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
1
Minsk Institute of Management
2
Belarusian State University
3
Polessky State University
4
Belarusian 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 Urban- Rural Rural Population Area,
and type councils localities (2009) km2
towns settlements
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 % total GDP to the previous year in
current prices, comparable prices, %
bln. roubles
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. H¨ gerstrand (innovation diffusion as a spatial process)
a
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 Higher competitiveness on external markets, import
companies, clusters, financial and substitution, reduction of the materials consumption
industrial groups & costs, improvement of quality of the output goods
Reformation and optimization of large Support the formation of: automotive, pit-run,
industrial enterprises associations road-building engineering; diesel engine plants;
into the cluster-type economic units: consumer electronics; intersectoral companies
holding companies, joint ventures, other producing urban and suburban mass electric
[scientific-] production associations transport; sugar, butter and fat, alcohol industry
Development of special regional Creation of the resource-based enterprises
associations of cluster-type economic producing export-oriented production: flax growth
units including scientific centers: and processing, tanning and leather footwear, meat
institutes of higher education, research and dairy, materials of construction
institutes, design engineering bureau
Improvement of scientific support of Strategic directions of industrial development:
industrial production by means of microelectronics, optoelectronics, pharmaceutics,
scientific and technical centers creation microbiology
Creation of research institutes under Oriented on execution of the research and
institutes of higher education including development and experimental-design works on
private 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

5
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 49.4 48.1 45.6 48.7
export, %



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 2.1 3.0 3.7 4.6 5.2 5.8
exports, %
Belarus share in world exports of 0.04 0.06 0.08 0.1 0.12 0.15
IT services, %



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

6
According to http://paysale.com
7
Converted to USD using http://oanda.com
8
According to http://dev.by


Current state of ICT sector in Belarus

Export dynamics of HTP

Year Export, mln. USD Share of export in Number of
production, % 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

9
Measuring 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

10
United Nations E-Government Survey 2010


Readiness for the networked economy11,12

Structure and dynamics of the ICT costs
Country ICT costs ICT costs Employment Investments
2009, (% 2008, (% (% employed) in ICT (%
GDP) GDP) 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

11
http://www.stats.oecd.org
12
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 Enrolment in tertiary
(rank) 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

13
Economist 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, abakumova@tut.by
Alexander GEDRANOVICH, gedranovich@gmail.com
Natallia PETRUKOVICH, natallia_p@mail.ru
Anastasiya LUZGINA, luzgina@beroc.by
Katsiaryna MINIUKOVICH, kate@unibel.by
Aliaksandr SHASHKO, alex.shashko@gmail.com

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