Belarus: Trade Performance and Competitiveness

Abstract

Below the surface of strong recent growth, favorable external conditions, and high export prices, Belarus’ competitiveness and export sustainability have gradually eroded. This erosion is evident in a number of areas of trade performance. First, in a small open economy crucially dependent on exports, economic growth has become increasingly driven by domestic demand, not exports. In turn, export growth has been increasingly driven by prices. Second, exports have become more concentrated in terms of the number of exporters and products. This makes the economy more vulnerable to external shocks, including those caused by drastic movements in terms of trade (TOT). Third, trade restructuring and diversification have been slow. The share of EU in non-oil exports has been stagnant while Russia still accounts for more than half of total non-oil export. Fourth, intra-industry intensity of trade has been low with especially low inter-industry trade (IIT) with more developed countries. This reflects the failure of the country to attract foreign direct investments (FDI) and linked to them technology transfer, increased productivity, and competitiveness of the economy. Fifth, Belarus’ comparative advantages have weakened. The estimates of revealed comparative advantage (RCA) indicate that Belarus‘s comparative advantages have shifted away from labor- and capital-intensive goods towards raw materials and petroleum. This limits the room for job-creation and productivity improvements. Sixth, “export - a characteristic of a country‘s ability to export a wide variety of higher value goods found in developed countries - has not increased, reflecting, inter alia, the shift towards goods with lower technological content. In addition, Belarus is losing its share at markets with higher export sophistication (i.e., Russia). Seventh, Belarus has created very few opportunities for “structural transformation”, understood as a process of changing the structure of production and export products. This further weakens Belarus‘s growth prospects.