BELARUS 2005 ECONOMIC AND INVESTMENT REVIEW

State system. Belarus is a unitary, democratic, social, law-governed state. State power in the Republic of Belarus is exercised by its division into legislative, executive and judicial branches. President of the Republic of Belarus is the Head of State. Executive power in the Republic of Belarus is exercised by the Government, i.e. the Council of Ministers headed by the Prime Minister. The supreme representative and legislative body is the National Assembly composed of two houses: the House of Representatives and the Council of the Republic. All citizens exercise local government and self-government through local Councils of Deputies, executive and administrative authorities, bodies of territorial and civil self-government, local referendums, meetings and other forms of direct participation in state and public affairs.

The official languages are Belarusian and Russian.

Geographical position. Belarus occupies an advantageous economic, geographic and geopolitical position in Eastern Europe at the crossroads of major railways and motor roads, oil, gas and product pipelines and systems of communication between Western Europe, regions of Russia and Asian countries. The territory of Belarus is crossed by one of the major Eurasian ways, including the shortest communication ways from the Central and Eastern regions of Russia to countries of Western Europe, as well as between the Baltic Sea and the Black Sea. In the west Belarus borders on Poland, in the northwest on Lithuania, in the north on Latvia, in the northeast and east on Russia, and in the south on Ukraine. The distance between the capital of the country, the City of Minsk, and capitals of other states is: 184 km to Vilnius, 468 km to Riga, 558 km to Warsaw, 545 km to Kiev, 706 km to Moscow, and 1060 km to Berlin.

The area of the country is 207,600 sq. km. The longest distance from west to east is 650 km, from north to south 560 km. The terrain of Belarus is predominantly plain with hills: the average elevation is 160 m above the sea level; the highest elevation is 345 m.

Administrative division. The Republic of Belarus is divided territorially into six Oblasts (regions) with their administrative centres in Minsk, Brest, Vitebsk, Gomel, Grodno and Mogilev. The country includes 118 administrative districts (rayons). The Republic of Belarus includes 110 towns, of which 15 towns have population over 100,000, and 103 urbanised populated localities.

Population of Belarus is 9.799 million people. Over 70 percent are urban population. Beside Belarusians (81.2 percent), the population includes Russians (11.4 percent), Poles (3.9 percent), Ukrainians (2.4 percent) and other nationalities (1.1 percent). The population density is 47 persons per square kilometre. The largest city in the country is its capital, the City of Minsk, with 1.726 million people at the beginning of 2003.

Climate is temperate continental, with soft and humid winter and warm summer. The average January temperature is from -1.9 °C in the southwest to -3 C° in the northeast of the country; the average July temperature is +21…+23 °C. The annual fallout is 550-650 mm in low places and 650-750 mm in plain and hilly parts.

Agricultural land occupies 43.9 percent of the country’s area, including 26.5 percent of arable land. Belarus has 0.9 ha of agricultural land per capita, including over 0.6 ha of arable land.

Forests occupy 37.8 percent of the country’s area. The country has 0.94 ha of wooded land per capita and 136.1 cu. m of timber reserves per capita, which is almost 2-fold higher than the average European figure. Belarus has mainly valuable wood trees: pine occupies 50.2 percent, spruce 10 percent, oak and other hard-leaved trees 3.3 percent, birch 20.8 percent, aspen 2.1 percent, and alder 10.5 percent of the wooded area. The annual increase of timber reserves reaches 25 million cu. m; the actual amount of wood harvest is within 10-11 million cu. m. Belarusian forests are not only sources of timber, but also play an important biospheric role: they contribute significantly to stability of the environment of Eastern and Central Europe.

Water resources. Belarus has over 20 thousand rivers and streams with the total length of about 91,000 km; about 11 thousand lakes; and 145 artificial water reservoirs. The largest water reservoir is the Naroch Lake (80 sq. km). The available natural water resources are quite sufficient to meet both current and future needs for water.

Mineral resources. In Belarus, about 30 types of mineral resources have been found (over 4,000 mineral fields and deposits). Of special significance among them are potassium salts: by their industrial reserves the country is among the leading countries in Europe. Prospected industrial reserves of the Mozyr, David-Gorodok and Starobin deposits exceed 22 billion tons. The Republic is rich in non-ore minerals like granite, dolomite, marl and chalk, low-melting and high-melting clay, loams, sand and gravel materials, raw material for manufacture of natural paints (boggy iron ore, ochre, glauconite, etc.) and possesses a rather powerful raw material base for manufacture of construction materials. Peat reserves are widely spread in Belarus. The total geological reserves are estimated at 4.4 billion tons. At present, the extracted natural reserves constitute 600 million tons. Another important natural resource is sapropel whose reserves are estimated at 3 billion cu. m. Oil reserves are not big; its production covers only 12-13 percent of the country needs, and this ratio will not change in the future.

Labour resources. The number of employees at enterprises and organisations is 4.34 million people; of them, 1.14 million persons are employed in industries, and 0.51 million people in agriculture. The country has a modern system of professional training, which guarantees a high educational level of population and high skills of employees, including such sectors as automotive, tractor and agricultural machinery building, optical sector, radio and electronics, precision instruments, etc.

Macroeconomic situation and prospects for social and economic development of the Republic of Belarus

Economic review

The current economic situation in Belarus is characterised by a dynamic economic growth. Increase of the gross domestic product has been accompanied by advanced growth rates of industrial production, construction and installation work and paid services provided to population.

The population demand for non-food products and consumer services expands at accelerated rates. Population shows an increased interest in housing construction using their own funds and credits provided by commercial banks.

Gross domestic product. In 2004, gross domestic product (GDP) increased by 11 percent as compared to 2003. This is one of highest indicators among Commonwealth of Independent States (CIS). There is an increasing dynamics of GDP: 4.7 percent increase in 2001, 5.0 percent in 2002, 7.0 percent in 2003, and 11.0 percent in 2004. The policy of the Government of the Republic of Belarus is to increase competitiveness of the national economy through its technological update, use of environmentally-clean resource- and energy-saving technologies, and transfer of foreign technologies by boosting investments.

Industry of the Republic of Belarus provides over half of the GDP growth. In 2004, the industrial output went up by 15.6 percent against 2003. High growth rates of industrial output have resulted from further increase of export and an advantageous conjuncture in the Russian market, which is the main external market of products, not related to raw materials, for Belarus. In parallel, the work is done to increase product competitiveness through non-price factors, which facilitates promotion of goods to markets other than CIS countries; therefore, export to countries other than CIS increases by more dynamic indicators as regards different export items.

Investments in the Republic of Belarus represent a priority line of use of the increased GDP. In 2004, the growth rate of investment into fixed capital was 120.2 percent against 2003. Enterprises become more involved into the investment process. Over 57 percent of investments have been secured by funds owned by enterprises, including bank credits. The share of foreign investments still remains at a low level; however, it is considered an essential element for the transfer of knowledge and technologies from other countries, and for accelerated technological update and modernisation of the national production potential.

Inflation in the Republic of Belarus has overcome the crisis character which was in place in the second half of 1990’s. Consistent implementation of measures related to a strict monetary and credit policy helps reduce the rate of inflation.

The low devaluation of the Belarusian rouble alongside other economic and monetary factors have facilitated further reduction of inflation to the level which is within the predicted socio-economic development of the country in 2004: 14-18 percent a year. This figure, 14.4 percent, has been the lowest indicator over the entire history of the Belarusian state and has become one of the essential prerequisites for the economic growth in the country. In 2004, the average monthly growth of consumer prices made 1.1 percent against 1.9 percent in 2003.

The current transactions account of the balance of payment. Belarus traditionally has a negative balance of current transactions: in 2004, it made (-1043) million US dollars. However, the economic performance over the last four years has shown that this does not prevent Belarus from implementing a policy of stable dynamics of the Belarusian rouble exchange rate, without spending official currency reserves to this end.

The main factor influencing the current transactions account in 2004 as well as the balance of payment was, as before, an active development of foreign trade, which in turn depended on a range of factors. Among them are: a significant growth of export to states other than CIS countries; increased demand for Belarusian products from Russia due to the economic growth of the main trade partner of Belarus. In 2004, the growth of physical volumes of commodity export was 15.0 percent compared to 2003, with the increased level of export prices in the dollar equivalent by 20.2 percent.

Exchange rate. The priority line in the monetary and credit policy in 2004 was the protection and ensuring of stability of the Belarusian rouble, its purchasing power and exchange rate. In 2004, the nominal exchange rate of the Belarusian rouble against the US dollar went down by only 0.6 percent, whereas in 2003 this decrease was 12.3 percent. This result has been achieved basically by maintaining gradual and predictable dynamics of the official Belarusian rouble exchange rate.

Basic socio-economic indicators

Indicator	Unit of measurement	1997	1998	1999	2000	2001	2002	2003	2004
Indicator	Unit of measurement	1997	1998	1999	2000	2001	2002	2003	Predicted	Reported
GDP, nominal	billion roubles	366830	702161	3026064	9133.8	17173.2	26138.3	36564.8	44000-46000	49445.2
growth against the previous year	%	111.4	108.4	103.4	105.8	104.7	105	107	109-110	111
GDP deflator index	%	171.6	176.6	416.8	285.3	179.5	144.9	130.7	114-118	121.8
Industrial output	billion roubles	445163	832728	3684247	10501	18612	24912	33387	43730-44560	47176.2
growth against the previous year	%	118.8	112.4	110.3	107.8	105.9	104.5	107.1	109-110	115.6
Price index in industry	%	188.0	172.0	455.8	285.6	171.8	140.6	137.9	113-114	124.2
Investments into fixed capital	billion roubles	68224	158528	623883	1809	3049.3	4484.6	7131	8600-8740	10243.9
growth against the previous year	%	120	125	92	102.1	97	106	120.8	118-120	120.2
Putting into use new dwelling houses	‘000’ sq.m	3360