institutions, nonfinancial private companies, governments, and individuals. The instruments of green financing range from climate, blue, and sustainability bonds to green credits and mortgages. One of the leading roles in the field is played by banks, which will be the focus of the current brief. This brief first offers a general overview of green banking. Then it and a discusses the existing green banking practices and challenges in Belarus. It concludes by providing policy recommendations for the development of the Belarussian green banking sector.

Green Banking: An Overview

The Indian Bank’s Association defines a green bank as “a normal bank which considers all the social and environmental/ecological factors, with an aim to protect the environment and conserve natural resources”. Moreover, the Finance Initiative of the UN Environment Program states that all green banks’ operations and activities should be consistent with sustainable development goals (Tara, K., Singh S., Kumar, R., 2015).

Considering the importance of green and sustainable development, it is natural to expect increasingly more financial companies and banks to implement eco-friendly instruments and policies. However, there is still much work to be done to ensure that market players consider green aspects in their deals. For example, while the European “green” financial market is growing rapidly, the Green Assets Ratio (GAR, the share of green loans, bonds to total bank’s assets) was only at 7,9% for the EU banking sector in March 2021 (Huw Jones, May 21, 2021).

A necessary component to speed up banks’ uptake of green practices is an appropriate regulatory and supervisory framework. Indeed, as green aspects become part of the traditional banking activities – e.g., international financing, work in foreign markets, participation in financial programs and projects -, there  is a need to develop common rules of work, principles, and standards in the green financing sphere. Today, several international initiatives and platforms provide such rules. For example, the Energy efficient Mortgages Initiative supports green mortgage development in Europe (Energy Efficient Mortgages Initiative, n.d.). The International Capital Markets Association acts as a (self-) regulatory organization that forms, implements, and manages principles and standards of green social, or sustainable bonds. One of the famous standards in green finance is the Equator Principles, a set of guidelines for project financing evaluation that incorporates social and environmental risks management (Equator Principles, n.d.). The Climate Bonds Initiative supports the mobilization of the bond market to meet the challenges of climate change (Climate Bonds Initiative, n.d.).

At the same time, most national monetary regulators work on legislation and rules of green banking development. The financial sector in general and the banking sector in particular are highly regulated. Financial institutions distribute owned and borrowed funds by providing short- and long-term credits and investing in numerous financial instruments with different levels of risk in national and foreign currencies. Monetary regulators need to control the their activity in order to minimize banks’ risks (credit, liquidity, and currency risk, etc.). For this reason, it is essential to have clear guidelines for dealing with new instruments (climate, social, blue, sustainability bonds, green mortgages, etc.), as their characteristics are likely to differ from the traditional ones. For instance, green bonds may have distinct characteristics of issuing and circulation. Green mortgages can be considered less risky than traditional credits due to more liquid collateral (energy-efficient buildings). There are specific measures that could make green instruments more attractive for banks, for instance by introducing green capital requirements or regulation against greenwashing.

Apart from guidelines, recommendations, and rules, central banks can create additional incentives for developing the green financial market. For example, the Bank of Bangladesh established a preferential lending Fund for projects in spheres such as renewable energy, energy efficiency, alternative energy, and green industry (Ulrich Volz, March 2018). Also, the Central Bank of Hungary introduced preferential capital requirements for energy-efficient housing loans (Liam Jones July 13, 2021).

Another important aspect of regulation and incentives created by monetary regulators is environmental and climate change risks management. Climate change and the green transition increase the environment-associated financial risks for banks. Banks’ financial losses can result from not only storms floods, tsunamis, and temperature increases, but also financial problems of borrowers due to stricter environmental legislation and changes in social and environmental norms and standards.  According to the ECB survey, many banks develop sustainable development strategies, but very few include environment-associated financial risks in their risk management. Therefore, the ECB works on creating incentives and regulations for banks in green risks-management. It is expected that bank stress-testing will start in 2022 (Harrison C., Muething L., 2021). At the same time, the Bank of Bangladesh, with IFC support, has developed guidelines on social and environmental risk management for the banking sector (Ulrich Volz, 2018).

Based on the above mentioned, there is still much to be done to ensure that market players consider green aspects in their deals. Green banking is still a new thing, but its implementation takes place in many countries, and green finance is an essential element of sustainable economic development.

Green Banking in Belarus

In this section, we overview the current state and perspectives of green banking development in Belarus. The country takes its first steps in green finance market development. Socio-economic development program of the Republic of Belarus for 2016-2020 has incorporated green projects in spheres such as transport and agriculture, recycling, eco-labelling and eco-certification development, as well as a study of the implementation of green bonds and green investment bank creation (Ukaz № 466, December 15 2016). In 2016, the National Plan of Activities on Green Economy Development in the Republic of Belarus till 2020 was adopted. The plan included the development of areas such as organic agriculture, eco-tourism, energy-efficient construction, and smart cities (CMRB Decree, № 1061, December 21, 2016). However, none of these projects were introduced with links to green financing and green banking. The National Plan of the Activities of Green Economy Development in the Republic of Belarus till 2025 pays more attention to green finance. In this plan, there is a description of implemented projects in recent years and a list of instruments (green bonds, credits, insurance products), tools (indexes, ratings, databases, etc.), entities and elements of the green finance ecosystem (MNREPRB, 2021). Still, there is no plan or detailed strategy of special regulation, rules, or framework of green banking development.

In the absence of precise plans from the government, green banking in Belarus began to emerge at the micro-level. Banks started to provide green products for their clients, participate in sustainable initiatives, and implement green management in their work. One of the main incentives to transition towards more sustainable banking practices comes from the investors’ side. In the case of joint investment and lending programs implementation, many foreign partners require that the bank applies modern green standards.

Another incentive to this transition builds on reputational risks and competition. Today, there is a public demand for eco-products, energy-efficient construction, and environmental protection. Banks that consider these issues have a competitive advantage and gain a positive reputation among their clients. Moreover, some commercial banks with foreign capital have to introduce green standards and green management at the request of their parent companies.

A few green initiatives by Belarusian banks are worth mentioning here. The Belinvestbank can be distinguished as one of the brightest examples of green banking in Belarus. The financial institution started transforming into EcoBank – it began to hold green financing transactions in the framework of the Global Trade Financial program (a program by the International Finance Corporation), adopted a new ecological and social strategy, issued a charity-bonus payment card made from recycled plastic, and held activities in ecological spheres (Belinvestbank, 2020). The bank plans to issue green bonds, establish green projects accelerator, continue green financing, and build new communications approaches with its clients (Belinvestbank, 2019a). Green financing is one of the main lending spheres of the EBRD, which planned to purchase a share of Belinvestbank.

Priorbank is another case of a green banking initiative in Belarus. The bank presented a new type of lending that allows consumers to buy only energy-, water- and heat-efficient products (Priorbank, 2021).

The Development Bank of Belarus launched a program of ecological projects financing for small and medium businesses and individual entrepreneurs for preferential interest rates (DBRB, n.d.).

As part of the Belarus Sustainable Energy Finance Program (BelSEFF) framework, funding was provided by banks such as MTBank, BelVeb Bank, BPS-Sberbank, and Belgazprombank with EBRD support (Tarasevich. V., 2014). Agreement about energy-efficient projects financing between MTBank and Nordic Environment Finance Corporation can be highlighted as one more example of a green initiative (Aleinikov & Partners, n.d.). The last but not least example of green activities is the joint project of BNB-Bank and North Ecological Financial Corporation in which they offered loans to private individuals and legal entities for the purchase of hybrid and e-vehicles, as well as for building infrastructure for e-vehicles. (BNB-Bank, n.d.).

Some Belarusian banks implement standards of environmental management into practice. For example, the Sustainable Development Report of Raiffeisen Bank International mentions that the Raiffeisen Group plans by 2025 to reduce carbon dioxide emissions by 35% (Raiffeisen Bank International, 2019). They also present plans on water savings, reduction of paper document flow and energy consumption. Priorbank is involved in this process as part of the Raiffeisen Group. Similar goals can be found in the Sustainable Development Report of Bank BelVeb. The environmental priories of the bank are to reduce pollution, restore biodiversity, and increase the efficiency of water,  energy, and other resources consumption (BelVeb, 2019). In the Social Report of Belarusbank it is mentioned that the bank tries to consider negative environmental effects and ecological factors in their lending-decisions (Belarusbank, 2020).

Based on the information above, the conclusion is that Belarusian financial institutions gradually introduce principles of green banking. Most green projects in Belarus are implemented with the support of international financial organizations, parent institutions, or by request from foreign bank partners. Today, Belarusian banks carry out two types of green banking activities. First, they incorporate an environmental perspective in their everyday activities, not directly related to green finance: for example, by reducing water and electricity consumption and waste, switching to electronic document management, providing green incentives to their employees, etc.. Second, banks integrate an environmental perspective into their financial activities using green instruments, for instance by providing loans to the population and corporate sector based on  sustainable finance principles.

At the same time, Belarusian banks do not work with climate-related and environmental risks management. This is not surprising, as, normally, regulators would initiate and incentivize this process, but in Belarus, neither the National Bank nor any other regulator deals with environmental risk management rules for banks. Another challenge is that Belarusian banks do not take part in international green financing initiatives, such as the Equator Principals or the Climate Bond Initiative. Finally, the narrowness of the Belarusian financial market and absence of clear rules and definitions restrict green bond markets and green mortgage development.

Recommendations

Investment in green projects imposes positive externalities on society that are not necessarily internalized by the market. As reflected in the international practices discussed earlier, support from the government and financial authorities might be necessary both in monetary and regulatory terms. Even if developing countries like Belarus may not have a green transformation on top of their agenda, they will soon be faced with the necessity to adapt to the European Green Deal, at least with respect to their trade with the EU. Hence, they will also need policies that promote and support green finance development.

Based on international experience and national issues of green banking, the following recommendations can be highlighted (Luzgina A., 2021):

  1. The adoption of supportive regulation/rules of work with green instruments, including green, sustainable and/or sustainability-linked bonds, green mortgages, and green project financing. This regulation can include criteria for identifying green projects and construction, principles of green projects evaluation, rules of green bonds issuing, tax benefits, and/or preferential credit eligibilities. The ResponsAbility Investments Survey confirms the necessity to implement special rules on green lending development in emerging economies. According to the survey, 40% of respondents believe that an affordable regulatory environment is a key element of green loan market development (ResponsAbility Investments AG, 2017).
  2. The implementation of economic and social incentives for green banking activity popularization. Such incentives can include lower interest rates on green loans, providing tax exemptions for companies and people involved in green projects realization, subsidizing the process of green bonds verification, and holding study activities on green economy and finance. According to ResponsAbility Investments Survey, 60% of respondents agree that special green credit lines of public financial institutions have played an important role in green finance development. At the same time, governments subsidize the process of bonds verification issued by SMEs in Russia (at the stage of adoption), Singapore, and Japan (Vinogradov E. April 2, 2020).
  3. The creation of an additional section in the Belarusian currency and stock exchange for green corporate and state bonds circulation. Green or sustainable bonds have special characteristics in terms of issuing purposes and listing features that require highlighting them in a separate section.
  4. Guiding the development of climate-related and environmental risks management as well as green management rules implementation for all banks. Based on the international experience, this area of green banking requires incentives from the Government and Central Bank, as it is poorly studied and associated with additional costs for banks. Financial institutions are not sufficiently motivated to implement green risks management principles on their own.
  5. Extending the international collaboration in the field of green finance. This activity may include participating in not only international programs on green financing or foreign investments attraction but also international initiatives such as Principles for Responsible Banking, Climate bonds Initiative, Equator Principles, etc..
  6. The development of a green banking methodology and (or) strategy/ concept by responsible bodies. The introduction of green banking requires the development of new approaches, definitions, and rules that are within the competence of not only the Central Bank but also the Ministry of Economy (in terms of SMEs support), Ministry of Finance (in terms of funding), Ministry of Agriculture (in terms of the development of bioproducts standards), Ministry of Architecture and Construction (in terms of energy-efficient building definition and indicators), Ministry of Natural Resources and Environmental Protection, etc. An institutional body could coordinate this work by developing a methodology of green banking in discussion with the National Bank, ministries, and other interested parties (NGOs, banks). The association of Belarusian Banks can perform this function as it knows the specifics of banking legislation, can identify the existing obstacles of green banking and other challenges in the field, and is interested in developing the Belarusian banking system in line with current trends.

Conclusion

Green finance as a whole and green banking in particular will continue to develop. Monetary regulators are working on green rules and risk management implementation for banks. Financial institutions from different countries are participating in international green initiatives and developing sustainable strategies.

Green banking development is an international process which Belarus cannot ignore. Today, the majority of green activities at the national level are based on the initiative of banks. Contracts with international financial institutions and requirements of parent companies and investors motivate Belarusian banks to implement green instruments and approaches. Traditionally, the banking system works under restricted and highly regulated conditions. Therefore, it is necessary to introduce clear rules of green banking by the government as well as to increase the attractiveness of green financing, including economic and social incentives development.

Otherwise, the existing policy gap in green banking will widen and the opportunities for collaboration between Belarusian banks and foreign financial institutions will diminish. Finally, the absence of green regulation will deteriorate the quality of risk management in the Belarusian banking system compared to the world level.

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.

IMF’s New SDR Allocation—Why Belarus Is “Getting Money From the Fund”

Posted on September 9, 2021 | Policy Brief

20210909 IMF New SDR Allocation Image 01

Why is the IMF sending $1bn to Belarus as the country is falling deeper into repression and authoritarianism? The short answer is that Belarus, together with 189 other countries, is a member of the IMF and the institution has decided to make a $650bn allocation of SDRs to its members in proportion to their quotas in the IMF. Belarus has a quota of 0.14 and will thus receive an injection of around $1bn to its reserves. In other words, this is not a decision to support the Belarus government as such but a general decision by the IMF members to support a global recovery after the Covid-19 pandemic. That said, it still means that the leaders of Belarus are given an asset worth $1bn that can be used without conditions, but the underlying reason to support the recovery in low- and middle-income countries still makes this palatable.

Introduction

On August 2, 2021, the board of the IMF approved the largest-ever SDR allocation to its 190 member countries. Belarus is one of the members that, by this decision, will get a boost of reserve assets of almost $1 billion. This has raised the question in some circles of “why is the IMF giving money to Belarus”. This brief provides a short background on IMF SDR allocations; how this may be used by the autocratic regime of Belarus; and why the general SDR allocation still makes sense.

SDR Allocations

For most people, an IMF “SDR allocation” is just another mysterious acronym that means very little. Therefore, a short introduction to the concept is warranted. SDR is short for Special Drawing Rights and is the IMF’s own reserve asset and unit of account, with a value that was first linked to gold but is now based on a basket of other currencies (IMF 2021). More specifically, the value of the SDR is based on a basket that consists of the U.S. dollar, euro, yen, pound sterling, and Chinese renminbi (since 2016). Table 1 shows the amounts of each currency and the value of the SDR based on exchange rates for August 26, 2021. In short, on that date, 1 SDR was worth approximately 1.42 U.S. dollars. Since the cross-exchange rates in the basket vary over time, so does the value of the SDR (see Figure 1).

Table 1. The SDR basket

Source: IMF (https://www.imf.org/external/np/fin/data/rms_sdrv.aspx)

Figure 1. SDR valuation

Source: IMF’s IFS database

The next issue is how SDRs are allocated among the IMF members. This is determined by the IMF’s Articles of Agreement and is done to provide reserve assets to its member countries. A new SDR allocation requires an 85 percent majority in the board to pass, and SDRs are then allocated to members based on their quotas. IMF quotas, in turn, are basically the stake the different member countries have in the Fund and are roughly based on the size of the economy of the country relative to other members.  Since several countries joined the IMF after the general SDR allocations in 1981, a special allocation was done in 2009 to allow new member countries to join the SDR Department on more equal terms. There was also a large general allocation in 2009 during the global financial crisis and in 2021 in response to the COVID-19 pandemic (Figure 2). The latter one is by far the largest and given the exchange rate in Table 1, the SDR456.5 billion is equivalent to around $650 billion.

 Figure 2. SDR allocations

The final issue to address in this section is why the SDR allocations matter at all. The answer is that SDRs can be exchanged for other currencies that, in turn, can be used to buy goods and services in international markets, including vaccines, other medical equipment, services, or food. When countries use the SDRs in this way, there is a cost in terms of the interest rate countries pay on SDRs. However, this interest rate is very low compared to other types of borrowing, so it is a cheap way of getting more foreign currency to spend (see Figure 3). In other words, for countries lacking access to foreign exchange at reasonable costs, the SDR allocation is a very welcome addition to their spending power.

Figure 3. Interest rate on SDR

Source: IMF’s Finance Department

Belarus and the IMF

Belarus became a member of the IMF in July 1992, shortly after the dissolution of the Soviet Union. Its quota in the IMF is SDR 681.5 million (or a share of 0.14 percent of total).

Belarus has had two IMF programs so far, the first in the early 1990s and the second in the wake of the global financial crisis in 2009. In the latter program, the IMF board approved a $2.5 billion loan “in support of the country’s efforts to adjust to external shocks” on January 12, 2009 (IMF, 2009a). The loan was then increased to a total of $3.5 billion in June 2009 (IMF, 2009b).

Despite the need for reforms and external funding, Belarus could not reach an agreement with the IMF on continued funding and instead repaid the loans to the Fund between 2012 and 2015. At the heart of this was the fact that for a country to get financial support in a regular Fund program, conditions will apply and will not always be stated explicitly, including on how to deal with human rights issues that are outside the Fund’s mandate. Therefore, the previous money from the Fund to Belarus was fundamentally different from the general SDR allocation described here, which is money without strings attached.

As the Covid-19 pandemic hit economies across the globe, Belarus approached the Fund in March 2020 to seek financial assistance. According to various reports, Belarus could not reach an agreement with the IMF due to conditions on how the pandemic was to be handled (IMF, 2020).

The new SDR allocation is however NOT subject to any conditionality but distributed to IMF members in proportion to their quotas. For Belarus, this means a new SDR allocation of 0.14 percent of the total SDR 456.5 billion, equivalent to around $900 million. As explained above, the SDR allocation can be exchanged for dollars, euros, or other currencies that can then be used to buy whatever the regime in Belarus likes. It could be vaccines, food, and medical equipment, but it could also be guns, ammunition, or tear gas to the security forces. In other words, this is money that can be spent in any way the government decides and the only price for this is a very small interest charge (see Figure 3) that comes with not keeping the SDRs as a reserve asset.

Concluding Remarks

The IMF is a member institution with 190 countries that is governed by its Articles of Agreement. This dictates that a new general SDR allocation should be distributed to its members according to their quotas. New SDR allocations are rare but have been used before to handle global economic crises. The current SDR allocation is designed to help low- and middle-income countries to deal with the economic side of the Covid-19 by making more foreign exchange available at a low cost. Helping countries with limited reserves to deal with the crisis and ensure that they can secure imports of vital goods and services makes perfect sense. The fact that this general support in certain instances will go to regimes like the one in Belarus that we currently think do not warrant the support of the global community is unfortunate. In a perfect world, the IMF would be able to impose conditions on human rights and democracy for any type of financial support, but this is not the world we live in. Therefore, the conclusion is not to stop helping a global recovery but to do more to support the alternatives to autocratic regimes across the world with other instruments.

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.

Did the Government Help Belarusian SMEs to Survive in 2020?

Posted on June 14, 2021 | Policy Brief

Enterprises During Pandemic representing Belarus

Capitalizing on the dataset obtained from five waves of the Covideconomy Project business survey, we explore how pandemic-related shocks and state economic policy responses influenced the performance of Belarusian small and medium enterprises (SMEs) in 2020. We find that Belarusian SMEs were left on their own with the COVID-related economic challenges, and only a small portion of enterprises could benefit from state support measures. Only two sectors (Manufacturing and Construction) derived advantages from soft loans provided to state-owned enterprises. The implementation of new, pandemic-adjusted business models did not result in an increase of revenues of Belarusian SMEs, at least not in the short run.

Small and Medium Enterprises During the Pandemic

According to OECD estimates (2020), the small and medium-sized enterprise (SME) sector has been more affected by the COVID-19 pandemic compared to large enterprises. Besides being highly concentrated in the most affected sectors, the main reasons for SMEs experiencing stronger COVID-related shocks are a lower level of cash cushion and limited access to external funds (Goodhart et al., 2021). Next, the stock of supplies and materials, as well as the range of suppliers, are usually lower for SMEs (WTO, 2020). This makes any price changes or abruptions more detrimental for them in comparison to large companies. Lastly, the availability of digital technologies and skills needed to implement new business formats appeared as an additional constraint for the SME sector during the pandemic. Indeed, per the World Bank’s business surveys, the most frequently mentioned effects of COVID-19 on SMEs in Central and Eastern European countries were a drop in sales, liquidity problems, limited access to finance, and breakdowns in supply. In this context, only 35% of SMEs in the region were able to adapt quickly to new conditions by introducing new business models such as online sales, delivery services, and remote work. At the same time, many SMEs in the region laid off employees, reduced wages, or initiated furloughs as alternatives to closing the business altogether.

In this regard, the SME support measures became an extremely important task for national governments to conduce to faster economic recovery and job creation. As a result, a wide range of monetary and non-monetary measures was implemented in various countries to support SMEs.

Internationally, direct support was provided in the form of wage subsidies, cash grants and transfers, tax holidays, reductions, or deferrals that could prevent unemployment growth. In addition, liquidity problems of SMEs were addressed by introducing rental fee deferral or reduction, repayment holidays as well as providing micro and short-term loans.

In many countries, specific measures were aimed to support the digitalization of SMEs (e.g., in China, France, Latvia, Italy, Slovenia, South Korea) by offering subsidies, financial support, training, and consulting services, developing e-commerce sales channels to respond to pandemic-related challenges (OECD, 2020).

Figure 1 demonstrates shares of SMEs in Central and Eastern European countries that benefitted from state support measures and SMEs’ perceived importance of these measures. Wage subsidies (65.1%) and direct cash transfers and grants (47.1%) appeared as the most commonly used measures, while fiscal exemption and reductions were regarded as the most important and relevant ones.

Concurrently, at the macro level, some governments eased requirements on banks’ emergency funds and reduced base rates to provide more and cheaper financial resources as loans for the enterprise sector.

Figure 1: Scope and importance of SME support measures

Source: World Bank data on Belarus, Russia, Poland, Estonia, Latvia, Lithuania, Georgia, Moldova, Slovakia, Czech Republic, Bulgaria, Romania, Hungary.

In general, the scope and target groups of the support programs depended on financial resources at the disposal of governments, access to capital markets, macroeconomic conditions (public debt, exchange rates, unemployment rates), as well as the structure of the economy.

In this brief, we discuss how the macroeconomic environment and the Belarusian government’s policy reaction to the pandemic affected revenues of Belarusian SMEs in 2020.

The Belarusian Economy in 2020

The official statistics reported outstanding results of the Belarusian economy, despite it being expected to be hit harder than other countries in the region. The COVID-19 pandemic-related shocks were aggravated in Belarus by endemic ones: the early-2020 oil-supply dispute with Russia, the sociopolitical crisis that broke out after the presidential elections in August (Bornukova et al., 2021), and the concomitant sharp devaluation of the Belarusian ruble (22.59% to US dollar in 2020) in March and August. Against this backdrop, the 0.9% decrease in GDP, 4.6% increase in real disposable incomes, and stable unemployment rate (at 4.0%) together look like an economic miracle. Some of the rationales behind these figures include the absence of lockdowns and substantial mobility restrictions throughout the year, as well as easy access to bank loans for state-owned enterprises (SOEs) that faced an export shock. At the same time, ad-hoc sampled population and business surveys documented income reductions of Belarusians and a substantial decrease in business revenues in many sectors (Covideconomy project, 2021). Figure 2 displays the shares of SMEs in different sectors whose revenues dropped by more than 20% in the month before being surveyed.

Figure 2. Share of SMEs with loss of revenue >20%  

Source: Own elaboration based on five ways of business surveys

The Belarusian government was substantially restricted in terms of financial resources as well as fiscal and external loan opportunities to extensively support businesses suffering from the COVID-related economic crisis. According to experts’ estimations, Belarus lags behind other Eurasian Economic Union members (Russia, Armenia, Kazakhstan, Kyrgyzstan) in terms of the estimated share of GDP spent on crisis response measures – 1.5% (Russian Academy of Foreign Trade & Research Institute of VEB, 2020). While the most suffering sectors (trade, transportation, hotels, restaurants, tourism, education, leisure, sport, etc.) could benefit from the deferral of profit, real estate and land taxes, as well as rental fees till the end of 2020, obtaining any type of support appeared bureaucratically challenging and imposed exigent obligations for the future. Overall, the support was perceived as negligible and far below expectations both in terms of financial resources saved by businesses and coverage. Thus, in May-October 2020, about 50 thousand businesses (incl. sole proprietors) received cumulative support for a total amount of $26 Million or $536 per business (National Center of Legal Information of the Republic of Belarus, 2020). According to the Covideconomy project, in May-July, less than 5% of SMEs reported getting support from the state.

What Affected Belarusian SMEs?

Motivated by the specific reaction of the Belarusian government and its very limited support to SMEs, we explore what enterprise- and country-level factors affected SME revenues across industries during the pandemic. In pursuit of this objective, we use data obtained from five waves of the business survey conducted within the Covideconomy project (2020) on 359 SMEs amounting to 947 observations, and perform a regression analysis with a set of ordered logistic models. Particularly, we test whether the (i) self-isolation of population, (ii) currency devaluation, (iii) volume of loans provided to SOEs, and (iv) new business models implemented by Belarusian SMEs impacted their revenues.

These hypotheses are based on the following arguments:

  1. In the absence of restrictive measures and lockdowns, entrepreneurs and citizens made conscious decisions about self-isolation and remote work. To minimize personal contact, many people reduced the number of visits to public places as well as various group activities. Such responsible behavior could hurt business income, primarily in the areas of catering, hotels, entertainment, transport, and consumer services, in which SMEs are widely represented.
  2. The sharp devaluation of the Belarusian ruble is, and has traditionally been, a significant problem for Belarusian businesses. The rise in prices of imported goods and services, inflation, and the fall in household incomes in dollar terms harm domestic demand, leading to a drop in sales in many sectors. The exceptions could be export-oriented enterprises, which mostly use materials and supplies produced in Belarus, as well as enterprises that are suppliers and contractors of exporters.
  3. To minimize the impact of the pandemic-related shocks, the Belarusian government continued its habitual practice of providing soft loans for SOEs to maintain their production volumes and pay wages. Arguably, this could bolster demand for SMEs’ goods and services from the side of SOEs’ employees and prevent a deeper recession. In addition, SMEs that were suppliers and contractors of SOEs could also benefit from this policy measure.
  4. The pandemic significantly accelerated SMEs’ processes of finding and realizing opportunities to develop. This became key in the survival of many businesses. We thus expect that the implementation of new business models could have had a positive impact on revenues of SMEs.

In our models, we use the size of SMEs, location in the capital city, and whether a firm belongs to one of the most suffering sectors (HoReCa, Transportation, Leisure & Sport) as control variables. To capture the effect of factors across different sectors, we use interaction terms between the aforementioned factors and dummies indicating different sectors.

The results of the regression analysis (summarized in a stylized way in Table 1) demonstrate that the impact of the selected factors is not consistent across sectors and that none of the factors appear significant when considering the entire sample of SMEs.

Table 1. Impact on SMEs’ revenues

Source: Own estimates based on 947 observations from 359 SMEs.

Not surprisingly, self-isolation behavior negatively affects only the HoReCa and Leisure & Sports sectors. Currency devaluation does not significantly influence the revenues of SMEs. Only the ICT sector, which is export-oriented and does not depend on imported materials, easily adapted to remote work and increased demand for IT-related services and experienced a positive shock. The state policy that provided soft loans to SOEs helped SMEs in the manufacturing and construction sectors that are, supposedly, contractors and suppliers of SOEs. The implementation of new business models did not result in an increase in the revenues of Belarusian SMEs, at least not in the short run. A possible explanation for this finding could be that firms responded by adopting new business models only if they experienced a very steep fall in revenues.

As for the control variables, we find that larger enterprises better adapted to the crisis and their decrease in sales appear smaller. Interestingly, SMEs located in the capital city –  Minsk – suffered more from the crisis in 2020, likely, due to a higher concentration of SMEs in the most affected sectors and a quicker reaction of citizens to economic and political shocks.

Conclusion

Based on our analysis, we can deduce that Belarusian SMEs were left on their own with the COVID-related economic challenges. Only a small share of enterprises could benefit from the state support measures and only two sectors (Manufacturing and Construction) derived advantages from soft loans provided to SOEs.

At the same time, the absence of lockdowns and other restrictions – the laissez-faire approach (Bornukova et al., 2021) – propped up most of the sectors except those that suffered from voluntary self-isolation of customers (HoReCa, Leisure, Sport, Beauty).

The ongoing crisis substantially changes the economic landscape, management practices, and business models of SMEs. The most flexible, competitive, and proactive businesses have been capable of identifying and exploiting the emerged opportunities. From this point of view, Belarusian businesses and entrepreneurs have outstanding experience in surviving and developing during recurrent crises (Marozau et al., 2020). This must be an important pre-condition for the future economic recovery of Belarus.

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.

Laissez-faire Covid-19: Economic Consequences in Belarus

Posted on March 15, 2021 | Policy Brief

20210301 Addressing the COVID-19 Pandemic FREE Network Policy Brief Image 04

Despite its traditional paternalistic role, the Belarusian government chose minimal reaction to the Covid-19 pandemic. No meaningful economic or social measures were taken in response to the pandemic. We explore a unique dataset to document how major Covid-related shocks affected the earnings of Belarusians in 2020. We utilize the differential timing and sectoral effects of the shocks to identify the impact of Covid-19 on individual socioeconomic outcomes. Not surprisingly, we find that Covid-related shocks increase the probability of an income reduction. This effect is most pronounced for those employed in the private sector. In the absence of a social security net, vulnerable groups had to cope with the economic consequences of the pandemic on their own.

Introduction

Belarus had its first official case of Covid-19 registered on February 27 and its first death on March 31. At first, the increase in newly registered cases was slower than in most other countries, but at the beginning of April Belarus started to catch up. The peak of the first wave was recorded on May 18 with 943 new daily cases. According to the official statistics, the second wave started in September 2020 and was much more severe than the first one, reaching 1,890 new daily cases by the end of December.

Belarusian authorities did not undertake any substantial interventions, such as lockdowns, to fight the spread of the pandemic.  Nevertheless, there were several other key mechanisms through which Covid-19 affected the Belarusian economy. The population’s reaction to the risks of contamination led to a substantial fall in mobility that resulted in decreased sales in retail and services requiring physical interaction. For example, sales in the restaurant industry decreased by 20% in 2020. Lockdowns in major international trade partners such as Russia have led to a decrease in demand for Belarusian exports of goods and transportation services. In the face of these economic challenges, the government focused its attention on supporting full employment and production in state-owned enterprises while ignoring the rest of the economy.

In this brief, we present evidence of the economic effects of Covid-19 in Belarus. We employ a unique dataset on socioeconomic outcomes collected by BEROC to study how individuals are affected by Covid-related shocks in mobility and exports. In order to isolate the effects of these shocks on the well-being of Belarusians, we exploit their timing and sectoral differences.

Measuring Covid-related Shocks

Figure 1 depicts changes in the Yandex self-isolation index which measures the use of Yandex services, including Yandex traffic monitoring and customer mobility compared to the average pre-pandemic day (Yandex DataLens, 2021). Individual everyday mobility started to decline in mid-March, and as the first wave of the pandemic gained momentum, mobility reached its lowest point at the end of April. It started to decline again in November-December 2020 following the second wave.

Figure 1. Yandex self-isolation index in Belarus, 2020

Source: Yandex. The average value during 24 Feb-8 March 2020 set to 100. Seven-day rolling average.

Belarus is a small and open economy with Russia as its main trading partner. The lockdown in Russia that lasted from the end of March until mid-May along with the spring lockdowns in Europe caused a major contraction in external demand for Belarusian goods. Figure 2 shows total physical exports and non-energy physical exports in 2020. The largest difference between total and non-energy exports can be observed in January, February, and March during which Russia and Belarus had an oil-supply dispute. To focus on the effects of the pandemic we use non-energy physical exports to approximate Covid-related exogenous shocks to the economy.

Figure 2. Physical export indices, Belarus

Source: Belstat. December 2019=100.

Income Dynamics

To measure the impact of Covid-19 on Belarusian society, BEROC, in cooperation with the marketing and opinion research company SATIO, conducted a series of online surveys representative of the urban population of Belarus (Covidonomics, 2021). The five waves of the 2020 survey were carried out on April 17-22, May 8-11, June 8-15, September 11-16, and November 25-30.

Respondents were asked about recent changes to their income, and also to specify the reasons for income reduction (if this was the case), including depreciation of the ruble, salary cut, furlough, etc.  Figure 3 depicts the percentage of individuals who reported an income reduction in the previous month for reasons other than currency depreciation by sector of employment. The income reductions peaked in April-June, with the situation relatively stabilizing by September.

Figure 3. Income dynamics by sector

Percentage of respondents reporting income reductions in the previous month for reasons other than currency depreciation, Source: BEROC/SATIO data

The fact that the share of respondents reporting termination peaked at 2.9% in May indicates that firms did not use employment reduction to adapt to the pandemic environment. A big share of respondents employed in the service sector reported domestic demand contraction (fewer orders/clients) as a key factor for their income reduction. The industries that took the hardest hit were hospitality-retail and transportation. In early spring, manufacturing appeared to be one of the most affected industries. However, as exports started to recover in June, the share of manufacturing workers that reported an income reduction decreased significantly, becoming one of the lowest across industries.

Identifying the Effects of Covid-19 Shocks

In this section, we estimate the probability of facing a reduction in individual income as well as the likelihood of being furloughed due to the Covid-19 pandemic.

In 2020, the Belarusian economy suffered due to the oil-supply dispute with Russia, the Covid-19 pandemic, and the national political crisis. To isolate the effects of Covid-19 from those driven by the oil dispute and the political crisis, we add interactions between Covid-related shocks and dummies indicating industries affected by those shocks. This implies three interactions with different binary indicators: exports and manufacturing, exports and transportation, and mobility and hospitality/retail.

To estimate these effects, we use a fixed-effects probit regression controlling for sector of employment, education, age, and gender.

Table 1. Probability of income reduction and furlough

Source: Own estimates from BEROC/Satio data. Controls include age, sector of employment, and education level.

Table 1 shows that individuals employed in the hospitality and retail industry face higher risks of an income reduction due to decreased mobility caused by self-isolation behavior. A 10-percentage-point increase in the self-isolation index is associated with a 1.3 percentage point increase in the probability of income reduction for those employed in the retail and hospitality industry. The interaction term between exports and the manufacturing dummy also appears to be statistically significant for various specifications. A 10-percentage-point decline in physical volumes of exports is associated with a 8.6 percentage point increase in the probability of income reduction for manufacturing workers.

Notably, the private sector employment coefficient shows strong statistical significance which highlights the choice of the authorities to support SOEs, with little to no support for the private sector. Being employed in the private sector increases the probability of facing an income reduction by 7.9 percentage points.

The Gender Dimension

Despite concerns that women experience larger economic losses due to consequences of the pandemic (Dang and Nguyen, 2021; Alon et al., 2020b), we do not find a statistically significant effect of gender in our sample.  In particular, our results offer no evidence of women being more likely to experience an income reduction during the pandemic, similar to findings in Germany (Adams-Prassl et al. 2020c).

While job losses were uncommon during the Covid-19 crisis in Belarus, being furloughed was one of the most common reasons for an income reduction (11.3% of respondents reported being furloughed in May). We also investigate the separate channels through which individuals lose income due to the Covid-related shocks. Notably, the only channel of income reduction that is more prevalent among women than men is through furlough. This finding is consistent with Adams-Prasslet al. (2020a) who argue that this discrepancy can be explained by gender differences in childcare responsibilities.

Conclusion

Belarus is close to unique in having almost no government response to the Covid-19 pandemic. Despite the absence of lockdowns and other restrictions, the Belarusian economy has experienced several Covid-associated shocks. Due to the economy’s openness to trade, it was seriously affected by export contractions. Belarusians have voluntarily reduced their mobility to minimize health risks which has affected the hospitality and retail industry.

We utilize the differential timing and sectoral impact of Covid-related shocks to estimate the pandemic’s effect on the socioeconomic outcomes of individuals. By using a unique dataset, we find evidence that the pandemic increased the likelihood of income reductions for Belarusians, mainly due to the effects of decreased mobility and fall in exports. We also find that those employed in the private sector were more likely to suffer from negative shocks, reflecting the policy choice of the Belarusian government to only provide economic support to the state sector. Finally, we show that, while women are as likely as men to see their income reduced, they are significantly more likely to be furloughed.

Many Belarusians saw their well-being deteriorating as a result of the Covid-19 pandemic. In the absence of unemployment benefits and other social protection mechanisms (Umapathi, 2020), those economically affected had to bear the cost of the shocks on their own.

References

  • Adams-Prassl, A., Boneva, T., Golin, M., and Rauh, C. (2020a). Furloughing. Fiscal Studies, 41(3):591–622.
  • Adams-Prassl, A., Boneva, T., Golin, M., and Rauh, C. (2020b).  Inequality in the impact of the coronavirus shock:  Evidence from real time surveys. Journal of Public Economics, 189:104245.
  • Covidonomics project (2020). BEROC and Satio. http://covideconomy.by/
  • Dang, H.-A. H. and Nguyen, C. V. (2021). Gender inequality during the Covid-19 pandemic: Income, expenditure, savings, and job loss. World Development, 140:105296.
  • Umapathi, N. (2020). Social protection system in Belarus:  perspective. Bankovskiy Vestnik, (3):75–80.  (in Russian).
  • Yandex (2021) Yandex DataLens, https://datalens.yandex.ru/

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.

Circular Economy in Belarus: What Hinders the Transformation?

Posted on December 14, 2020 | Policy Brief

20201214 Circular Economy in Belarus FREE Network Policy Brief Image 02

The transition towards a circular economy has accelerated in response to increasing environmental challenges and the need for more sustainable and cleaner production. Many countries are mainstreaming a circular economy into their policy agenda. In particular, the European Commission’s new Circular Economy Action Plan, adopted in March 2020, will be a key element of the EU Industrial strategy. In Belarus, similar policy agendas that promote circular economy have not been developed yet, however, this concept is now attracting increasingly more attention. Therefore, it is essential to identify barriers that hamper the implementation of circular economy business practices in the country. This policy brief presents the results of a survey that studied 452 Belarusian companies and their prospects and opportunities of circular transformation both within enterprises and at the national level. The findings show that high levels of capital and technology spending and lack of state-provided economic incentives are the most pressing barriers to circular economy development in Belarus. When it comes to enterprises’ own prospects for circular transformation, lack of funding is ranked as the main impediment.

Barriers to Circular Economy Development in Belarus

Despite the fact that there has been an increased interest in the circular economy, evidence suggests that its implementation has been hampered by a variety of barriers. Based on academic literature and business case studies, these barriers can be categorized into several groups (Rizos, et al., 2015; Rizos, et al., 2016; Kirchherr et al., 2018; Ritzén and Sandström, 2017):

  • Cultural barriers (e.g. social, behavioral, and managerial) – a lack of interest, environmental awareness, and/or existing differences in personal values, which hinder the development of a circular economy.
  • Information constraints – a lack of consumer and producer awareness about the key principles and best practices of circular economy implementation;
  • Inadequate regulatory environment – a lack of consistent legal framework, policy support, and incentives for circular economy transition (e.g., through tax relief, fiscal measures, or public procurement);
  • Technological barriers – an absence of a well-managed logistic infrastructure for the collection, extraction, and processing of secondary raw materials (SRM); the lack of standardization and, as a result, lower quality of goods produced from SRM; the absence of knowledge on how circularity can be implemented in a particular industry;
  • Economic impediments – barriers to circular economy transition that are due to low prices for primary raw materials and high investment costs for the implementation of circular business models, as well as lack of funding and restricted access to finance.

This categorization served as the basis for the development of our questionnaire. We surveyed enterprises on the prospects and opportunities relating to their own circular transformation as well as factors constraining the more general development of a circular economy in Belarus. The survey was conducted in 2020 by BEROC and IBB Dortmund and included 452 companies from the Belarusian regions of Brest and Mogilev. The results show that businesses view economic, regulatory, and informational barriers as the most hindering to a circular transformation of Belarus. In particular, the respondents stated that the main impediments are high levels of capital and technology spending (62.8% of respondents), as well as lack of state-provided economic incentives (50.4%). Information constraints are also important as enterprises are not aware of circular technologies and believe that they do not exist (50.4%). Furthermore, there is a lack of knowledge on how to implement circularity in their industry (33.8%) (see Figure 1).

Figure 1. Barriers to circular economy development in Belarus, % of respondents

Source: Figure compiled by the authors based on the survey results.

Respondents also identified barriers that hamper a shift of their own enterprise – rather than that of the entire Belarusian economy – from a linear to a circular business model. According to the survey, the lack of funding is considered as the main barrier to circular transformation among Belarusian companies, as 83.5% of respondents characterized its impact as high or medium. This impediment is followed by the absence of circular technologies that can be applied at the surveyed enterprise (64.9%) and the lack of information and best practice examples with regard to the implementation of circular business models (62.4%). Half of the respondents also indicated that the shift from a linear economy is hampered by the lack of consulting on how to implement circularity (see Figure 2).

Figure 2. Barriers to the circular transformation of the Belarusian enterprises, % respondents

Source: Figure compiled by the authors on the basis of the survey results.

Enterprises identified specific technical challenges associated with possible supply chain constraints. In particular, 40% of respondents raised concerns about the absence of an online database on waste and secondary raw materials, and 39.3% of them worried about possible interruptions in the supply of secondary raw materials.

Stimulus for Circular Transformation in Belarus

Respondents also expressed their views on potential stimulus measures that could be implemented to encourage a transition towards a circular economy in Belarus. Tailored support programs (83.9%), tax incentives (78.5%), and development of infrastructure for the processing of secondary raw materials (76.4%) were identified as the strongest motivators for enterprises’ decision to opt for a circular business model. Other important measures listed by the respondents were revisions of the legislative framework to prioritize the use of secondary raw materials, prevent waste generation, etc. (67.4%) as well as access to consulting on how to implement circularity in a business (62.8%) (Figure 3).

Figure 3. Stimulus for the circular economy development in Belarus, % of respondents

Source: Figure compiled by the authors on the basis of the survey results.

Surveyed enterprises stated that they had already incorporated some circular economy elements in their business model. More than 35% of respondents have used recycled materials in the production process, 19% have recycled products in the production of new materials or products, and around 19% have reused products or embedded raw materials. Moreover, more than 35% of enterprises would be ready to introduce reusage and recycling in their business within the next three years. However, they emphasized that existing regulations should be revised, and economic incentives provided in order to encourage these efforts.

Conclusion

The results confirm that Belarus has potential for circular economy development. Yet, its implementation might be hampered by economic, regulatory, informational, and technological barriers. In particular, the surveyed enterprises stated that high upfront costs, e.g., for technology and equipment, as well as the lack of state economic incentives, are the most pressing impediments to the circular transformation of Belarus. At the company level, lack of funding is seen as the main obstacle in shifting from a linear to a circular business model. Another important barrier is lack of information, as enterprises are not aware of circular technologies and best practice examples.

The results of our survey suggest that, in order to encourage a transition towards a circular economy in Belarus, a tailored support program should be developed, existing regulations revised, and economic incentives provided. The transition will not be possible without mainstreaming a circular economy into Belarus’ policy agenda.

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.

Belarus Economic Outlook

Posted on October 19, 2020 | Policy Brief

20201019 Belarus Economic Outlook. FREE Network Policy Brief Image of dark streets in Minsk representing Belarusian economic outlook

The Belarus economy was already struggling to generate growth before both the corona pandemic and the political protests following the August presidential election. The lack of growth was the result of an incomplete transition process to modernize the economy combined with a strong reliance on the Russian economy and its dependence on international commodity prices that have not paid off in recent years. With the added political turmoil and, so far, lack of a new political and economic strategy, the economic outlook for Belarus looks grim. Even if a full-blown crisis may be avoided by restrictive economic policies, stagnation will nevertheless be the most likely outcome without fundamental reforms.

Introduction

The Belarus economy was for many years doing very well under president Lukashenko, but since the global financial crisis in 2008/09, this course has been reversed. The downward growth trend has been exacerbated by both slumps in international oil prices (particularly important because of linkages with Russia, see Becker 2016a, 2016b, 2018, 2020), and the COVID-19 pandemic. This is clearly illustrated in Figure 1, which shows how the average growth rate has fallen all the way to a negative one percent in the years since 2015, while the period before the global financial crisis generated an average growth of 8 percent.

The lack of growth in Belarus and its causes has been analyzed in several papers long before the current developments. Akulava (2015) discusses how the government already five years ago understood that it needs to stimulate the private sector to generate growth; Kruk and Bornukova (2016) in turn describe how growth in the boom years was driven by capital accumulation but not improvements in productivity (TFP) that could have sustained growth in more recent years. As for policies to generate growth, Kruk (2014) argues that Belarus should focus on institutional changes that create the right incentives for firms and lead to a more efficient resource allocation rather than simply spend money on new equipment for existing firms. The need for productivity-enhancing reforms is further stressed in Kruk (2019) who points out that there is limited space to stimulate growth by expansionary macroeconomic policies.

Although the political situation after the election is strongly linked to the lack of democracy and freedom, the citizens’ willingness to protest is most likely enforced by the very poor economic performance of recent years. And while the importance of economic developments is sometimes glossed over in the current reporting and narrative of Belarus it will be an important factor in the popularity of any future government in Belarus as well as the current one.

Figure 1. Real GDP growth

Source: IMF World Economic Outlook April 2020.

 Note: The chart is based on the April 2020 version of the IMF’s World Economic Outlook and in the just-released October edition, the 2020 forecast is less negative due to global economic developments. However, this does not change the general downward growth trend Belarus has experienced.

Background

On the structural side, the economy of Belarus is heavily connected to Russian economic developments, which in turn depends on international oil prices (Becker 2016a, 2016b). In the group of FSU countries, Belarus stands out as the country that has the largest share of its exports going to Russia and the largest share of its FDI coming from Russia. On top of that, Belarus enjoys subsidized prices on oil and gas from Russia that benefits not only its exporting refineries but also other energy-intensive industries that are important for generating export revenues.

Figure 2. Exports and FDI shares with Russia and Rest of the World

Source: IMF directions of trade, World Bank development indicators and Central Bank of Russia data on FDI

As a final background note, the importance of SOEs in terms of employment has gone down in recent years but SOEs are still an important provider of jobs in Belarus and another sign of an unfinished transition agenda.

Figure 3. Importance of SOEs

Source: Belstat

To improve growth prospects, this is clearly a sector in need of reforms, including some privatizations, to make it more competitive and less of a drain on government finances. However, this process will need to deal with sensitive employment issue regardless of who is in charge politically.

Furthermore, Marozau, Aginskaya, and Akulava (2020) discuss how the corona pandemic may threaten the jobs of the over 1 million people that are employed by SMEs. The financial constraints of the government make it hard to offer widespread support to SMEs, and the authors argue that the government should target future winners among SMEs rather than the big losers in the crisis.

The challenge of increased unemployment is further exacerbated by the lack of an unemployment benefit system with extensive coverage (Bornukova, 2017). The lack of a well-targeted social security system could lead to a new increase in poverty rates. Mazol (2019) shows how past crises had a negative impact on poverty with absolute poverty increasing almost twofold in 2015/2016.

Recent Developments

The economy in Belarus was facing challenges (like much of the world) this year due to the COVID-19 pandemic well before the political crisis following the August election triggered additional problems. The IMF growth forecast for the year was well into negative numbers and given the (not always stable) links to Russia and thus to oil prices, the longer-term outlook was cloudy as well. Although the IMF’s October forecast shows less negative growth for 2020 (from minus 6 to minus 3 percent as the world is expected to see less of a contraction due to the COVID-19 pandemic), the longer-term outlook is one of stagnation with annual growth of around 1 percent.

For 2020, the economic and political difficulties can be seen in exchange rate developments as well as in the evolution of foreign exchange reserves (Figures 4 and 5).  In some ways, the 25-30 percent depreciation of the currency viz the dollar and euro is not the full story on the currency, since the exchange rate viz the Russian ruble has been much more stable. Given the close links to the Russian economy, this is quite important to note. Indeed, foreign currency reserves (the more liquid part of international reserves) have gone down by some 40% this year but are still at around 3 billion USD.

Additional pressure on the financial system in the past months came from significant withdrawals and people moving their savings to hard currencies after the August election. Krug and Lvovskiy (2020) discuss how this development is driven by political turmoil and also how the lack of trust that is currently generated in the system will lead to further stagnation of the economy. This line of reasoning is supported by Mazol (2018), who shows how financial stress in the past has contributed to costly economic contractions.

Figure 4. Exchange rate indices

(Jan 2020=100)

Source: National Bank of Belarus

 

Figure 5. Foreign exchange reserves

Source: National Bank of Belarus

Outlook and Policy Conclusions

The current economic policy will not generate growth in the short or long term by itself and the current political situation is clearly affecting growth negatively. The current political leadership could of course once again turn to Russia to ask for economic assistance in various forms, including loans, subsidies, or investments. Given the situation in Belarus, this will clearly come at a high political cost that will not necessarily be immediately transparent to people in Belarus or the outside world. Further, a sufficient level of assistance is not bulletproof either – Russia is itself facing difficult economic times ahead, both because of the COVID-19 pandemic and its impact on oil prices but also because of its own inability to generate sustainable growth that is not based on oil, gas and minerals (Becker, 2018, 2020).

How long the political and economic repression can go on without triggering a full-blown meltdown of the financial system in Belarus is anyone’s guess. Unfortunately, a policy mix of more restrictions on financial and exchange transactions in combination with accepting stagnation has been shown to be a model that has “worked” from Cuba, to Iran, Venezuela and North Korea for very long periods of time, so there are no given deadlines for such regimes.

Regardless of short-term policy changes, Russia will remain an important economic player in Belarus for a long time unless something dramatic changes. If there is a transition of political power in Belarus, any new political leadership will have to make careful choices with regard to its relationship with Russia. Quickly cutting ties to its big eastern neighbor could turn out to be very costly for Belarus from an economic perspective given the structure of trade, subsidies, and investments between the two countries.

If the EU (or the West more generally) wants to provide Belarus with a realistic economic alternative to Russia in the short run, it will need to provide substantial funding and strongly support a wide-ranging economic reform program that will need to address transition issues that most of its neighbors did many years ago. This will involve not only selling state assets to foreign investors but also changing the economic system from the ground up, including institutions and management practices. Another important part of the needed change is modern Western education. The importance of higher education institutions (HEI) to generate growth in Belarus is stressed by Marozau (2019), who discusses the role of HEIs in improving productivity and how the universities in Belarus fail to stimulate innovation and entrepreneurship.

The support package may not be cheap for the EU financially but helping the people in Belarus to finally make the transition to a modern, democratic market economy on the doorstep of the EU would certainly be worth it. The question is if the EU will manage to unite around such a policy in a time of COVID-19 lockdowns and economic hardship within its current boundaries. Patience may be required among those that fight for their freedom and a new economic model in Belarus.

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.

Does Political Illegitimacy in Belarus Imply New Economic Risks?

Posted on October 5, 2020 | Policy Brief

Large group of peaceful demonstration in Belarus that represents Belarus and people who seek to avoid economic risks

Today’s political crisis in Belarus has given rise to the phenomenon classified in political science as political illegitimacy. However, this is not a pure political phenomenon. It causes adverse and severe economic adjustments. In a short-term perspective, it gives rise to numerous risks of financial destabilization. Moreover, it is likely to deepen the current recession and make it protracted. In the long-term, political illegitimacy causes adverse institutional adjustments and erosion of human capital, which is likely to lead a country into a long-lasting depression. We argue that resolving the political crisis in a way that revives trust and legitimacy is the only ‘good’ solution.

Short-term Economic Effects of Political Illegitimacy

Since August 9, 2020, Belarus has been widely discussed worldwide in mass media because of the country’s political crisis. Political scientists classify the current situation in Belarus as a case of political illegitimacy, i.e. there is no consensus in the Belarusian society concerning the recognition and acceptance of a new term for the governing regime.

In turn, the governing regime prefers to ignore the illegitimacy issue. There is an implicit assumption behind this:  illegitimacy is an intangible issue that can hardly result in any tangible threat to the sustainability of the governing regime.

We oppose this view and argue that, at least in an economic dimension, there are numerous channels through which illegitimacy transforms into tangible problems. Inasmuch as the stance of the economy affects political sustainability, it will undermine the latter.

From a short-term perspective, the issue of political illegitimacy has become part of the information accounted for in the decision-making of economic agents in Belarus. Hence, in their economic decisions they either try to struggle against it, or at least to hedge against corresponding adverse effects.

Most evident, the adjustments in decision-making has already visualized in households’ savings behavior. Directly, illegitimacy considerations gave rise to deposit withdrawals from the banking system and enlarged demand for hard currency. Consequently, this led to a rise in depreciation-/inflation-expectations and lowered public trust in the banking system, which in turn has amplified these patterns of the households’ behavior.  In August, Belarus experienced historical peaks in deposit outflows and international reserves were depleted as a result. This has substantially amplified the risks of financial turmoil.

So far, the authorities have curbed the financial stress by implementing a restrictive monetary policy. However, this does not suppress adverse patterns in households’ behavior. It only somewhat allows for a shift of adverse adjustments from financial markets towards the real economy. Moreover, it weakens but does not completely remove the threat of full-fledged financial turmoil, taking into account the systemic financial fragility in Belarus.

In addition to the illegitimacy issue itself, other adverse expectations are likely to give rise to unfavourable trends in households’ consumption behaviour as well. First, household consumption is likely to be dampened as a result of poor consumer confidence and sentiment. Second, additional losses in consumption are likely to occur due to tightening access to credit and progressing financial fragility.

Similar mechanisms are likely to be in place with respect to investment demand. First, poor confidence and sentiment undermine the investment activity of businesses. In Belarus, this channel is likely to be more powerful for private businesses, as investment plans of SOEs (due to their directive nature) are less sensitive to confidence and expectations. Second, investment activity is likely to decline due to deteriorating financial conditions and consequent contraction of credit. This linkage is especially important for the SOEs and housing investments.

The power of adverse consumption and demand trends is still questionable. However, preliminary estimates (introducing negative shocks in addition to scenarios in Kruk, 2020) show that they will reduce the output growth rate by at least 1.5-2.0 percentage points in 2020 Q3-Q4. In other words, they are expected to deepen the current recession and are likely to make it more long-lasting.

Deteriorating payment discipline is one more expected outcome from political illegitimacy. Being amplified by deteriorating financial conditions and economic activity, it can turn into a full-fledged payment crisis and fiscal instability.

Adverse Institutional Adjustments and Effects on Labor Market

Human-to-human interactions based on mutual benefit and trust are the core of a modern market-based economy. Key institutions created to support this interpersonal trust are laws and law-enforcement agencies. If a person does not trust her counterpart in a deal and does not think that she can take him to court to defend her rights, no deal will be signed. When an individual observes unrightful and politically-motivated court decisions in criminal cases, the distrust is also passed on to her beliefs that she would be able to defend her economic rights in the same court. As we observe police violence, tortures, and criminal charges of protesters with no attempt to prosecute those responsible, public trust in the law-enforcement system fades away, and thus all kinds of deals previously supported by a contract-enforcement system cease to exist.

The quality of a judicial system is widely recognized as a powerful determinant to overall institutional quality and the business environment. Hence, poor trust in it would likely undermine business activity directly. Existing businesses are to re-orient towards shorter-term strategies, being reluctant to initiating long-term and risky projects. Moreover, their inclination to geographical diversification of their business activity or even full migration is likely to rise. New entrants – that are extremely important to achieve productivity gains (Foster, Haltiwanger, and Syversen, 2008) – are less likely to start business in the country.

An increase in emigration is a usual consequence of political crisis, especially if it is accompanied by violence and politically-motivated incarcerations. What is unique about the current Belarus crises is that the list of potential emigrees include not only individuals but also firms, especially those working in the IT sector. After 11 August 2020, many IT companies found their employees detained, beaten and tortured. The offices of Yandex, Google and PandaDoc were searched and four top managers working at the latter were detained on tax evasion charges which are likely to be politically-inspired. As of the 18th of September, around 200 IT companies are considering relocation from Belarus and many more are considering partial relocation of their employees to already established foreign offices (Dev.by(2020a)). Results from a recent survey show that 33% of IT specialists have already decided to leave Belarus and the rest indicated that they will leave if the situation worsens (Dev.by(2020b)).

There are several major reasons for why the IT-sector is affected more by the current crises compared to traditional sectors of the Belarusian economy. Firstly, IT companies rarely own physical capital and thus can change their location in a matter of days by simply relocating their employees and laptops. Secondly, the IT labor market is global and mobile, and companies compete for the workers. Therefore, if many workers hold similar strong views on a particular situation, employers are bound to support them to a certain extent. As a result of the latter, many IT companies have openly voiced their disagreement with the election results and the politically motivated violence following the election. High-level employees and owners of major companies have participated in various opposition initiatives and as a result, now face retribution from Lukashenko’s government.

In addition to politically-motivated emigration, we can expect an increase in economically-driven emigration rates as the economy is expected to shrink (Bornukova and Lvovskiy, 2020).

What Is the Way Forward?

The political crisis in Belarus has triggered multidimensional adverse economic adjustments. Nevertheless, the authorities prefer to ignore the links between politics and economics. Hence, they try to overcome the problems with economic policy tools only. However, the room to maneuver with these tools is considerably restricted, and in some cases completely ineffective in suppressing adverse trends.

With respect to the short-term agenda, the authorities cannot offset the adverse trends. They can just mitigate challenges in one dimension and try to re-direct it to another one. For instance, currently the authorities focus on mitigating the probability of a full-fledged financial crisis. This consideration requires restricting monetary conditions. Otherwise, the exchange rate is likely to depreciate, which would be problematic from a corporate debt sustainability perspective. Although being somewhat effective in this regard, this policy mix dampens economic activity. From a financial dimension, the challenge is being re-directed to the real economy.

A similar picture might soon emerge in a fiscal sphere as well. An economic downturn and political crisis can result in a widening income gap. At the same time, the room for maneuver on the expenditure side is constrained. The funds accumulated from the previous periods have to a large extent already been spent to support SOEs. Hence, a further expansion of expenditures is hardly possible, as it would undermine fiscal and public debt sustainability. Therefore, fiscal stimulus is likely to fade away and can gradually even become negative.

Based on estimations in Kruk (2020), before the issue of illegitimacy appeared, the economy was developing according to a scenario of about a 3% drop in GDP in 2020 and a meagre recovery (if any) in 2021. Adding the assumptions associated with adverse adjustments due to the illegitimacy issue into the Kruk (2020) estimates, we show that the recession is likely to deepen by at least 1 percentage point in 2020. In 2021, output losses are likely to expand considerably. In regard to the long-term agenda, the situation is even worse. Conceptual decisions on economic activity by firms and households are closely linked with the issues of trust and legitimacy (Bornukova et al., 2020). Having lost them, the authorities are unlikely to have any effective tools for standing against adverse institutional adjustments and the erosion of human capital. Hence, we may expect that today’s poor growth potential of the Belarusian economy – up to 2.5% of per annum growth (Kruk, 2020) – is likely to weaken further and could even become negative. This means that the stagnation over the recent decade is likely to turn into a long-term depression.

Conclusions

The political crisis and the arising issue of political illegitimacy in Belarus impose severe economic challenges for the country. In a short-term perspective, there are numerous channels that are likely to deepen the recession and make it long-lasting. Moreover, risks to financial stability are progressing rapidly. Hence, there is little room for securing macro stabilization in the near future.

In a long-term perspective, the country is likely to suffer from the disruption of productivity enhancers. It will stem from lower business initiatives and the erosion of human capital. This is a way to a long-term depression.

Standard economic tools are mainly ineffective against both the short-term and long-term challenges. Resolving the political crisis in a way that revives trust and legitimacy is the only ‘good’ solution.

References

  • Bornukova, K. and Lvovskiy, L. (2020). Demography as a Challenge for Economic Growth, Bankauski Vesnik, 680 (3), PP. 31-35.
  • Bornukova, K. Godes, N., and Shcherba, E. (2020). Confidence in the Economy: What is It, How it Works and Why We Need it?, Bankauski Vesnik, 680 (3), PP. 95-99.
  • Foster, L., Haltiwanger, J., and Syversen, Ch. (2008). Reallocation, Firm Turnover, and Efficiency: Selection on Productivity of Profitability? American Economic Review, 98(1), PP. 394-425.
  • Kruk, D. (2020). Short-term Perspective for the Belarusian Economy, BEROC Policy Paper No. 92.
  • Dev.by. (2020a). https://dev.by/news/pochti200-relocate
  • Dev.by. (2020b). https://dev.by/news/opros-relocate-september2020.

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 Gender Wage Gap in Belarus: State vs. Private Sector

Posted on September 30, 2019 | Policy Brief

20190830 The Gender Wage Gap in Belarus FREE Network Policy Brief Image 02

This brief is based on research that studies gender difference in wages in Belarus using survey data from 2017. According to the results, the unconditional gender wage differential equals 22.6%. The size of the wage gap is higher in the state sector than in the private sector. Additionally, it increases in the state sector throughout the wage distribution and accelerates at the top percentiles, indicating the presence of a strong glass ceiling effect.

Introduction

The causes and consequences of the gender wage gap in the labor market, that is the difference between the wages earned by women and men, continue to attract increasing attention in empirical studies worldwide.

Belarus’ labor market is not an exception and faces the problem of wage inequality like other neighboring and transition countries. According to the National Statistical Committee of the Republic of Belarus (Belstat), the average gender wage gap in terms of monthly wages was 19% in 2000, it increased up to 23.8% in 2015, and reached 25.4% in 2017.

In this regard, this brief updates the estimates of the gender wage gap in Belarus. And it summarizes the results of the study on what the role of the state and private sectors are in the distribution of gender wage differences in Belarus (Akulava and Mazol, 2018).

Data and methodology

The data used in the research is from the Generations and Gender Survey (GGS) conducted in Belarus in 2017. This survey is a nationally representative dataset that is based on interviews of about 10,000 permanent residents of Belarus, aged 18–79, covering the whole country disaggregated by regions. The GGS contains information on a range of individual (age, gender, marital status, educational attainment, employment status, hours worked, wages earned etc.) and household-level characteristics (household size and composition, land holding, location, asset ownership etc.).

The analysis is based on the typical Mincer model of earnings that estimates individual wage income as a function of various influencing factors using the OLS approach (Mincer, 1974). Specifically, the Mincerian wage equation is defined where the log of the hourly wage rate is regressed on a set of male and female workers’ personal and job characteristics (educational level, working experience, occupational type, organization type, family characteristics, and region).

Next, we use the Oaxaca-Blinder (OB) methodology (Oaxaca, 1973; Blinder, 1973) to identify and quantify the contribution of personal characteristics and the unexplained component (which is referred to as differences in returns) to the wage difference between males and females.

Finally, we apply the Machado-Mata (MM) technique (Machado and Mata, 2005) to look into the nature of the wage gap at various points of the income distribution and also to test the difference for individuals employed in the state or private sectors. For the Machado-Mata procedure, we estimate our specifications at the 10th, 25th, median, 75th and 90th percentiles of the wage distribution.

Results

The analysis shows that women’s wages are lower than men’s wages all over the wage distribution. The average raw gender wage gap equals 22.6% and it increased substantially compared with 9.0% in 1996 and 17.8% in 2006, the numbers obtained in the study conducted by Pastore and Verashchagina (2011).

Figure 1. Gender differential by quantile of the wage distribution

Source: Authors’ estimates based on GGS.

The level of female earnings is lower than the male regardless of the occupational type, educational background, work experience and organizational type. Moreover, the underpayment of women is lower for low earning workers, but increases up to the end of the wage distribution (see Figure 1).

The OB decomposition shows that female educational attainment and job-related experience help to decrease the level of the wage gap slightly (see Table 1).

Table 1. Oaxaca-Blinder decomposition results

Source: Authors’ estimates based on GGS.

However, the occupational choice is leading to an expansion of the difference in earnings. However, its effect is also small, indicating that occupational segregation plays a minor role in explaining the gender wage gap. The major share of the gender wage gap is formed by the unexplained part, which is likely to be attributed to discrimination.

Next, the level of remuneration is higher among private companies. However, contrary to other countries in transition, the average gender wage gap in Belarus in the private sector is lower than in the public sector.

Moreover, the MM decomposition estimates presented in Table 2 demonstrate that the gender wage gap in the state sector shows evidence of the glass ceiling effect (the size of the total wage gap expands at the top of the wage distribution), while no evidence of either glass ceiling or sticky floor (the size of the total wage gap increases at the bottom of the wage distribution) in the private sector.

The negative coefficient near the characteristics part in the private sector shows that female endowments outweighs their male counterparts. Thus, controlling for personal characteristics, if the labor market rewards males and females equally, the wages of females in the private sector should be substantially higher (see Table 2).

Table 2. Machado-Mata decomposition of the observed gender wage gap by organization type

Source: Authors’ estimates based on GGS.

Finally, the results also suggest that female workers are better off being in the private sector at the lowest and the highest percentiles (i.e. the size of the gender wage gap is lower there compared to the 25th and 50th percentile).

A possible explanation for all the above is that institutional differences seem to play a crucial role here. First, Belarusian private firms work under stronger regulation than in other transition economies which makes it harder for them to set low wages. Second, they also operate under stronger competition (compared to state companies), which force them to identify individual productivity more correctly, narrowing the gender difference in pay. In contrast, the paternalistic attitude to women left as a legacy from the Soviet Union further increases the gender wage gap in the public sector.

Conclusion

In this brief, we present new evidence on the existence of a gender wage gap in the Belarusian labor market and analyze the differences in its distribution between the state and private sectors.

Our results show that the unconditional gender wage gap in terms of hourly wages equals 22.6%. Thus, jointly with a previous study (see Pastore and Verashchagina, 2011) and recent official indicators, all these indicate that the pace towards gender equality in Belarus seems to be sluggish. For the moment, all institutional changes accomplished by the Belarusian government to reduce gender discrimination are not enough and require additional efforts to cope with that problem.

However, the gender wage gap is shown to be much wider in the public sector than in the private sector. At the same time the private sector appears to be more attractive than the public sector in the country in terms of the level of remuneration. Therefore, additional structural shifts of the economy accompanied by the growth of competition are needed to induce a further reduction of the gender wage gap.

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.

Towards a More Circular Economy: A Progress Assessment of Belarus

Posted on November 19, 2018 | Policy Brief

20181119 Towards a More Circular Economy Image 02

This policy brief summarizes the results of our study, Shershunovich and Tochitskaya (2018),  on the circular economy development in Belarus. The aim of the work was to measure the circularity of the Belarusian economy using European Commission indicators. The analysis reveals that the circular economy in Belarus is still in the initial stage of its development. In 2016, the employment in circular economy sectors in Belarus accounted for 0.49% of total employment, and the investment amounted to only 0.27% of total gross investment. Belarus is also falling behind many European countries in waste recycling.

Introduction

The circular economy represents an economic system based on a business model of reduction, reuse, recirculation and extraction of materials in production, distribution and consumption of goods and services (Batova et al., 2018).

Transition to it offers great opportunities to transform the Belarusian economy and make it more sustainable and environmentally friendly, while preserving primary resources, creating new jobs and increasing competitiveness of enterprises.

In order to encourage the transition to a circular economy, it is important to have a proper monitoring system based on reliable and internationally comparable data. It helps to track progress towards a circular economy, conduct policy impact assessment, and analyze whether measures being taken are sufficient to promote an economy that reduces the generation of waste.

To assess the development of a circular economy in Belarus, a set of the European Commission (EC) indicators was used to capture the evolution of the main elements of closing the materials and products loop. The EC monitoring system comprises 10 indicators which are part of 4 pillars: production and consumption; waste management; secondary raw materials; competitiveness and innovation.

The reasons to use this system for Belarus are as follows: first, there is no set of indicators that provide a comprehensive overview of a circular economy in Belarus, while the EC monitoring framework allows us to capture its main elements, stages, and aspects; second, Eurostat calculates circular economy indicators for the European Union (EU) countries on a regular basis, which proves the high level of their practical application,     relevance and robustness; third, the EC is constantly working on their improvement. Thus, the EC set of indicators can be a tool to monitor trends in transition to a circular economy in Belarus.

Tight spots of waste statistics in Belarus

While calculating the circular economy indicators for Belarus the following problems with data affecting the quality of statistics have been identified:

  • methodological issues;
  • challenges with recording and coverage;
  • insufficient degree of international comparability of data, in particular woth the EU countries.

Such methodological problems as the blurred boundaries between the definitions of ‘waste’ and ‘raw materials’, and the lack of criteria for categorizing substances or objects as waste allow enterprises to classify certain substances or objects not as waste and therefore not to file information on them. As a result, less than half of the enterprises which might generate industrial waste, report it. Therefore, the question arises whether the statistical data reflect the real level of waste generation, recycling, and disposal in Belarus.

Data on municipal solid waste (MSW) have proved to be one of the areas of most serious concern. Absence of direct MSW weighing makes the data on it very sensitive to the conversion factor from volume to mass units. The differences between the Belarusian and European waste classifiers and definitions of key concepts (‘waste’, ‘recycling rate’) complicate the data analysis.

In addition, since Belarus is the 3rd world potash fertilizers producer, the share of potash waste in the total volume of waste generation is very high (63-68%). Only a small portion of this type of waste stream is recycled in Belarus (no more than 4%) due to lack of appropriate technologies of potash waste utilization used internationally.  As only Germany counting as one of the world’s largest producers of potash fertilizers within the EU, to increase the comparability of data between the EU countries and Belarus, potash waste hasn’t been considered when calculating the circular economy indicators. Given all the above mentioned problems, some of the EU indicators have been adapted to the existing Belarusian statistical data.

Illustration of waste statistics problems

Waste statistics problems result in overestimation or underestimation of some circular economy indicators. A good example is the recycling rate of all waste, excluding major mineral wastes. Belarus, which is a country without a proper legal framework for the circular economy or a well-established secondary raw materials market,  had one of the best performances in terms of the recycling rate (72-80%) among the EU countries in 2010-2016. This fact reflects the problems with waste statistics rather than success in waste recycling in Belarus.

Table 1. Recycling rate of all waste excluding major mineral wastes, %, in 2010-2016

Source: for the EU countries and Norway – Eurostat. For Belarus – own calculations based on the data from the RUE “Bel RC «Ecology».

Actual picture of the circular economy development in Belarus

The indicators with minimum distortions in waste statistics show that some elements of the circular economy in Belarus are still in the initial stage of their development (tables 2, 3, 4, 5). Our study reveals that the recycling rate of MSW amounted to 15.4 % in 2014-2016, which is much lower than the EU average in 2014 and 2016. Thus, Belarus has a considerable potential to increase the recycling rate of MSW. The experience of Czechia and Lithuania shows that the MSW recycling rate can be increased relatively fast if efforts are made and resources permit.

Table 2. Recycling rate of MSW, %, in 2010-2016

Source: for the EU countries and Norway – Eurostat. For Belarus – own calculations based on the data from the SE  “Operator of SMRs” and Belstat.

In 2016, the recovery rate of construction and demolition waste in Belarus reached 81%, though this indicator fluctuated between 59% and 79% in previous years. However, it can be further improved as in some European countries (Denmark, the Netherlands, Germany, Czechia, Poland and Lithuania) the recovery rate of this type of waste stream exceeds 90%.

Table 3. Recovery rate of construction and demolition waste, %, in 2010-2016

Source: for the EU countries and Norway – Eurostat. For Belarus – own calculations based of the data from the RUE “Bel RC «Ecology».

Despite the fact that the decoupling of economic growth from an increase in waste volumes is an important issue on the international agenda, trends in waste generation in many countries follow a development of GDP. In 2010-2012, the generation of waste excluding major mineral wastes per GDP unit (42-46 kg/thsd of $, PPP) in Belarus (table 4) was comparable with countries such as Czechia, Lithuania, Germany, Denmark, Sweden. However, in 2014 due to waste generation growth, this indicator in Belarus exceeded above-mentioned EU countries and approached the level of Hungary and the Netherlands. It was far above Norway that was the best performer among the European countries and a good example of how a country could really decrease waste generation.

Table 4. Generation of waste excluding major mineral wastes per GDP unit (kg per thsd constant 2011 international $) in 2010-2016

Source: for the EU countries and Norway the data on generation of waste excl. major mineral wastes – Eurostat. For Belarus – own calculations based on the data from the RUE “Bel RC «Ecology». For the EU countries, Norway and Belarus the data on GDP, PPP in constant 2011 international $ – The World Bank.

In 2012, the share of gross investment in the circular economy sectors in Belarus (table 5) decreased in comparison with 2010, however, since 2014 it have shown an upward trend. For the EU countries and Norway this indicator also includes investment in the repair and reuse sector. For Belarus this sector has not been taken into account in calculation due to lack of data. In addition, the gross investment in tangible goods is a bit different from the gross investment in fixed assets used for Belarus as the latter doesn’t include non-produced tangible goods such as land.  Yet, even bearing in mind these differences in calculation, the circular economy appeared to be underinvested in Belarus compared to the EU countries and Norway.

Table 5. Gross investment in tangible goods (% of total gross investment) in circular economy sectors in 2010-2016

Source: for the EU countries and Norway – Eurostat. For Belarus – Belstat.

The employment in the circular economy in Belarus accounted for only 0.49% of total employment in 2016, while in the EU countries and Norway this indicator was approaching 3%. This again proves the fact that Belarus has a long way to go towards the creation of a circular economy.

Conclusion

The analysis revealed contradictory results of the circular economy development in Belarus. While the country scores highly across some indicators compared to the EU countries and Norway, this to a large extent reflects the problems with waste statistics, rather than success in waste  management. The indicators with minimum distortions in waste statistics show that Belarus is falling behind leading countries in circular economy development. However, in the transition to a circular economy, the monitoring framework is an important component of this process, which permits to track a progress using the system of indicators. In order to ensure that these indicators accurately capture the key trends in the circular economy in Belarus it would seem useful to:

  • align the definition of ’waste’, ‘recycling rate’ with the international one, identify clear criteria for classifying substances or products as waste and secondary raw materials;
  • strengthen the accountability of entities for filing reports on waste;
  • improve the system of MSW and SMRs reporting and recording, and introduce MSW recording based on weighing wherever possible;
  • consider the option of improving the comparability of Belarus’ waste classifier with the European waste statistical nomenclature.¨

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.