Academic journal article Journal of Financial Management & Analysis

Privatization in Russia and Belarus: Case Studies

Academic journal article Journal of Financial Management & Analysis

Privatization in Russia and Belarus: Case Studies

Article excerpt

ECONOMIC INDICATORS

RUSSIA

By the beginning of 1997, 123,000 formerly State-owned enterprises had been privatized, and about 70 per cent of Russia's GDP was accounted for by the private sector, according to the European Bank for Reconstruction and Development (EBRD). For example, in the period 1989-95 Russia had cumulative inward foreign direct investment (FDI) of US$3,900 million (mostly in the natural resource sectors) while China attracted $121,700 million. Even in per capita terms, Russia in 1995 attracted FDI of $1.10 per person compared with $18.20 for China. In terms of foreign trade, China's total 1995 exports were $149,000 million of which 81 per cent were manufactured goods, while Russia exported $81,000 million, mostly raw materials and fuels, with machinery and manufactured goods providing only 8 percent

BELARUS

Belarus was also a republic of the USSR, sharing a rather similar economic, political and social environment. After 1991 however, Belarus introduced fewer economic reforms, and substantially omitted privatization from its policies.

In contrast with Russia, The EBRD reported that in 1997 the private sector in Belarus accounted for only 15-25 per cent of GDP. In 1993, about 8,500 State enterprises (10 per cent of the total) were slated for privatization, but in early 1997 only 24 per cent of this original target had been privatized. At this time, all privatizations were halted and none have occurred since 1996. Indeed some companies have even been renationalized. The International Monetary Fund (IMF) and World Bank (IBRD) have both withdrawn their support for the Belarusian economy, and the EBRD reports continued extensive State intervention in the setting of industrial price and production targets. One third of industrial enterprises are lossmaking but virtually none has been closed, and the State continues to give financial aid to priority enterprises through tax and import duty concessions and through directed credits. For example, budgetary subsidies in Belarus amounted to 3.4 per cent to GDP in 1995 compared with only 1.3 per cent in Russia With the exception of Somalia and Sierra Leone (which both had negative inflows), Belarus had the lowest per capital FDI inflow in the world in 1995, at $0.40 per person, compared with Russia's $1.10.

CASE STUDIES

BELARUS: BUSINESS CRISIS IN THE PRIVATIZED FIRM

Ribocomplex is one of the least fortunate privatized firms in Belarus, as a seafish processor in a country without access to the ocean. It is confronted not only with the break-up of the USSR and its main suppliers in the Baltic states but also with the exhaustion of Baltic Sea fish stocks. Although it had a workforce of 1,200 in 1993, since privatization in 1995, there has been no further reduction in its labour force of 296. The pre-privatization retrenchment occurred through attrition as a result of low wages, rather than from conscious company strategy. It sells its entire output to the Russian market

The factory was a depressing sight, with workers huddled in about 10 per cent of the total factory area, processing only a token quantity of fish. It would appear that with the breakdown in supplies of raw fish, the antiquated plant is doomed as a fish-processor, and in its existing function can only be preserved as a large refrigeration facility, with even fewer jobs than at present. Still the managers dream that their premises and plant are an attractive target for foreigners. As a fishprocessing plant, the managers estimate that they would require only $0.7 million of new investment to achieve world standards, assuming raw fish supplies could be obtained.

After so-called privatization in 1995, the State had 84.5 per cent of the voting shares, with employees holding the other 15.5 per cent, but by January 1997, the State was left with 26 per cent, employees 38 per cent, managers 1.5 per cent and friendly outsiders 34.5 per cent.

In 1995, there was takeover raid. …

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