BELARUS NEWS AND ANALYSIS
DATE:
02/12/2008
Soviet-Style Belarus Takes First Free-Market Steps
MINSK, Belarus (AFP)--The Minsk Automobile Factory, a former World War II tank assembly plant that employs 28,000 people in one of Europe's most closed economies, might seem an unlikely venue for free-market reform.
But even in these cavernous unheated workshops in the Belarusian capital, change is afoot.
"It's a gradual process," said factory director Nikolai Kosten, as he showed a reporter production lines with hundreds of workers churning out trucks and buses ahead of the plant's partial privatization next year.
"It hasn't happened yet. It's being talked about in the workers' collectives but it's too early to worry about anything," said Kosten, a ruddy former car factory worker used to obtaining his orders from the government.
Belarusian President Alexander Lukashenko has outlined plans to privatize hundreds of companies like The Minsk Automobile Factory and attract foreign investors to his authoritarian former Soviet republic on the European Union's eastern frontier.
But Lukashenko has also emphasized there will be no overnight shift from the country's Soviet-style economy to private ownership as happened in Russia, saying his country will follow the Chinese model instead.
"If you come with money, if you're interested in a company, if you agree to our conditions, then we'll privatize...If we don't like you, we won't do business with you," Lukashenko said in an interview.
"We will never have a massive, immediate privatization like in Russia...We are not going to lose control over anything. If we lose control, you know that will lead to. The financial crisis has shown what happens," he added.
Referring to the current economic crisis, Lukashenko said: "We didn't have any major foreign loans...But our country is export-oriented so we're not getting as much revenue from exports now. That's the biggest danger for us.
Many foreign investors are worried about the government's desire for control in the economy and independent economists are skeptical about Lukashenko's promises. The state controls some 75% of the economy in Belarus.
"We have a lot of words, talk about the favorable conditions for foreign investors. Unfortunately, the reality is far from being that rosy," Yaroslav Romanchuk, an economist from the Mises Research Center in Minsk, said.
"In a situation where the government controls everything...it's very difficult to talk about improving the business climate," Romanchuk said.
"In reality, we have a stifling business climate," Romanchuk said.
That view was echoed by Sam Patrick Foos, head of German engineering company Enmarcon, as he strolled among the Soviet buildings in snowy central Minsk at the end of a business trip to the Belarusian capital.
"The government regulations are very strict and they are making a lot of difficulties for the investors," said Foos, adding that there was no way he would be doing business in Belarus any time soon.
At the Minsk Automobile Factory, Gnia Yang from French paint company Sames Technologies, which has a contract with the factory, said: "The problem here is the legislation...You need to get stamps on everything.
"They're trained in the old way here. It's very difficult to make people understand that what they could do before with very big machinery they can now do with something much smaller," Yang said.
Foreign investors complain about strict price controls, multiple taxes and a heavy bureaucracy but many acknowledge things are beginning to change. Taxes have been reduced and property rights have been improved.
In a report published in September, the World Bank said Belarus was "a global leader in regulatory reforms" and pushed the country's ranking as a good place to do business up from 115th last year to 85th, higher than Russia.
"There's less and less of the Soviet economy, there's a lot of private capital in Belarus," said Sergei Novitsky, director of a building materials factory near Minsk controlled by German company Henkel AG & Co. (HENKY).
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