Unwanted Privatization

Russia, Belarus authorities' most influential supporter, and the International Monetary Fund insist on privatization of state assets in Belarus. They set it as a necessary precondition for new loans badly needed by the economy which is in the midst of the worst economic crisis since the collapse of the Soviet Union. But many in Belarus - both in the government and in the opposition camp bitterly oppose privatization. 

Belarusian authorities still control the largest and most profitable enterprises in the country. Nearly full ownership over the economy allows them to have tight control over politics as well. For instance, they can put pressure on any enterprise to fire unwanted individuals who then will struggle to find another job. The workers dislike the idea of privatization too. They know that nearly all state-owned enterprises need to reduce their stuff to become more efficient. Stability is more important for the state, but not for future private owners. Foreign investors are interested in making profits, not feeding workers. Directors of state-owned companies also resist privatization because the new owners will inevitably replace them. 

According to chairman of Belarus State Property Committee Georgy Kuznetsov, directors of state enterprises are not interested in privatization at all. At his July press conference he gave examples from various parts of Belarus - Lida, Baranavichy and Homel. After investors expressed interest in state enterprises based in these cities, their directors managed to lobby authorities to formulate conditions of privatization which were impossible to accept for any reasonable investor. As a result, these enterprises remain state-owned and directors keep their positions. 

Many in the ruling elite and in the opposition are also concerned that Russia will become too powerful if it acquires large Belarusian state enterprises.  Vladimir Putin recently announced that he considered it very desirable for Belarus to be incorporated into Russia.  That made many in Belarus, both on the government ant the opposition side worried. According to a once very influential Belarusian Prime Minister Vyachaslau Kebich, "The main aim of Russia is to totally swallow Belarus." 

Belarusian economy has been subsidized for decades by Russia. When Russia reduced its subsidies in 2010 Belarusian economy began to crumble and Russia is clearly trying to take advantage of it.  Belarus is still living through hyperinflation and its national currency already lost nearly half of its value. Belarus struggles to gain external financial aid and privatization is the most obvious source of income, in addition to being a precondition for further external loans.

But foreign investors are not too enthusiastic about Belarusian privatization. They know that Belarus has unstable legal regime and much depends on investor's personal connections. That makes investments in Belarus risky.  Moreover, the United Stated and the European Union imposed sanctions against a number of Belarusian companies which makes the already poor investment climate in the country even worse. Russian businessmen well-connected to Kremlin clearly have an advantage over other potential investors.

Because of non-transparent nature of the Belarusian economy and decision-making, it is usually not the highest bidder but the best connected one who can privatize assets.  Over the recent months, Belarus started selling stakes in large state enterprises. Recent examples of privatized state enterprises include the largest manufacturer of pump equipment in the former Soviet Union JSC Bobruisk Machine Building Plant. Now the majority belongs to a Russian financial group Hydromashservice.  

In some cases Belarus Government opts for a "delayed" privatization. Russia’s Sberbank and Germany’s Deutsche Bank agreed to provide a joint two billion dollar loan to state-owned Belkali, one of the world's largest producers of potash fertilizers.  The loan was provided on the security of 35 percent of the company’s stock. If this loan is not repaid, a large stake of Beklali these banks will take over a large stake of Belkali.  Earlier this year, Belarus Government has provided guarantees to the Finance Ministry of Azerbaijan which agreed to extend a $300-million loan to Belaruskali.  

Because of unattractive investment climate and political risks in Belarus, many enterprises are sold at cheap prices. The authorities are forced to act quickly because of the depth of the financial crises in the country. Some analysts think that the less control the state has over economy, the more likely political changes are. Others fear the rise of Russia's influence and nod to China and Russia where despite significant foreign investments but political structures remains undemocratic.  

But these days privatization is no longer optional for Belarusian authorities. With the advent of the cold season, it will be even more difficult to maintain the sinking economy afloat. Without serious structural reforms or massive financial support from Russia, privatization will only help the authorities to win a few years before another crisis. 

YK