Country Report Belarus

Industrial Development of Belarus

Juliet ABAKUMOVA2,1 Alexander GEDRANOVICH1,2

Natallia PETRUKOVICH3 Anastasiya LUZGINA2,4

Katsiaryna MINIUKOVICH2 Aliaksandr SHASHKO2

Industrial Development in Post-Transition Countries

February 3-7, 2012, Batumi, Georgia

1Minsk Institute of Management2Belarusian State University3Polessky State University4Belarusian Economic Research and Outreach Center

Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 1 / 59

Outline

1 Industrial structure of Belarus

2 Industrial policy at present time and perspectives

3 Regional policies in Belarus

4 Case study of development of IT industry in Belarus


Industrial structure of Belarus

Belarus during Soviet time

In the USSR Belarus had:

3.6% of the total population of the USSR

3.4% of the value of fixed assets

Belarus produced:

4.0% of GDP

4.5% industrial output

5.6% of production agriculture



Belarus during Soviet time

The leading branches of Belarusian industry



Industrial structure

Current structure of production of GDP by sectors




Secondary sector structure: (by branch) — 2010, HHI=0.1218




Secondary sector structure: dynamics 1990–2009, %




Tertiary sector structure: (by branch) — 2010, HHI=0.14029




Tertiary sector structure: dynamics 1990–2009, %




HHI for regions (selected branches)

Branches HHI Leading Regions

Communication 0.8951 Minsk City

Fuel 0.4561 Vitebsk, Gomel

Transport 0.3460 Minsk City, Gomel, Brest

Construction 0.2139 Vitebsk, Minsk City, Brest

Science 0.2108 Minsk City, Gomel, Vitebsk

Machine-Building 0.2085 Minsk City, Minsk, Brest

Food 0.1919 Brest, Grodno, Minsk

Electric Power 0.1887 Vitebsk, Minsk City, Brest

Agriculture 0.1742 Minsk, Brest, Vitebsk

Trade and public catering 0.1700 Minsk City, Minsk, Brest


Industrial policy at present time and perspectives

Outline







Industry in Belarus

In Belarus there are over 15’000 industrial enterprises, which

present 70 sectors and subsectors of the industry

The leading place belongs to chemical and petrochemical industry,

machine building and metalworking, light and food industry

In 2011, the share of investments in GDP was 33%

More than 50% of total investments go to construction and

installation work, including housing construction

Foreign direct investments are always at the very low level



Foreign Direct Investments

FDI, mln. USD



Gross Domestic Product

GDP structure by branches, %



Profitability

Profitability of sales and PPI, %



Real wages and productivity

Real wages and productivity in constant prices, % of 1990



Forms of property

Industrial structure by form of property in 2010, %



Industrial policies and instruments

1 Saving current industrial structure with dominant role of

state-owned enterprises

2 Export stimulation, import restriction

3 Policies support wide range of industries

4 Innovative way of development

5 Main instruments of industrial policies:

undervaluation of national currency

state programs with different preferentials


Regional policies in Belarus

Outline







Administrative-territorial divisions of Belarus as of

01.01.2011

Region Districts Cities

and

towns

Urban-

type

settlements

Rural

councils

Rural

localities

Population

(2009)

Area,

km2

Belarus 118 112 93 1’295 23’467 9’503’800 207’600

Brest 16 21 8 219 2’167 1’401’200 32’300

Vitebsk 21 19 24 199 6’316 1’230’800 40’100

Gomel 21 18 17 240 2’403 1’440’700 40’400

Grodno 17 14 17 178 4’338 1’072’400 25’000

Minsk City — 1 — — — 1’836’800 —

Minsk 22 24 18 274 5’208 1’422’500 40’800

Mogilev 21 15 9 185 3’035 1’099’400 29’000



Gross Regional Product (GRP)

Region GRP 2011 at

current prices,

bln. roubles

% total GDP to the previous year in

comparable prices, %

2011 to 2010 2010 to 2009

Belarus 274 282.10 100.00 105.30 107.70

Brest 24 682.80 9.00 101.20 111.30

Vitebsk 23 519.30 8.60 106.30 104.60

Gomel 30 779.50 11.20 104.40 106.10

Grodno 21 196.70 7.70 105.10 106.90

Minsk City 67 975.70 24.80 114.30 108.90

Minsk 40 311.70 14.70 106.60 120.20

Mogilev 19 923.00 7.30 105.80 111.40



What is regional policy?

Value-free definition:

territorial, place-based policy

Value-based definition:

equity-oriented policy (solidarity, cohesion, inter-regional disparities

reduction) — traditional view

efficiency-oriented policy (Lisbon agenda, market-failure correction,

paradigm shift) — new view recently emphasized by EU and OECD

Actually, regional policy aims at both of them

trade-off between equity and efficiency



Economic reasons for regional policy

Gap between agricultural and industrial regions widening since

1960s

Followed by industrial demise in heavy industry since 1980s

Inter-regional competition increased (outbidding for foreign

investment etc.)

Provide same living standards to prevent migration

Strengthening the cooperation between Belarusian local authorities,

businesses and civil society with their counterparts from the border

regions of neighboring countries — Euroregions



Conceptions of regional policy in Belarus

National economy complex development (until 1990) — exogenous

Building of social–oriented economy

Development & foreign market entry based on economic integration

with Russian regions

Forming of corridors (transport, pipeline) with all necessary

infrastructure

Forming of free–trade areas and frontier industrial–service centers

Development of regions and small towns to solve job preservation

problem



Current regional policy in Belarus

There are neither special legislation nor dedicated state bodies

performing regional policy in Belarus, mostly implicit actions are

present

Only explicit regional policy regulation measures are that dedicated

to radiation-aggrieved and rural regions

Until recently regional policy was only equity-oriented



Chornobyl radioactive contami-nation map

About 70% of the

nuclear fallout from

the plant landed on

Belarusian territory,

and about 25% of

the land is considered

uninhabitable



Dynamics of the inter-regional disparities, maximum to

minimum ratio, times



Ratio of nominal gross average monthly wages by region

and Minsk City to the average national wage level, %



Top15 richest and poorest Belarusian districts



Regional competitiveness

Regions are becoming increasingly important as the key arenas of

wealth production and economic governance (Ohmae, 1995; Porter,

2001; etc.)

Considerable disagreement over what, precisely, is meant by the

idea of ’regional competitiveness’, and over whether and in what

sense regions ’compete’

Regional competitiveness is the ability of regions to generate, while

being exposed to external competition, relatively high income and

employment levels (The Sixth Periodic Report on the Regions)

There is no consensus as to the determinants of regional competitive

performance Competitiveness depends on the productivity with which

a location uses its human, capital, and natural resources (Porter)



Top15 richest and poorest Belarusian districts



Related works

The concept of competitiveness and its main factors is contributed by:

A.P. Sloan and P. Drucker (management as a key input factor for

competitiveness)

R. Solow (importance of education, innovation and know-how)

T. Hagerstrand (innovation diffusion as a spatial process)

N. Negroponte (“knowledge” as factor in competitiveness)

S. Garelli (“Cube” — 4 competitiveness dimensions)

M. Porter (“Diamond”, stages of development, clusters)



Existing methods of regional competitiveness estimation

GCI (WEF), WCY (IMD) — global competitiveness indexes

EIS (EC), GII (INSEAD) — innovation indexes

RIS (EC), ECI (RHA) — regional competitiveness and innovation

indexes

PA Эксперт, COПC PAH, IRPEX (Russia)

Economic development administrations (USA)



Methodology

Model of regional competitiveness estimation includes quantitative

and qualitative indicators of both current (“output” quality) and

strategic (“input” goals) competitiveness

Regional competitiveness rating estimation is adjusted for stages of

competitiveness

Regional competitiveness complex index is calculated for all regions,

districts, and major cities for 1998 to 2009 period

Data: hard statistics from Belstat, National Bank

Normalisation: country average as etalon

Aggregation: geometric mean, no weights



Regional competitiveness and GRP



Region profiles



Cluster thinking for economic development policy and

practice

Build on the unique strengths of their regions rather than try to be

like other regions

Go beyond analysis and engage in dialogue with cluster members

Develop different strategies for different clusters

Foster an environment that helps new clusters emerge rather than

creating a specific cluster from scratch



Lines of development of the specialization of economy

of Belarusian regions

Region Sources of competitive advantages

Brest Geographical situation; transit opportunities; developed agricultural

sector

Vitebsk Developed chemical and oil-refining industry; engineering industry;

forest, recreational, tourist and logistic resources

Gomel Strong industrial potential; established mineral resources

Grodno Developed agricultural sector and food industry; chemical industry

Minsk City Situated on the crossing of two trans-European communication

corridor; strong industrial, scientific and educational potential;

expert labor

Minsk Beneficial economic-geographical position; high quality of land and

recreational resources; developed engineering industry; established

mineral resources

Mogilev Chemical and engineering industry; proximity to the Russian market

outlets



Structure and guidelines for action of clusters

Implementation mechanism Purpose, guidelines for action

Building of large clusters: holding

companies, clusters, financial and

industrial groups

Higher competitiveness on external markets, import

substitution, reduction of the materials consumption

& costs, improvement of quality of the output goods

Reformation and optimization of large

industrial enterprises associations

into the cluster-type economic units:

holding companies, joint ventures, other

[scientific-] production associations

Support the formation of: automotive, pit-run,

road-building engineering; diesel engine plants;

consumer electronics; intersectoral companies

producing urban and suburban mass electric

transport; sugar, butter and fat, alcohol industry

Development of special regional

associations of cluster-type economic

units including scientific centers:

institutes of higher education, research

institutes, design engineering bureau

Creation of the resource-based enterprises

producing export-oriented production: flax growth

and processing, tanning and leather footwear, meat

and dairy, materials of construction

Improvement of scientific support of

industrial production by means of

scientific and technical centers creation

Strategic directions of industrial development:

microelectronics, optoelectronics, pharmaceutics,

microbiology

Creation of research institutes under

institutes of higher education including

private

Oriented on execution of the research and

development and experimental-design works on

industrials orders


Case study of development of IT industry in Belarus

Outline







Motivation of developing IT industry in Belarus

Growing global IT markets with relatively easy access to

competitions

High depreciation rate of physical capital (over 80%) — needs

modernization (incl. automation)

Good starting point (SU “assemly shop”)



4 companies are in TOP-100 of “The 2011 Global

Outsourcing”5

5http://www.iaop.org/Content/19/205/2040Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 44 / 59

http://www.iaop.org/Content/19/205/2040


Dynamics of world exports of IT services

Factor/Year 2006 2007 2008 2009

Export of IT services, bln USD 132.8 166.9 204.1 197

Cross-border IT outsourcing, bln USD 65 76 93 96

Cross-border IT outsourcing increase, % 27.5 16.9 22.4 3.2

Cross-border IT outsourcing in IT services

export, %

49.4 48.1 45.6 48.7



Why develop ICT sector of Belarus?

a. Strong Education system

55 universities and 16 thousand graduates with ICT and related

technical skills annually

The Belarusian software engineers frequently win worldwide

software competitions

Belarusian State University is among the top out of over 3,000

teams at ACM International Programming Contest

“Belarus has a reputation of a country with a high scientific potential.

This reputation is not gained overnight. It takes 50-60 years to establish

a strong education system with highly qualified faculty”

Cliff Reeves, General Manager, Emerging Business Team, Microsoft

Corporation




b. High-Quality IT Professionals

Belarus hosts the largest and most established European IT

outsourcing providers in Eastern Europe and the CIS countries

More than 40 years of scientific research in hi-tech fields created a

world-leading system of technical education and training (first PC in

USSR)

Belarus scientific and academic infrastructure produces top quality

engineering specialists

“If you have a mission impossible project in software development, send

it to Belarus”

Drew Guff, Managing Director and Founder of Siguler Guff &

Company

“Belarus focuses on the quality, preferring to hire 1 highly qualified

specialist instead of 10 novices”

The FORBES Magazine




c. Governmental Support

By special law, issued in 2005 Hi-Tech Park (HTP) was established with

the main goal to support software industry. HTP Belarus provides special

business environment for IT business with incentives unprecedented for

European countries

IT companies are exempt from all corporate taxes, including VAT

and profit tax, as well as customs duties

Individual income tax has a fixed rate of 9% for the employees of

HTP companies (12% for the rest)




c. Governmental Support

Year 2006 2007 2008 2009 2010 2011

IT services exports in services

exports, %

2.1 3.0 3.7 4.6 5.2 5.8

Belarus share in world exports of

IT services, %

0.04 0.06 0.08 0.1 0.12 0.15




d. Geographical Location

All European capatals are within 3 hours of flight from Minsk




e. Competitive Rates

Average wage of IT specialists, annual, 2011 USD6,7

Country Range Average

India 3’012–13’290 8’151

Belarus8 5’890–42’250 24’070

Russia 13’429–51’049 32’239

Ukraine 12’746–54’613 33’679

Germany 19’150–94’379 56’765

USA 39’586–99’417 59’831

6According to http://paysale.com7Converted to USD using http://oanda.com8According to http://dev.by


http://paysale.com

http://oanda.com

http://dev.by


Current state of ICT sector in Belarus

Export dynamics of HTP

Year Export, mln. USD Share of export in

production, %

Number of

employees

2006 21,9 77 —

2007 56,8 85 —

2008 100 83 6’626

2009 110,1 77 7’259

2010 146.2 82 9’421

2011 198.8 85 11’000




Readiness for the Information Society9

Country Rank, 2010

South Korea 1

Sweden 2

Iceland 3

Russia 47

Belarus 52

Ukraine 62

China 80

India 116

9Measuring the Information Society 2011




Readiness for E-government10

E-governments ranking

Country Rank, 2010 Rank, 2009

South Korea 1 6

USA 2 4

Canada 3 7

Ukraine 54 41

Russia 59 60

Belarus 64 56

China 72 65

India 119 113

10United Nations E-Government Survey 2010




Readiness for the networked economy11,12

Structure and dynamics of the ICT costs

Country ICT costs

2009, (%

GDP)

ICT costs

2008, (%

GDP)

Employment

(% employed)

Investments

in ICT (%

income)

USA 7.0 7.2 3.7 6.6

Ukraine 7.1 5.9 0.9 31.4

China 5.8 5.7 0.2 32.0

Sweden 6.2 5.7 4.9 12.7

Ireland 5.1 4.6 2.4 7.1

Russia 4.1 3.5 1.2 —

India 4.0 4.3 0.8 —

Belarus 2.8 2.7 1.5 41.3

11http://www.stats.oecd.org12http://www.databank.worldbank.org


http://www.stats.oecd.org

http://www.databank.worldbank.org



Competitiveness of the ICT sector13

Ranking EIU of the IT sector competitiveness

Country Rank, 2009 R&D (rank) Human capital

(rank)

Enrolment in tertiary

science programmes

(% of total)

USA 1 5 1 15

Finland 2 2 10 28

Sweden 3 9 16 24

Ireland 11 11 6 24

Israel 13 4 19 13

Russia 38 23 11 27

China 39 26 4 —

Belarus 40 54 29 26

India 44 27 14 26

Ukraine 50 24 39 24

13Economist Intelligence Unit



National Program for the accelerated development of

services in ICT for 2011-2015

Main goals:

Creation of conditions for the development of information society,

based on human capital development and introduction of e-learning

Increase the representation of government, business, civil society

organizations in Internet, development of national Internet content

Provision of electronic services to international trade participants

Attracting orders on the development of IT products, promoting IT

services exports



Key targets for National Program

Employment of about 16 thousand of HTP’s IT professionals by the

end of 2012

Providing easy accessible wideband Internet

Anti-monopoly regulation of telecommunication services market

(currently Beltelecom monopolizes outbound Internet channels)

Legal conditions for the provision of government online services

(obligatory)

Reallocation of the world investment funds in ICT (with the help of a

tax credit of up to five years)



Juliet ABAKUMOVA, [email protected]

Alexander GEDRANOVICH, [email protected]

Natallia PETRUKOVICH, [email protected]

Anastasiya LUZGINA, [email protected]

Katsiaryna MINIUKOVICH, [email protected]

Aliaksandr SHASHKO, [email protected]


mailto:[email protected]






Documents

Country Report Belarus