In Soviet times Belarus was one of the best places to live in the USSR as it was home to many of the finishing and final assembly facilities for inputs that were, on purpose, manufactured all over the union.
This legacy of finished goods manufacturing spilled over into the post Soviet world and Belarus inherited a tradition of making things it could sell. Moreover its proximity to Europe and low wages meant that it has been exporting its goods in both directions, to Russia and the EU. Today it is exploring new markets and Minsk’s increasingly good relations with China are already paying dividends in both trade and investment.
Food for trade
Food was the country’s leading export product in 2018, were up 5.3% y/y to $5.23bn, according to Aleksei Bogdanov, head of the Central Office for Foreign Economic Activities of the Belarusian Agriculture and Food Ministry, reports BelTA.
“Last year the export of the Belarusian agricultural produce and food products increased by 5.3% year-on-year to make up $5.235bn. Belarus earned $263.7mn more in currency earnings than in 2017, despite a complicated situation with dairy prices, complex market conditions and unfavourable weather. We managed to compensate it with increasing the volumes of meat and dairy exports. Belarus supplied 4.222mn tonnes of dairy products and 370,000 tonnes of meat. The export of meat and dairy products reached almost $3bn. Meat exports grew 8.2% in monetary terms to approach $1bn. The export of dairy products made up $2.03bn,” Bogdanov said.
In 2018 Belarus exported agricultural products and food to 95 countries. The country shipped dairy products to 55 countries, and meat products to 19 markets.
Russia’s trade star waning
Russia still remains a key export market, but ranks only number four in importance, though it is first in the Commonwealth of Independent States (CIS), according to the statistical data on Russian foreign trade in 2018 released by the Russian Federal Customs Service.
According to the Russian Federal Customs Service, Belarusian-Russian trade totalled $35,686.2bn in 2018, which was up 10.8% as against 2017.
China, Germany and the Netherlands are ahead of Belarus in terms of trade with Russia. Belarus outpaced countries such as Italy, Turkey, the US, the Republic of Korea, Poland, Japan, Kazakhstan, and France. In 2017 Belarus also was Russia's fourth largest trading partner in the world and first in the CIS.
And Russia is also losing its share in Belarus’s food exports. “Russia's share in Belarus' total food exports decreased by 6.3% down to 79% in 2018 thanks to the export diversification efforts in Belarus. We were able to increase exports to non-CIS countries by 66.7%. Exports to Asia and Oceania rose 2.2 times to total $151.4mn. China is a special priority for us. The free trade agreement with Vietnam that we have signed within the framework of the Eurasian Economic Union is a big positive contributor. Exports to Africa surged five times to total $8.7mn. Exports to America ballooned by 48% to reach $9.1mn (to the US by 21%, to Venezuela 10 times). Deliveries to the EU rose by 66.6% to $233.5mn,” Bogdanov said.
China’s trade star rising
China has emerged as the star market for Minsk and is rapidly replacing Russia is the key export market.
Belarus' food exports to China skyrocketed by 340% in 2018 in comparison with 2017, BelTA reports, albeit from a very low base. The export of Belarusian agricultural products and food to the People's Republic of China reached $82.4mn last year. Dairy products were the main driver – 186,500 tonnes worth $60.5mn.
“We sent the first four container trains full of dairy products to China in 2018. The shipments came from Minsk Oblast and Mogilev Oblast,” Bogdanov said. China plays the main role in the development of Belarus' food export to Asia. A colossal amount of work was done in 2016-2018. “We've managed to get our companies certified within the shortest possible period of time. Belarus is one of the top ten countries, which can sell meat to China. China is busy diversifying its import in order to ensure the country's food security,” the official noted.
Two Belarusian meat producers – OOO Veles-Meat and OAO Mogilev Meat Processing Plant – are now authorised to export beef to China. As many as 51 dairy companies (virtually the entire dairy market of Belarus) and five poultry farms – Agrokombinat Dzerzhinskiy, Vitebsk Broiler Poultry Factory, Poultry Plant Druzhba, SZAO Servolux, and OAO Smolevichi Broiler – are also certified for export to China.
Russia is following a similar policy and had already built up over $100bn worth of trade with China in 2018, a new post Soviet record, but Beijing still controls access to its agricultural sector very tightly and has only been allowing relatively small amounts of agricultural imports, which has a bigger impact on Belarus’s trade balance than it does on Russia’s.
More food exports in 2019
The Belarusian government has been working hard to diversify its exports as it remains dependent on the re-export of Russian petroleum products and potash for the bulk of its export revenue.
Belarus’ oil and gas related export revenues are now in danger following a change in the tax system in Russia that may lead to an end of Russia’s energy subsidies to Belarus and has been the source of a lot of tension between the two countries in 2018. The argument has still not been settled yet and the International Monetary Fund (IMF) warned that Minsk could face an economic crisis if the issue is not resolved in Minsk’s favour.
Playing to its strengths, Minsk is trying to diversify its agricultural export trade. Belarus plans to increase food exports from $5.2bn in 2018 to $5.7bn in 2019, Bogdanov told BelTA.
“If the market trends are advantageous and if the weather is good for crops, we will increase food exports up to $5.7bn in 2019, which will be up by 8.6% over 2018. This plan is ambitious but not impossible,” Bogdanov said, adding that Belarus will continue to implement its export diversification program in 2019.
“We are analysing the development of agricultural industries in the Eurasian Economic Union (EEU) member states and see that each country tries to produce more food products and to invest more in this industry. This is why we are actively exploring other markets. The CIS countries will be our number one market because of logistics and similar preferences. Then go the markets of Australia and Oceania where we intend to build our presence. Another important market for us is the Persian Gulf countries, which are rich in oil but are not food sufficient. Next come the countries of Africa, the EU, and America. We intend to both step up the volumes and increase the processing level in order to sell more finished goods with maximum added value. We will work to promote the Made in Belarus brand not only in Russia, in the EEU and the CIS but also in distant countries,” Bogdanov said.
Software exports up
Agriculture remains the priority, but Belarus’s software exports have been growing dramatically in recent years as the small republic makes itself home to some leading international software engineering firms. Other countries have talked about setting an IT hub and growing exports, but Minsk has already done it with one technology hub operating and second one under construction.
Software is Belarus's main export to the US, earning the country over $0.5bn in 2018, according to the Minister-Counsellor of the Embassy of Belarus in Russia Vadim Senyuta, as part of Belarus’s Digital Economy Development Ordinance that was adopted in December 2017.
“The Digital Economy Development Ordinance has expanded the list of activities our Hi-Tech Park can pursue up to 36. The park is now open not only to conventional software development companies, but also engineering companies, creators and manufacturers of software and hardware solutions, robot technologies. Today Belarus has legislation to regulate the use of tokens and the blockchain technology. The CIS's first cryptocurrency exchange has been launched. I'd like to note that Belarus is kind of a pioneer because it decided to regulate in a systemic manner the new reality in the shape of cryptocurrencies and tokens taking into account international law,” Senyuta said.
In 2018 the Hi-Tech Park welcomed 262 new residents, more than in the previous 12 years. The park is now home to over 450 companies, which employ about 35,000 people. Belarus is ahead of the US, China, and India in terms of software export per capita. As much as 91.9% of the software developed in the Hi-Tech Park is exported, with 49.1% sold to Europe, 44% to the US and Canada, and 4.1% to Russia and the CIS states, according to the ambassador.
Tanks and tractor exports growing
Another dynamic export sector is weapons, where Belarus earned more than $1bn from exports in 2018. As part of the republic’s Soviet legacy, it is home to several arms manufacturers that have reoriented and become more commercial.
The exports are run by the State Military Industrial Committee of Belarus, which earned more than $1bn in 2018.
“We intend to add a bit in 2019, too. It is difficult to add something to such a figure. But we should be able to add a couple of percent according to our estimates,” the committee's chairman Roman Golovchenko said on 7 February.
Here too the country is seeking to diversify its markets in accordance with a “30-30-30” scheme targeting the main markets of Russia and other CIS states, Africa, and Asia in these proportions. The remaining 10% will be consumed at home.
“The proportional distribution gives us a certain safety margin if one of the market segments underperforms,” the official explained.
Asked about cooperation with Russia, Golovchenko described it as constructive. “We trade a lot of military products with each other. According to preliminary estimates, something along the lines of $600mn in 2018. Belarus' export to Russia exceeds Russia's export to Belarus. A very large number of companies – about 300 – rely on manufacturing cooperation schemes,” he said.
More generally Belarus' merchandise exports were up by 15.3% to $33.7bn in 2018 according to the Belarusian Ministry of Foreign Affairs.
“According to the statistics, the Belarusian merchandise export amounted to $33.7bn in 2018, up by 15.3% over 2017 or by $4.5bn. This increase was achieved thanks to products of mechanical engineering and other goods with high added value,” a ministry review reads.
Exports to EEU countries increased by $0.2bn, to the EU member states by $2.3bn, and to other states by $1.9bn.
The EEU accounted for 41.2% of Belarus' total export volume (46.7% in 2017), the EU 30.2% (26.8%) and other countries 28.6% (26.5%).
The review also stated that Belarus aims to establish mutually beneficial cooperation with all the states, and its accession to the World Trade Organisation, which is being negotiated now, fully complies with this aim.
“We have stepped up the work on the WTO accession since 2016 and already approached the final stage of the talks. We are preparing the third edition of the draft report of the Working Group on Belarus' Accession to the WTO (the final document stating the conditions of WTO membership), which will be presented in February 2019,” the ministry said.
As of December 2018, Belarus completed bilateral negotiations on market access for goods and services with 20 WTO member states. Ten similar agreements were concluded in the last two years (six in 2017 and four in 2018).
The talks are still underway with six more WTO members (Australia, Brazil, the EU, Canada, the US and Ukraine).