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 MINSK 00000147 002 OF 004 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. MINSK 00000147 003 OF 004 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). MINSK 00000147 004 OF 004 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