CASE Belarus made its own research on how COVID-19 and the Belarusian economy did together . We realise that it is rather early to assess the net impact of COVID-19 on the economy, but it is worth drawing some first conclusions. See four articles below about macroeconomic and sectoral issues related to COVID-19 in the Belarusian economy.
To compare, the IMF estimates World GDP growth in 2020 as much as -3.3% (WEO, April, 2021); Belarusian Statistics Committee says GDP of Belarus in 2020 was down by 0.9% (January, 2021). Has Belarus been doing just well?
Among just a few countries in the world, Belarus did not introduce any kind of lockdown because of COVID-19. People went to their jobs, while schools, kindergartens and shops operated as usual.
Throughout the 2020, real incomes kept increasing despite the GDP decline and productivity fall (0.5% in 2020 y/y).
Industrial output, (contributes to 25% of GDP), shrimped by 0.7% in 2020 along with general decline in demand. Half of the industrial sectors showed an increase in finished product inventories despite falling demand. This means that many Belarusian industrial companies continued to produce products that were not sold, but went to warehouses.
Against the background of a significant decrease in net profit (by 68.5%) in q1-q3 2020, the number of unprofitable enterprises increased by 35% (from 879 up to 1,185 units as on 09/01/2020).
The devaluation of the Belarusian ruble in March 2020 by 15% and by 34% to EUR since the beginning of the year (as of 01.01.2021) could have led to an increase in exports in value terms. However, the export of goods and services in 2020 showed significantly worse results starting from the 2nd quarter of 2020.
We can see that COVID-19 in Belarus led to decreased labor productivity, warehouse production and inflated corporate financial problems. The social effects of the pandemic in Belarus seem to be rather controversial, which are not yet too significant but may manifest in 2021-2022. The strategy of ignoring the problem, artificially keeping output volumes at the pre-crisis level (including by government lending programs), lack of real support for the most affected industries and population groups, we think might lead to growing imbalances and stress points both in the country’s economy and and in society as a whole.
When developing an economic recovery program from the COVID-19 pandemic, we believe it is important to channel key assistance to sectors that provide the greatest economic value added (EVA). In our opinion, priority attention should be paid to such sectors as: information and communication, production of chemical products, food production, transport activities, wholesale and retail trade, manufacture of machinery and equipment, as well as construction. This will lead to an increase in business activity, an increase in export, and stable budget revenues, resulting in more sustainable economic growth.
Over the past 10 years, the structure of the Belarusian economy in terms of EVA has become more diversified. The Top-5 sectors share in the total amount of EVA decreased from 70% to 40% in 2019. Over the past 3 years, the top performers of the economy are non-industrial sectors (information and communication in 2019, transport and warehousing in 2018, production of food, beverages and tobacco products in 2017). Also, the number of sectors with negative EVA reduced from 9 in 2010 to 2 in 2019.
Based on the results of 2019, the greatest value was created by the “Information and communications” sector with IT companies as a key sector driver. Significant preferences for the IT sector since 2015 made it one of the Top4 industries in terms of EVA in 2015–2019. The EVA created by the IT and telecom companies almost tripled from 584 to 1.424 million BYN. There are two sectors that were on Top-3 list both in 2010 and 2019: production of chemical products and production of food, beverages and tobacco products. Another sector, transport, recorded the best performance jump, from the 25th place in 2012 to the 1st place in 2018, creating 1.3 bn BYN of economic value added and indicating how important is transport services for the Belarusian economy.
The industries from the bottom of the 2019 EVA table, education, healthcare, social services, and real estate, recorded the poorest EVA performance throughout the entire period. In fact, these industries do not create value, instead they spend value created by other sectors of the economy. As expected, education, healthcare and social services play an important social role in Belarusian political and economic systems and are heavily subsidised. However, we do not have a precise answer why the real estate is an outsider in the Belarusian economy; a more detailed analysis of the sector is needed.
Summing up, one can see that the country saw a decrease in traffic volumes, but due to the refusal to introduce a lockdown, the decrease was less significant than in European countries.
In January-November 2020, the volume of cargo transportation decreased by 7.1%. The biggest drop was recorded in the railway (-14.8%). Pipeline and road transportation also showed negative dynamics in 2020. In the case of pipelines, it is most likely that the absence of oil contracts with Russia in early 2020, rather than the pandemic, had a significant impact. Air and water transport showed positive dynamics in 2020, but their share in total volume of transport sector remained low (less than 1%; while road transport gives 41% of the total volume of cargos, rail makes 31%, and pipeline gives 28% of total cargo transportation).
Change in cargo transportation volume in Belarus in January-November 2020
What about passenger traffic which is more vulnerable to Covid-19 footprint? The drop in the volume of passenger transportation was 17.8% in January-November 2020 compared to 2019. A serious decline in April 2020 happened, with 52 million fewer people transported than in April 2019, which is a clear impact of Covid-19. Despite absence of a lockdown, people in Belarus reduced the number of rides and time using public transport, while part of employees and companies used remote work from home. We also discovered that people reduced the average range of rides in 2020.
Change in passenger transportation in Belarus in January-November 2020, mln rides
The impact of Covid-19 on the transport sector within Belarus is more noticeable in terms of passenger traffic with a serious decrease in the volume and distance of travel occurred just in April 2020. The impact of the coronavirus on cargo transportation is noticeable, but not so obvious, most likely via a decrease in the general economic activity in Belarus.
Belarus’ banking sector will play the key role in the recovery of the Belarusian economy after COVID-19. This will require financial stability and effective prudential supervision by the National Bank of Belarus, along with the improved access of banks to new capital at the open market. Non-depository financial institutions, primarily the Development Bank and leasing companies, will become important players at the market for small and medium-sized businesses and individual entrepreneurs.
Economic history suggests that during a pandemic the decline in production was painful and deep, and the recovery was quite rapid (within one to two years). And such a development of events in the economy would be an optimistic scenario for Belarus. In our opinion, for a rapid recovery to happen, the Belarusian financial sector should solve the following challenges:
1. Ensuring the rapid growth of small and medium-sized businesses (SMEs) via insuring stable sources of investments for SMEs
2. Expansion of the financial sector and an increase in its size relative to GDP through the creation of new accumulative financial products and intermediaries
3. Optimisation of the social protection system by strengthening the targeting of social payments.