Analyzing Belarusian Trade

UNCLAS SECTION 01 OF 04 MINSK 000147

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD PREL USTR BO
SUBJECT: Analyzing Belarusian Trade

Refs: (A) 05 Minsk 1145, (B) 05 Minsk 871


1. (SBU) Summary: Trade figures for the first nine months of 2005
show a strong increase in Belarusian imports and exports, leading
to a shrinking trade deficit. Russia remained by far Belarus'
largest trading partner, accounting for 48% of trade. However,
trade with Russia fell in both relative and absolute terms. Trade
with the member states of the European Union grew sharply in
absolute and relative terms to USD 7.5 billion, or 32% of Belarus'
foreign trade. According to GOB statistics, the Netherlands was
Belarus' second largest trading partner. The Dutch Embassy
believes bilateral trade is actually quite small, but explained the
GOB counts oil products exported through Rotterdam as trade with
the Netherlands. Ukraine came in third place, followed by Germany
and Poland. China was in seventh place, showing strong growth
through the year, and the United States was Belarus' ninth largest
trade partner.


2. (SBU) Summary cont'd: Despite its rhetoric and politics, Belarus
is becoming increasingly economically dependent on the Western
democracies, and less so on its traditional trading and ideological
partners. Exempting Russia and Ukraine, the remaining CIS states
accounted for a measly 1.7% of trade. In recent years, Minsk has
actively sought to increase trade and relations with pariah states
(septel). Despite these efforts, trade with these Outposts of
Tyranny and State Sponsors of Terror only accounted for 0.43% of
Belarusian trade. End summary.


3. (U) These numbers only analyze Belarus' foreign trade for the
first nine months of 2005, the latest data available in detailed
form.


Growing Trade, Shrinking Deficit
--------------


4. (U) During this period Belarus' foreign trade totaled USD 23.288
billion, an increase of 10.7% over the same period in 2004 in
monetary terms. Belarus exported goods and services worth USD
11.643 billion (an increase of 18%),and imported USD 11.646
billion (up 4%),for a trade deficit of USD 2.8 million (compared
to a deficit of USD 1.35 billion a year earlier).


5. (U) According to a Prime-Tass analysis, Belarus' exports
actually fell 1.4% and imports fell 0.7% January through November
in terms of volume. However, in dollar terms both were up, exports
by 16.3% and imports by 4.4%. Most of this rise could be
attributed to higher oil and potash prices. For example, Belarus
exported 3.9% less potash, but earned 34.9% more from its sale.
Belarus refines Russian crude oil and ships it westward. In the
first eleven months of 2005 Belarus earned an additional USD 1.273
billion from higher oil prices over 2004, according to Prime-Tass.


6. (U) Prime-Tass attributed Belarus' shrinking deficit (which grew
into a USD 294 million surplus January-November, after accounting
for a surplus in services of USD 781 million) to: 1) higher prices
for exports (see above); 2) the January 2005 change in VAT
collection with Russia, which led many Belarusian companies to
temporarily boost imports in December 2004, before the change took
affect; and 3) Belarus imposed tariffs on a number of imported
goods to protect local industry.


Russia
--------------


7. (U) Belarus' main trading partner is Russia, although this trade
decreased in absolute and relative terms. In the first nine months
of the year Russia accounted for 48% of Belarus' foreign trade,
totaling USD 11.2 billion; 36% of Belarusian exports, worth USD 4.2Q
billion; and 60% of Belarusian imports, worth USD 7 billion.
Belarus ran a USD 2.8 billion prade deficit with Russia. In the
same period in 2004, Russia accounted for 58% of Belarus' foreign
trade, totaling USD 12.2 billion. During this period Belarusian
trade with Russia fell by 9.1%, with similar results for imports
and exports. The Ministry of Statistics reported in September that
the physical volume of trade with Russia fell more sharply, but
this was partially offset by rising prices of goods traded.


8. (SBU) In December Prime Minister Sergey Sidorsky announced trade
with Russia fell in physical terms 24% to 29% in 2005, due mainly
to VAT problems. Specifically, Belarusian businessmen often have
to wait a year for VAT refunds from the GOR. Deputy Minister of

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Economy Tatiana Starchanka told DCM and Econoff on February 6 that
this drop in trade with Russia was largely a result of the January
2005 restructuring of VAT in bilateral trade (ref A),but she added
that most VAT problems have been solved. Starchanka also stated
that a weaker than expected Belarusian harvest and transparency
issues in Russia also led to falling trade. Belgazprombank
economist Valery Dashkevich told Econoff February 2 that trade with
Russia would continue to fall as there remain many unresolved VAT
problems, and because Belarusian goods are having increasing
difficulty competing with Asian goods in the Russian market. News
service Prime-Tass in January wrote that the main reason Belarus-
Russia trade fell in 2005 is that Belarusian goods are not
competitive in Russia. Belarusian firms are inefficient, rely
excessively on expensive Russian raw materials, and the Russian
market is not protected from cheap Asian imports. Prime-Tass
claimed Belarusian exports of construction materials, artificial
fibers, rugs and carpets, footwear, flax and agricultural goods
were the worst hit.


9. (U) In 2004, the last data available, Belarusian exports to
Russia consisted of: 36.9% machinery, equipment and transport;
16.1% processed foodstuffs and raw agricultural goods; 11.1%
chemicals; 10% metallurgical production; 8.5% light industrial
products; 7.5% wood products and furniture; 5.3% other; and 4.6%
minerals (most likely potash).


European Union
--------------


10. (U) The European Union was Belarus' second largest trading
partner, and the largest consumer of Belarusian exports. [Note:
This reflects the fact that Belarus refines and exports Russian
crude oil. However, much of this production does not remain in the
EU, see para 21.] The countries of the EU account for 32% of
Belarus' foreign trade (up from 27% in 2004),totaling USD 7.5
billion; 43% of Belarusian exports, worth USD 5 billion; and 21% of
Belarusian imports, worth USD 2.5 billion. Belarus maintained a
USD 2.6 billion trade surplus with the EU.


11. (U) According to GOB statistics, Belarus' main trading partner
in the EU, and its second largest trading partner in general, was
the Netherlands. However, this reflects questionable accounting on
the part of the GOB (see para 21). More realistically, Belarus'
largest trading partner in the EU is Germany, with USD 1.3 billion
in trade (exports USD 522 million, imports USD 736 million). As of
October, German companies had also invested USD 77 million in 375
Belarusian companies. Other major EU partners are Poland (see
below),United Kingdom (as with the Netherlands, see para 22),
Italy with USD 408 million (exports USD 127 million, imports 280
million),Lithuania with USD 328 million (exports USD 235 million,
imports USD 92 million),France with USD 316 million (exports USD
193 million, imports USD 123 million),and Latvia with USD 299
million (exports USD 231 million, imports USD 68 million).


12. (U) Trade with the EU grew by 31% from the same period in 2004,
with Belarusian exports growing 44% and imports by 11%. Most of
the increase in exports is due to rising oil prices, as trade in
other categories of goods fell. During the year Econoff spoke with
several Belarusian businesses, particularly manufacturers of
furniture and textiles, who complained they had been pushed out of
the European market by cheaper Chinese goods. This trend is likely
to accelerate after the EU dropped quotas on Chinese textile
imports. Therefore, even with the drop in certain categories of
exports, in a period when the Belarusian government was growing
increasingly antagonistic toward the European Union, Belarus was
growing more economically dependent on these countries.


Ukraine
--------------


13. (SBU) Ukraine was Belarus' foreign trade success story, with
trade growing 71% over 2004 to USD 1.3 billion, of which USD 700
million was Belarusian exports and USD 628 million was imports.
According to the Ukrainian Embassy, after Belarus and Russia
changed the way VAT was paid, which complicated trade, Belarusian
firms found new markets in Ukraine. This made Ukraine Belarus'
third largest trading partner. Belarus increased exports of
televisions to Ukraine by 1,200%, potash by 110%, and trucks by
90%. Belarus also increased its exports of petroleum products and
meat.


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Poland
--------------


14. (SBU) Poland is Belarus' fifth largest trading partner,
accounting for USD 1 billion in trade in the first nine months of
the year (Belarusian exports USD 628 million, imports USD 413
million, for a USD 215 million surplus). Trade with Poland grew
26% on the year, with equal growth in imports and exports.
According to Andrzej Szot, head of the Polish Embassy's Commercial
Section, 66% of Belarus' exports to Poland consist of oil, natural
gas and potash. These items account for the entire increase in
exports. The main Polish exports to Belarus are pork, particle
board, apples and pears, lamps and toilet paper.


15. (SBU) Szot explained that the number of Polish firms operating
in Belarus dropped from 500 in 2003 to 350 in 2005. The largest is
Inkofood, a meatpacking plant in Brest with 600 employees. Polish
firms have problems in that there is little objective market
information available in Belarus, and that Belarusian customs
confiscates too many goods at the border. Szot also said Polish
firms in Belarus are forced by the GOB to give money for the
harvest or to Lukashenko's re-election. One small Polish company
was recently reportedly ordered to give USD 70,000 to Lukashenko's
campaign. After the GOB began to harass the Union of Belarusian
Poles in 2005, Polish companies became increasingly hesitant to
invest or trade in Belarus (ref B).


Commonwealth of Independent States
--------------


16. (U) Excluding Russia and Ukraine, Belarus' trade with the other
nine countries of the CIS totaled just USD 395 million, or 1.7% of
Belarus' total trade. Most of this was with two countries,
Kazakhstan (USD 148 million) and Moldova (USD 118 million). Trade
with the rest of the CIS, including with fellow Eurasian Economic
Community partners Kyrgyzstan and Tadjikistan, was minimal.


China
--------------


17. (U) China is Belarus' seventh largest trading partner, with USD
503 million in total trade in the first nine months of 2005. Of
that amount, Belarus exported USD 307 million and imported USD 195
million, giving it a trade surplus with China of USD 112 million.
This trade grew 60% during the year. Belarus mainly exported
potassium fertilizers, dump trucks, machinery and spare parts,
microchips, metal goods, chemicals, tools and leather. According
to the GOB, Belarus imported from China "component parts and
materials." Belarus is actively seeking to expand its trade with
China, and has opened representative offices there for Belneftekhim
(petroleum products),Belaruskali (potash),MZKT (tractors and
trucks),BelAZ (large trucks),Integral (microchips),BMZ
(metallurgy),Gomselmash (tractors),and the Belarusian State
Powder Metallurgical Concern. All these are state enterprises.


United States
--------------


18. (U) According to GOB statistics, the U.S. is Belarus' ninth
largest trading partner, with USD 350 million in trade in the first
nine months of the year. [Note: the GOB listed Puerto Rico and the
U.S. Virgin Islands to be separate countries, but their trade with
Belarus amounted to around USD 700,000.] According to the GOB,
Belarus exported USD 177.8 million to the U.S., and imported USD
171.6 million. This was an increase of 30% over the year before.
[Note: According to U.S. Census Bureau figures, in that period
Belarus exported to the United States USD 269.4 million and
imported USD 26.7 million, giving the GOB a large trade surplus
with the US. Post cannot account for this discrepancy.]


19. (U) The GOB claims the main items it exports to the U.S. are
potash (USD 55.3 million),petroleum products (USD 19.5 million),
women's outerwear (USD 16.1 million),and twisted wires made from
ferrous metals (USD 7.2 million). Belarus' main imports are
internal combustion engines (USD 16 million),tractors-including
semis (USD 13.8 million),medicines (USD 9.2 million),and
equipment for food processing (USD 8.5 million).



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Asia, Africa, and the Western Hemisphere
--------------


20. (U) Belarusian trade with the rest of the world was low, with
few exceptions. Trade with Asian countries (including the Middle
East) totaled USD 1.2 billion. Other than China, India (USD 172
million) and Turkey (USD 74 million) are the only major partners.
Trade with Africa reached just USD 107 million, of which Egypt (USD
32 million) and Libya (USD 15 million) had the largest shares.
Other than with the United States, trade with the rest of North and
South America totaled USD 402 million. Brazil surprisingly
accounted for USD 246 million of that amount, with Belarus
exporting USD 118 million and importing USD 128 million, an
increase of 10% over the year before. Potash accounted for 99% of
Belarusian exports to Brazil. In return, Belarus imports raw
sugar, coffee, tea and tobacco from Brazil.


Shady Statistics
--------------


21. (SBU) According to the Dutch Embassy, the GOB greatly
overstates the amount of its bilateral trade with the Netherlands.
For example, the GOB claims it exported USD 1.7 billion to the
Netherlands from January through September 2005, making the
Netherlands Belarus' second largest trading partner, after Russia.
The Dutch Embassy's Commercial Counselor told Econoff the two
countries actually have very little trade. However, the GOB counts
all oil exported through the port of Rotterdam to be bilateral
trade with both the Netherlands and whichever country receives the
oil. The Dutch believe about 90% of the trade claimed by the GOB
is actually oil that transits the Netherlands. The GOB's Ministry
of Statistics claimed 91.5% of trade with the Netherlands is
petroleum products. In reality, Belarus exports seedlings,
strawberries and some textiles to the Netherlands.


22. (SBU) The British Embassy told Econoff a similar story. For
2004, the GOB claimed USD 1.1 billion in bilateral trade with the
UK, while the British Embassy insisted trade amounted to only USD
90 million. The difference, the British DCM explained, is that the
GOB considers Belarusian oil sold at London's International
Petroleum Exchange to be bilateral trade with the UK and with the
purchasing country, even though this oil never actually touches UK
soil. For the first nine months of 2005, the GOB claimed USD 880
million in trade with the UK, reflecting a continuation of this
questionable accounting practice.


Comment
--------------


23. (SBU) Despite Lukashenko's aggressive rhetoric against the
West, Belarus is becoming increasingly dependent on Western
markets. Much of this trade is refined petroleum products.
However, a large portion of Belarus' exports consists of
manufactured goods, such as textiles, machinery or chemicals. This
increasing reliance on the West makes Belarus vulnerable to
pressure from trade sanctions, but also increases the exposure of
many Belarusians to Westerners and to Western ways of doing
business. Given the Belarusian economy's dependence on foreign
markets, Lukashenko cannot succeed in completely isolating his
country and people from the outside, despite his best efforts.

PHLIPOT