Belarus and Developing Countries: Looking for new ‘Venezuelas’

Andrei Yeliseyeu

Summary

In 2014, Belarusian diplomats kept looking for new ‘Venezuelas’ (as President Alexander Lukashenko used to say) in Asia, Africa and Latin America. Certain progress was achieved in this direction: the assembly of tractors was launched in Cambodia, and similar contracts were signed with Mozambique and Nigeria. However, in general, Belarus’ achievements in fostering trade and economic relations with developing countries 1 are quite modest.

The cultivation of new foreign markets is sluggish not only because Belarusian goods are poorly competitive and the state-run economy is usually shiftless, but also due to a variety of external factors. Political and military tension in the Middle East impedes Belarus’ trade with the region. Uncertainty about the future of a number of joint projects in Latin America is caused by a global oil price downturn, which hits the economies of the partner countries.

Last year, Belarus’ foreign trade balance with developing countries slightly improved mainly owing to increased supplies of Belarusian potash fertilizers.

Trends:
The intensity of foreign policy contacts is growing from year to year

A steady increase in the number of political and diplomatic contacts between Belarus and developing countries has been observed over the past few years. The increasing intensity of relations between Belarus and developing countries can be represented as numerical values based on the methodology used in regular monitoring reviews made under the auspices of the Belarusian Institute for Strategic Studies (BISS) (see Figure 1). 2

Figure 1. Dynamics of Belarus’ foreign policy contacts with developing countries

Note: The dynamics of Belarus’ foreign policy contacts with China is not included. Source: Foreign Policy Index, BISS, 2011-2014.

Clouded relations with China: A critical revision

China holds a special place in the system of relations between Belarus and developing countries. Firstly, the volume of Belarus-China trade exceeds the volumes of Belarus’ trade with all other developing countries combined (although the proportion of the trade with China remains relatively small making up 3.9% in 2014). Secondly, Belarus and China have established large-scale credit and investment cooperation. Thirdly, since China was declared one of the foreign policy priorities in 2006, Belarus has considerably intensified political contacts and cooperation with China in the security, humanitarian and other sectors.

However, the trade and investment cooperation with China remains unfavorable for Belarus. 3 A trade deficit is still a serious problem, although it decreased year-on-year from USD 2.37 billion to 1.73 billion year-on-year. 4 As before, Belarus mostly exports natural raw materials (potash fertilizers) and petrochemical products with low added value. Contrary to Belarus’ expectations, Chinese direct investments in the Belarusian economy remain insignificant, and the influence of Chinese tied loans on the economy and some particular enterprises is often questionable.

2014 was a year of truth in Belarusian-Chinese relations. Complexities and contradictions in bilateral relations were obvious before as well, 5 but officials preferred not to talk about them in public hoping for a positive change. Last year, criticisms about the massive deficit in the foreign trade with China and the practice of using Chinese tied loans were officially voiced for the first time.

In February 2014, Alexander Lukashenko scarified the project of the Chinese-Belarusian Industrial Park (CBIP) in harsh terms. The preparation for the CBIP launch started as far back as 2010. It all goes very slow, and the measures taken to invite investors and residents of the Park are inconclusive. The kick-start production in the Park is hardly possible in 2015 as was officially announced.

At a presidential meeting in August, a regular portion of criticism was directed at Chinese tied loans, which were finally officially recognized as having certain negative effects. For example, the deadline set for an upgrade of the Svetlogorsk Pulp and Cardboard Mill (a joint project with Chinese partners) was missed.

Belarus declined a Chinese companies’ proposal to participate in the construction of the second runway at the Minsk National Airport. The estimated cost set by the Chinese was said to be four times higher than the Belarusian side expected. The future of the joint project on the assembly of Geely cars is uncertain, as China and Kazakhstan have agreed on the large-scale production in Kazakhstan.

It is quite indicative that Deputy Prime Minister Anatoly Tozik, Belarusian Ambassador to China in 2006-2010, who was considered the main lobbyist of Belarusian-Chinese relations in the government, was dismissed from office in late 2014 during a massive staff reshuffle. This, however, does not mean that Minsk’s skepticism seriously affects the future plans of dealing with China, first of all because China has tried to smooth things up between the two partners.

In September, China promised free aid worth nearly USD 25 million for the electrification of the CBIP, and, in November, a Chinese military delegation announced the intention to provide gratuitous military aid to the Belarusian armed forces. Also, in September 2014, the Ministry of Finance of Belarus and China Development Bank signed a memorandum of understanding, according to which China will open two long-term credit lines totaling up to USD 1 billion. In the autumn of 2013, Chinese President Xi Jinping announced the commencement of the ‘Silk Road’ Economic Belt project, which involves creation of a comprehensive logistics infrastructure linking China and the European Union through Kazakhstan, Russia and Belarus.

Low oil prices affect Belarus’ relations with countries of Latin America

Ironically, the prospects for relations with Latin America diminished even more after Belarusian Foreign Minister Vladimir Makei’s trip to Nicaragua, Ecuador and Cuba in June. His visit concurred with a drop in world oil prices, which hit Venezuela’s economy the most, given that the sectors associated with the production and export of oil provide 96% of Venezuela’s export revenues.

Although Minsk and Caracas agreed on a road map to promote economic cooperation in 2013, businesses with this Latin American country, which faces the threat of default, turned troublesome. Ecuador–another important partner of Belarus in the region–experiences similar economic problems as an oil exporter (less pronounced than in Venezuela, though, yet still very serious).

Also, the decline in oil prices can negatively affect cooperation between Belarus and other Latin American importers of oil, first of all Cuba and Nicaragua, recipients of Venezuelan subsidies primarily through cheap oil supplies or favorable business deals in the energy sector, which decreased considerably due to the aggravating crisis in Venezuela. Accordingly, their paying capacity and the ability to develop industrial cooperation with Belarus are brought into question.

The volume of Belarusian exports of industrial goods to Brazil is still marginal. Meanwhile, in 2014, Belarus boosted supplies of potash fertilizers to Brazil, which resulted in a considerable increase in the volume of exports in monetary terms up to USD 709.6 million against 518.8 million in 2013.

Mozambique, Nigeria and Ethiopia as potential African ‘Venezuelas’

Belarus has found three potential ‘Venezuelas’ in Africa: Mozambique, Nigeria and Ethiopia. Belarus was very active promoting foreign policy contacts with these countries in 2014, as well as with Kenya and Sudan.

Although certain progress in establishing ties with these African partners has been achieved, playing a Venezuelan scenario will take more than a year. Trade and economic relations with Nigeria, which Belarusian Foreign Ministry Vladimir Makei visited in September, are complicated due to a crisis in Nigeria’s economy, which is heavily dependent on oil prices. The start of the assembly of Belarusian MTZ tractors in Nigeria was scheduled for late 2013, but it is hard to forecast the future of this joint project.

The prospects for the assembly of Belarusian machinery in Ethiopia and Mozambique are still not clear either. In 2014, Belarusian exports to these countries were tiny standing at USD 3 million and 1.8 million, respectively. 6

Turkey becomes a key partner of Belarus in the Middle East

Turkey is the only country in the Middle East and one of the few among those regarded as developing nations, with which Belarus has a steadily increasing turnover in recent years from USD 266 million in 2009 to 628.7 million in 2014, the range of imported and exported goods being quite wide. Belarus kept working to invite Turkish investors and greatly intensified political contacts last year. In June 2014, Belarus and Turkey abolished visas for short trips and put a readmission agreement into effect. What is notable is that Belarus had no readmission agreements with foreign states before: this one with Turkey was enacted even earlier than the same agreement with Russia.

Last year, Belarus also significantly intensified contacts with Iran (Foreign Minister Makei visited the country twice in one year) and the United Arab Emirates, where Lukashenko made an official visit in October. Belarusian exports to both countries increased significantly: from USD 46.2 million in 2013 to 97 million in 2014 to Iran, and from 41.2 million in 2013 to 59.3 million in 2014 to the UAE. Egypt is another country in the region, to where Belarusian exports increased considerably from 36.3 million in 2013 to 134 million in 2014.

Cooperation between Belarus and other countries of the Middle East was developing much less intensively over the year. Belarusian diplomats made serious efforts to develop relations with Iraq. Foreign Minister Makei held meetings with Iraqi President Muhammad Fuad Masum during an official visit to Baghdad in August and leader of Iraqi Kurdistan Massoud Barzani during a working visit to the region in September. Belarus is eager to participate in the recovery of the country, but the military conflict with the Islamic State is unlikely to end soon. The restoration of the once close ties with Syria, Libya and Tunisia is also going slowly.

Relations with South and Southeast Asia

In South and Southeast Asia, Belarus strengthened its traditionally developed relations with Vietnam. President Lukashenko wants Vietnam to be “a kind of a springboard to promote Belarus’ economic interests in the region.” 7 In late 2014, the Customs Union and Vietnam agreed on key provisions of the agreement on a free trade zone, which may be the first agreement of the kind between the Eurasian Economic Community and a foreign country.

In March, Vladimir Makei visited Vietnam, Laos and Cambodia. Belarus launched a tractor assembly in Cambodia (which is the first one in the region) with a capacity of 400 tractors a year.

No considerable progress was achieved in the partnership with Sri Lanka. At the same time, Belarus intensified cooperation with Pakistan, including that in the military-technical sector. As concerns the rapidly developing industrial Malaysia and Indonesia, Belarus increased potash supplies there by USD 150.7 million and 190.9 million, respectively.

Conclusion

Minsk’s hope to extrapolate the experience of cooperation with Venezuela to other countries came true to a small extent.

The progress achieved in building productions capacities in foreign states (Cambodia, Mozambique and Nigeria) was negligible and nothing is likely to change dramatically in the coming years. In 2014, Belarus’ foreign trade balance with developing countries improved mainly owing to a reduction in imports from China and an increase in revenues from sales of potash fertilizers to China, Brazil, Indonesia, Malaysia and India.

The Belarusian government was obviously disappointed with the once promising benefits of cooperation with China. The official discourse on bilateral relations became more prudent.

The prospects for cooperation with a number of states in Latin America and Africa are discouraging due to the economic crisis there caused by a global oil price downturn.

Turkey has become a key political and economic partner of Belarus in the Middle East. Although relations with Iran have intensified, the Belarusian-Iranian trade turnover is much lower than the turnover with Turkey. Future relations with many other countries of the region (Iraq, Syria, Libya and others) do not instill confidence because the social and political situation there will hardly come back to normal any time soon.