How to reform the Belarusian regions

Ryhor Astapenia, Anton Radniankou
The Belarusian regions are suffering from severe economic privation. Here’s what can be done.

From the relative comfort of Minsk, the economic crisis in Belarus does not seem so drastic. Problems certainly exist, but wages in Minsk have fallen the least, and the general attitude in the capital seems to be “life goes on”; new bars seem to be opening like mushrooms after rain.

However, the situation is different in the provinces, where the country’s economic decline is felt much more sharply: the labor market is receding and the cities are emptying. If the status quo persists, only Minsk and a dozen other cities will remain of the current Belarus in the medium-term.

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The four major problems of the Belarusian regions
The Belarusian regions are losing their demographic potential and human capital assets.

Over the last 20 years, Belarus has lost almost 1 million residents (about 10% of the population). However, this decline has effected the country disproportionately: Minsk, the regional centers, and other large cities have grown, while villages and towns of less than 50,000 people are becoming ghost towns. Residents have either passed away or left for places with better economic perspectives. Some 20 years ago, every third Belarusian lived in a village – this number is now every fifth.

According to the Ministry of Economy, the population of 77 of the 118 districts in Belarus will not be sustainable by 2032 (this means they will have less than 20,000 residents). Big cities, and Minsk in particular, attract the young and talented. The age difference between the capital and the regions is clearly reflected in Belarus’s mortality rate coefficient. In 2015, there were 8.8 deaths per 1,000 people in Minsk, while in the rest of the country the figure was 13.6.

1 mln
77 of 118
The importance of the regions for the Belarusian economy is decreasing every year.

Besides the loss of human resources, the regions are losing their significance for the Belarusian economy; correspondingly, the role of Minsk is growing. In 2016, the capital’s share in the GDP comprised 27%, a figure which continues to grow. Thus, Minsk’s growth is a vicious cycle for the regions: investments come to Minsk as it boasts the best sales market, the economy of the capital is strengthened, and as a result Minsk attracts more new investments. It is no surprise that innovations in Belarus are developed first and foremost in the capital.

At the same time, the Belarusian regions exist according to the rules of the “old economy”, which has a smaller service sector and relies on state-owned industry, which suffered the most during the crisis. Thus, the wages of the residents of Minsk have decreased more slowly, and Minsk dwellers earn 1.5 times more than in the rest of the country, while the average per capita income is almost twice as high.

Regional science intensity relative to GDP *
Minsk share in Belarus GDP
The Belarusian regions are becoming increasingly deprived of access to high-quality social services.

Place of residence is rapidly becoming the primary factor determining a person’s risk of falling below the poverty line. There are many economically depressed district centers in Belarus with populations of only several thousand people where finding a job is extremely difficult. The absence of adequate unemployment benefits results in people sinking below the poverty line (approximately $90 per month). The chance of this happening in the Belarusian regions is four times higher than in Minsk.

Predictably, the quality of social services outside the capital remains lower than in Minsk. The capital's residents have access to half again as many doctors and slightly more medical staff.

58.1
Minsk
38.4
other regions

Higher education is also hard to come by in the regions: 28 of the 51 universities in Belarus are located in Minsk. That said, the number of doctors or higher education establishments are merely symptoms of a more worrying trend. Many other social services outside Minsk are also well below average.

Share of low-income households
0.9%
Minsk city
5.8%
Homiel region
5.4%
Brest region
4.9%
Mahiliou region
3.8%
Minsk region
2.9%
Hrodna Region
28 of 51 universities in Belarus are located in Minsk
Belarus lacks political elites with programs to revitalize the Belarusian regions.

Probably the largest problem of the Belarusian regions is the incompetence of the authorities. Although local authorities are occasionally charged with corruption, the state of affairs in the regions points to widespread official ineptitude. The absence of elections leads to a situation in which officials in no way depend on their constituents. Thus, they are not obliged to stand up for the interests of the people.

Belarusian legislation ignores the concept of "regional development", and the authorities have failed to create regional development programs, except those which are drawn up together with Western experts at the expense of the EU or the UNDP. However, such programs are generally "written for corporate purposes only" and are never put into practice. Moreover, according to experts, they resemble school essays.

‘Unlike development strategies developed in EU countries, those created in Belarus fail to clear the bar of a high school essay.’
Three mistaken approaches to regional development

The decline of the Belarusian regions is strongly connected with a faulty understanding of regional development on behalf of the Belarusian authorities.

“Minsk decides”

The main flaw in current regional development policy is excessive centralization, in which Minsk decides how this or that region should develop. As a result, local authorities only care about fulfilling indices set from above rather than thinking about how to really develop a region.

The bottom-up approach, in which basic decisions are taken at a local level, should be paid more heed. To make this approach work, the Belarusian regions need broader participation of society in solving local problems, greater transparency in the decision-making process, and more economic autonomy. Federal authorities should only assist in this process, inviting experts for cooperation, rather than imposing senseless indicators.

That said, one should not assume that inefficient governing is not prevalent in Minsk and other large cities. It’s just hiding behind large markets, the private sector, and fat budgets. However, for residents of towns of less than 50,000 people, the consequences of inept governance are far grimmer.

Federal authorities should only assist in this process, inviting experts for cooperation, rather than imposing senseless indicators.
“Which branch of the economy shall we bail out next?”

The times when the authorities could allocate $10 billion to support the regions have passed. Although a total of about $1 billion was allocated to support agriculture, this number is less than in the more prosperous 2000s.

Not only are the regions starved for a budget, investment is declining frantically – only last year, investments in the regions decreased by 25%; this figure is well below the threshold for economic security. Given that the regions' infrastructure has also degraded, and the budget is not sufficient even to sustain current costs, dreams of an all-encompassing revival are woefully misplaced.

Ironically, this is not all bad, as state managers’ attempts to completely modernize the wood-processing industry and several cement plants remind us. According to data from 2016, the wood-processing industry's debt was 2.5 times greater than its annual income (over $2.7 billion in total and growing); It was operating at only 60% capacity, and it's profitability was as low as 1%. Enterprises victimized by this modernization will be recovering from their “success” for a long time yet.

"Success" of the wood industry, 2016
Budget expenses on agriculture, % of GDP
“All regions are equally poor”

Despite the generally dire situation, it is incorrect to assume that all regions are collapsing at an equal rate. Different regions have different dynamics, and it’s worthwhile to give recognition to more successful areas.

For instance, regional centers and regional agglomerations such as Polatsk and Navapolatsk, Mazyr, and Kalinkavichy, where the population is growing, the youth is staying, and private business is on the rise are especially noteworthy.

Such regions need their own development strategies and joint infrastructural projects. These clusters will become points of growth which could set the pace for the country’s development.

Increase of population of district centers
(over the last 10 years)
8%
Baranavichy
8%
Pinsk
6%
Salihorsk
3.6%
Polatsk and Navapolatsk
What to do

There is no panacea for the ailments of the Belarusian regions. However, there are many things the state could do. In short, the horizontal policy of regional actors should replace the vertical policy of the central authorities.

First, the regions need real local self-governance, not sham deputy councils.

After all, if the officials in charge of a region are dependent on their superiors rather than their constituency, they will not put much effort into helping ordinary people. The regions need a strong civil society. Broad public participation in solving local problems would enhance the quality of regional strategies and improve the work of more accountable local authorities.

“Broad public participation in solving local problems would improve the work of local authorities.”
Secondly, de-centralization could be not only organizational, but also geographical.

For example, in Germany, the Central Bank is based in Frankfurt am Main; in the Czech Republic all the highest courts were moved out of Prague. Moreover, Western countries tend to place international agencies in regional centers – Interpol headquarters were moved from Paris to Lyon in 1989. Meanwhile, in Belarus, everything is concentrated in the capital.

Bodies with an independent agenda could leave Minsk tomorrow – here we mean institutions such as the National Bank, the Supreme Court, or the Constitutional Court. Such de-centralization of state bodies would become a boon for regional development, decrease budget expenses, and improve the quality of public administration.

Many universities could also join governing state bodies in the regions. Something is wrong when over half of all higher educational establishments are concentrated in one city.

De-centralization would keep the youth in the regions more effectively than mandatory work placement: in Belarus, scholarship recipients are required to accept jobs chosen for them by the state, more often than not in small towns. Moreover, the presence of decent universities would increase the quality of human capital in the regions, without which economic growth or attracting large investments is impossible. Today in Minsk, 43% of the labor force possesses higher education; in the regions the figure is half that.

55% of all universities in the country are located in Minsk
43% of workers in Minsk have higher education, outside Minsk it is half this figure
Thirdly, the regions need effective budget management and improved stimuli.

Local budgets are heavily dependent on transfers from the national budget and are drawn up on the principle of loss-making. The more local governments spend in one year, the more they can apply for in the next. in other words, efficiency and economy are discouraged as they lead to a decreased budget. It is not surprising that in such a context, leaders inevitably inflate costs.

Changing the system of tax distribution could ease the situation. The current system, in which the center collects all taxes only to re-distribute funds via transfers, is clearly ineffective. The major part of taxes should go to local budgets directly.

Local budget revenue sources
Fourth, it is necessary to diversify the regional economy.

It is impossible to increase the competitiveness of the regions if they have no competition: regional economies need private business. Equal conditions must be created so both state and private enterprises can function on equal terms. Taxes on business should go to local budgets so that local authorities are stimulated to expand their tax base.

Each region should define one or two priorities for development, and the directions different areas should take should be coordinated at the national level. This approach is called ‘Smart Specialization’ – it helps to avoid duplication of regional development strategies and excessive competition between neighboring regions.

The selection of a specialization should be based on a thoughtful assessment of existing initiatives and interested parties in the region, involving as many actors as possible from different sectors interested in innovation. The Lower Silesia Voivodeship in Poland provides a good example. The traditionally industrial region with a well-developed mining industry has redirected in recent years towards bio- and nanotechnology.

If the cost of selecting a certain direction proves too high, authorities should elaborate several contingency plans. Such hypothetical scenarios should attempt to predict the results of prioritizing certain areas, including how results would change depending on the speed of implementation of measures, the overall situation in the country’s economy, and the amount of available funds. It should have been clearer to the authorities that without real development of small and medium business, without privatization, it is impossible to realize a sustainable development strategy.

Each region should define one or two ‘smart specializations’ that can become priorities for development.
Fifth, the authorities must solve nation-wide problems.

Most regional problems remain the result of bad policy nationwide. If state-owned enterprises are not restructured, both the management system and quality of life will remain at a low level. Privatization and the private sector remain the main hope for the Belarusian regions - the standard of living is highest in those regions of Belarus where the private sector is the largest.

62.7%
Minsk region
60.5%
Minsk city
57.4%
Hrodna region
57.2%
Brest region
55.0%
Mahiliou region
53.0%
Homiel region
50.8%
Vitsiebsk region

Alongside reform of enterprise, the authorities should start providing real support to the poor and unemployed. Most Belarusians suffering from poverty live outside the capital and are victims of ineffective government policy. The authorities are unlikely to remunerate the people for their failures, but they could at last start by reforming the regions.

The authorities are unlikely to remunerate the people for their failures, but they could at last start by reforming the regions.
Ryhor Astapenia – Founder and Editor-in-Chief of Idea. Ryhor works as Development Director and analyst at the Ostrogorski Centre. He is working on a PhD thesis entitled “International Identity of Belarus” at Warsaw University. Ryhor is a native of Salihorsk. He can be reached by e-mail: ryhor.astapenia@gmail.com
Anton Radniankou – Executive Director of Idea. Anton works as Project Manager in the sphere of sustainable development of the regions. Anton was born in Homel. He studied foreign relations at the Minsk State Linguistic University and analysis of financial markets at the Belarusian National Technical University. He can be reached by e-mail: a.radniankou@gmail.com
Photos: Shutterstock