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Mine part is "Regional policies in Belarus"
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Industrial Development of Belarus
Juliet ABAKUMOVA2,1 Alexander GEDRANOVICH1,2
Natallia PETRUKOVICH3 Anastasiya LUZGINA2,4
Katsiaryna MINIUKOVICH2 Aliaksandr SHASHKO2
Industrial Development in Post-Transition Countries
February 3-7, 2012, Batumi, Georgia
1Minsk Institute of Management2Belarusian State University3Polessky State University4Belarusian Economic Research and Outreach Center
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 1 / 59
Outline
1 Industrial structure of Belarus
2 Industrial policy at present time and perspectives
3 Regional policies in Belarus
4 Case study of development of IT industry in Belarus
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 2 / 59
Industrial structure of Belarus
Belarus during Soviet time
In the USSR Belarus had:
3.6% of the total population of the USSR
3.4% of the value of fixed assets
Belarus produced:
4.0% of GDP
4.5% industrial output
5.6% of production agriculture
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 3 / 59
Industrial structure of Belarus
Belarus during Soviet time
The leading branches of Belarusian industry
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 4 / 59
Industrial structure of Belarus
Industrial structure
Current structure of production of GDP by sectors
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 5 / 59
Industrial structure of Belarus
Industrial structure
Secondary sector structure: (by branch) — 2010, HHI=0.1218
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 6 / 59
Industrial structure of Belarus
Industrial structure
Secondary sector structure: dynamics 1990–2009, %
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 7 / 59
Industrial structure of Belarus
Industrial structure
Tertiary sector structure: (by branch) — 2010, HHI=0.14029
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 8 / 59
Industrial structure of Belarus
Industrial structure
Tertiary sector structure: dynamics 1990–2009, %
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 9 / 59
Industrial structure of Belarus
Industrial structure
HHI for regions (selected branches)
Branches HHI Leading Regions
Communication 0.8951 Minsk City
Fuel 0.4561 Vitebsk, Gomel
Transport 0.3460 Minsk City, Gomel, Brest
Construction 0.2139 Vitebsk, Minsk City, Brest
Science 0.2108 Minsk City, Gomel, Vitebsk
Machine-Building 0.2085 Minsk City, Minsk, Brest
Food 0.1919 Brest, Grodno, Minsk
Electric Power 0.1887 Vitebsk, Minsk City, Brest
Agriculture 0.1742 Minsk, Brest, Vitebsk
Trade and public catering 0.1700 Minsk City, Minsk, Brest
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 10 / 59
Industrial policy at present time and perspectives
Outline
1 Industrial structure of Belarus
2 Industrial policy at present time and perspectives
3 Regional policies in Belarus
4 Case study of development of IT industry in Belarus
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 11 / 59
Industrial policy at present time and perspectives
Industry in Belarus
In Belarus there are over 15’000 industrial enterprises, which
present 70 sectors and subsectors of the industry
The leading place belongs to chemical and petrochemical industry,
machine building and metalworking, light and food industry
In 2011, the share of investments in GDP was 33%
More than 50% of total investments go to construction and
installation work, including housing construction
Foreign direct investments are always at the very low level
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 12 / 59
Industrial policy at present time and perspectives
Foreign Direct Investments
FDI, mln. USD
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 13 / 59
Industrial policy at present time and perspectives
Gross Domestic Product
GDP structure by branches, %
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 14 / 59
Industrial policy at present time and perspectives
Profitability
Profitability of sales and PPI, %
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 15 / 59
Industrial policy at present time and perspectives
Real wages and productivity
Real wages and productivity in constant prices, % of 1990
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 16 / 59
Industrial policy at present time and perspectives
Forms of property
Industrial structure by form of property in 2010, %
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 17 / 59
Industrial policy at present time and perspectives
Industrial policies and instruments
1 Saving current industrial structure with dominant role of
state-owned enterprises
2 Export stimulation, import restriction
3 Policies support wide range of industries
4 Innovative way of development
5 Main instruments of industrial policies:
undervaluation of national currency
state programs with different preferentials
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 18 / 59
Regional policies in Belarus
Outline
1 Industrial structure of Belarus
2 Industrial policy at present time and perspectives
3 Regional policies in Belarus
4 Case study of development of IT industry in Belarus
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 19 / 59
Regional policies in Belarus
Administrative-territorial divisions of Belarus as of
01.01.2011
Region Districts Cities
and
towns
Urban-
type
settlements
Rural
councils
Rural
localities
Population
(2009)
Area,
km2
Belarus 118 112 93 1’295 23’467 9’503’800 207’600
Brest 16 21 8 219 2’167 1’401’200 32’300
Vitebsk 21 19 24 199 6’316 1’230’800 40’100
Gomel 21 18 17 240 2’403 1’440’700 40’400
Grodno 17 14 17 178 4’338 1’072’400 25’000
Minsk City — 1 — — — 1’836’800 —
Minsk 22 24 18 274 5’208 1’422’500 40’800
Mogilev 21 15 9 185 3’035 1’099’400 29’000
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 22 / 59
Regional policies in Belarus
Gross Regional Product (GRP)
Region GRP 2011 at
current prices,
bln. roubles
% total GDP to the previous year in
comparable prices, %
2011 to 2010 2010 to 2009
Belarus 274 282.10 100.00 105.30 107.70
Brest 24 682.80 9.00 101.20 111.30
Vitebsk 23 519.30 8.60 106.30 104.60
Gomel 30 779.50 11.20 104.40 106.10
Grodno 21 196.70 7.70 105.10 106.90
Minsk City 67 975.70 24.80 114.30 108.90
Minsk 40 311.70 14.70 106.60 120.20
Mogilev 19 923.00 7.30 105.80 111.40
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 23 / 59
Regional policies in Belarus
What is regional policy?
Value-free definition:
territorial, place-based policy
Value-based definition:
equity-oriented policy (solidarity, cohesion, inter-regional disparities
reduction) — traditional view
efficiency-oriented policy (Lisbon agenda, market-failure correction,
paradigm shift) — new view recently emphasized by EU and OECD
Actually, regional policy aims at both of them
trade-off between equity and efficiency
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 24 / 59
Regional policies in Belarus
Economic reasons for regional policy
Gap between agricultural and industrial regions widening since
1960s
Followed by industrial demise in heavy industry since 1980s
Inter-regional competition increased (outbidding for foreign
investment etc.)
Provide same living standards to prevent migration
Strengthening the cooperation between Belarusian local authorities,
businesses and civil society with their counterparts from the border
regions of neighboring countries — Euroregions
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 25 / 59
Regional policies in Belarus
Conceptions of regional policy in Belarus
National economy complex development (until 1990) — exogenous
Building of social–oriented economy
Development & foreign market entry based on economic integration
with Russian regions
Forming of corridors (transport, pipeline) with all necessary
infrastructure
Forming of free–trade areas and frontier industrial–service centers
Development of regions and small towns to solve job preservation
problem
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 26 / 59
Regional policies in Belarus
Current regional policy in Belarus
There are neither special legislation nor dedicated state bodies
performing regional policy in Belarus, mostly implicit actions are
present
Only explicit regional policy regulation measures are that dedicated
to radiation-aggrieved and rural regions
Until recently regional policy was only equity-oriented
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 27 / 59
Regional policies in Belarus
Chornobyl radioactive contami-nation map
About 70% of the
nuclear fallout from
the plant landed on
Belarusian territory,
and about 25% of
the land is considered
uninhabitable
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 28 / 59
Regional policies in Belarus
Dynamics of the inter-regional disparities, maximum to
minimum ratio, times
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 29 / 59
Regional policies in Belarus
Ratio of nominal gross average monthly wages by region
and Minsk City to the average national wage level, %
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 30 / 59
Regional policies in Belarus
Top15 richest and poorest Belarusian districts
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 31 / 59
Regional policies in Belarus
Regional competitiveness
Regions are becoming increasingly important as the key arenas of
wealth production and economic governance (Ohmae, 1995; Porter,
2001; etc.)
Considerable disagreement over what, precisely, is meant by the
idea of ’regional competitiveness’, and over whether and in what
sense regions ’compete’
Regional competitiveness is the ability of regions to generate, while
being exposed to external competition, relatively high income and
employment levels (The Sixth Periodic Report on the Regions)
There is no consensus as to the determinants of regional competitive
performance Competitiveness depends on the productivity with which
a location uses its human, capital, and natural resources (Porter)
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 32 / 59
Regional policies in Belarus
Top15 richest and poorest Belarusian districts
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 33 / 59
Regional policies in Belarus
Related works
The concept of competitiveness and its main factors is contributed by:
A.P. Sloan and P. Drucker (management as a key input factor for
competitiveness)
R. Solow (importance of education, innovation and know-how)
T. Hagerstrand (innovation diffusion as a spatial process)
N. Negroponte (“knowledge” as factor in competitiveness)
S. Garelli (“Cube” — 4 competitiveness dimensions)
M. Porter (“Diamond”, stages of development, clusters)
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 34 / 59
Regional policies in Belarus
Existing methods of regional competitiveness estimation
GCI (WEF), WCY (IMD) — global competitiveness indexes
EIS (EC), GII (INSEAD) — innovation indexes
RIS (EC), ECI (RHA) — regional competitiveness and innovation
indexes
PA Эксперт, COПC PAH, IRPEX (Russia)
Economic development administrations (USA)
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 35 / 59
Regional policies in Belarus
Methodology
Model of regional competitiveness estimation includes quantitative
and qualitative indicators of both current (“output” quality) and
strategic (“input” goals) competitiveness
Regional competitiveness rating estimation is adjusted for stages of
competitiveness
Regional competitiveness complex index is calculated for all regions,
districts, and major cities for 1998 to 2009 period
Data: hard statistics from Belstat, National Bank
Normalisation: country average as etalon
Aggregation: geometric mean, no weights
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 36 / 59
Regional policies in Belarus
Regional competitiveness and GRP
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 37 / 59
Regional policies in Belarus
Region profiles
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 38 / 59
Regional policies in Belarus
Cluster thinking for economic development policy and
practice
Build on the unique strengths of their regions rather than try to be
like other regions
Go beyond analysis and engage in dialogue with cluster members
Develop different strategies for different clusters
Foster an environment that helps new clusters emerge rather than
creating a specific cluster from scratch
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 39 / 59
Regional policies in Belarus
Lines of development of the specialization of economy
of Belarusian regions
Region Sources of competitive advantages
Brest Geographical situation; transit opportunities; developed agricultural
sector
Vitebsk Developed chemical and oil-refining industry; engineering industry;
forest, recreational, tourist and logistic resources
Gomel Strong industrial potential; established mineral resources
Grodno Developed agricultural sector and food industry; chemical industry
Minsk City Situated on the crossing of two trans-European communication
corridor; strong industrial, scientific and educational potential;
expert labor
Minsk Beneficial economic-geographical position; high quality of land and
recreational resources; developed engineering industry; established
mineral resources
Mogilev Chemical and engineering industry; proximity to the Russian market
outlets
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 40 / 59
Regional policies in Belarus
Structure and guidelines for action of clusters
Implementation mechanism Purpose, guidelines for action
Building of large clusters: holding
companies, clusters, financial and
industrial groups
Higher competitiveness on external markets, import
substitution, reduction of the materials consumption
& costs, improvement of quality of the output goods
Reformation and optimization of large
industrial enterprises associations
into the cluster-type economic units:
holding companies, joint ventures, other
[scientific-] production associations
Support the formation of: automotive, pit-run,
road-building engineering; diesel engine plants;
consumer electronics; intersectoral companies
producing urban and suburban mass electric
transport; sugar, butter and fat, alcohol industry
Development of special regional
associations of cluster-type economic
units including scientific centers:
institutes of higher education, research
institutes, design engineering bureau
Creation of the resource-based enterprises
producing export-oriented production: flax growth
and processing, tanning and leather footwear, meat
and dairy, materials of construction
Improvement of scientific support of
industrial production by means of
scientific and technical centers creation
Strategic directions of industrial development:
microelectronics, optoelectronics, pharmaceutics,
microbiology
Creation of research institutes under
institutes of higher education including
private
Oriented on execution of the research and
development and experimental-design works on
industrials orders
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 41 / 59
Case study of development of IT industry in Belarus
Outline
1 Industrial structure of Belarus
2 Industrial policy at present time and perspectives
3 Regional policies in Belarus
4 Case study of development of IT industry in Belarus
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 42 / 59
Case study of development of IT industry in Belarus
Motivation of developing IT industry in Belarus
Growing global IT markets with relatively easy access to
competitions
High depreciation rate of physical capital (over 80%) — needs
modernization (incl. automation)
Good starting point (SU “assemly shop”)
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 43 / 59
Case study of development of IT industry in Belarus
4 companies are in TOP-100 of “The 2011 Global
Outsourcing”5
5http://www.iaop.org/Content/19/205/2040Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 44 / 59
Case study of development of IT industry in Belarus
Dynamics of world exports of IT services
Factor/Year 2006 2007 2008 2009
Export of IT services, bln USD 132.8 166.9 204.1 197
Cross-border IT outsourcing, bln USD 65 76 93 96
Cross-border IT outsourcing increase, % 27.5 16.9 22.4 3.2
Cross-border IT outsourcing in IT services
export, %
49.4 48.1 45.6 48.7
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 45 / 59
Case study of development of IT industry in Belarus
Why develop ICT sector of Belarus?
a. Strong Education system
55 universities and 16 thousand graduates with ICT and related
technical skills annually
The Belarusian software engineers frequently win worldwide
software competitions
Belarusian State University is among the top out of over 3,000
teams at ACM International Programming Contest
“Belarus has a reputation of a country with a high scientific potential.
This reputation is not gained overnight. It takes 50-60 years to establish
a strong education system with highly qualified faculty”
Cliff Reeves, General Manager, Emerging Business Team, Microsoft
Corporation
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 46 / 59
Case study of development of IT industry in Belarus
Why develop ICT sector of Belarus?
b. High-Quality IT Professionals
Belarus hosts the largest and most established European IT
outsourcing providers in Eastern Europe and the CIS countries
More than 40 years of scientific research in hi-tech fields created a
world-leading system of technical education and training (first PC in
USSR)
Belarus scientific and academic infrastructure produces top quality
engineering specialists
“If you have a mission impossible project in software development, send
it to Belarus”
Drew Guff, Managing Director and Founder of Siguler Guff &
Company
“Belarus focuses on the quality, preferring to hire 1 highly qualified
specialist instead of 10 novices”
The FORBES Magazine
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 47 / 59
Case study of development of IT industry in Belarus
Why develop ICT sector of Belarus?
c. Governmental Support
By special law, issued in 2005 Hi-Tech Park (HTP) was established with
the main goal to support software industry. HTP Belarus provides special
business environment for IT business with incentives unprecedented for
European countries
IT companies are exempt from all corporate taxes, including VAT
and profit tax, as well as customs duties
Individual income tax has a fixed rate of 9% for the employees of
HTP companies (12% for the rest)
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 48 / 59
Case study of development of IT industry in Belarus
Why develop ICT sector of Belarus?
c. Governmental Support
Year 2006 2007 2008 2009 2010 2011
IT services exports in services
exports, %
2.1 3.0 3.7 4.6 5.2 5.8
Belarus share in world exports of
IT services, %
0.04 0.06 0.08 0.1 0.12 0.15
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 49 / 59
Case study of development of IT industry in Belarus
Why develop ICT sector of Belarus?
d. Geographical Location
All European capatals are within 3 hours of flight from Minsk
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 50 / 59
Case study of development of IT industry in Belarus
Why develop ICT sector of Belarus?
e. Competitive Rates
Average wage of IT specialists, annual, 2011 USD6,7
Country Range Average
India 3’012–13’290 8’151
Belarus8 5’890–42’250 24’070
Russia 13’429–51’049 32’239
Ukraine 12’746–54’613 33’679
Germany 19’150–94’379 56’765
USA 39’586–99’417 59’831
6According to http://paysale.com7Converted to USD using http://oanda.com8According to http://dev.by
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 51 / 59
Case study of development of IT industry in Belarus
Current state of ICT sector in Belarus
Export dynamics of HTP
Year Export, mln. USD Share of export in
production, %
Number of
employees
2006 21,9 77 —
2007 56,8 85 —
2008 100 83 6’626
2009 110,1 77 7’259
2010 146.2 82 9’421
2011 198.8 85 11’000
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 52 / 59
Case study of development of IT industry in Belarus
Current state of ICT sector in Belarus
Readiness for the Information Society9
Country Rank, 2010
South Korea 1
Sweden 2
Iceland 3
Russia 47
Belarus 52
Ukraine 62
China 80
India 116
9Measuring the Information Society 2011
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 53 / 59
Case study of development of IT industry in Belarus
Current state of ICT sector in Belarus
Readiness for E-government10
E-governments ranking
Country Rank, 2010 Rank, 2009
South Korea 1 6
USA 2 4
Canada 3 7
Ukraine 54 41
Russia 59 60
Belarus 64 56
China 72 65
India 119 113
10United Nations E-Government Survey 2010
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 54 / 59
Case study of development of IT industry in Belarus
Current state of ICT sector in Belarus
Readiness for the networked economy11,12
Structure and dynamics of the ICT costs
Country ICT costs
2009, (%
GDP)
ICT costs
2008, (%
GDP)
Employment
(% employed)
Investments
in ICT (%
income)
USA 7.0 7.2 3.7 6.6
Ukraine 7.1 5.9 0.9 31.4
China 5.8 5.7 0.2 32.0
Sweden 6.2 5.7 4.9 12.7
Ireland 5.1 4.6 2.4 7.1
Russia 4.1 3.5 1.2 —
India 4.0 4.3 0.8 —
Belarus 2.8 2.7 1.5 41.3
11http://www.stats.oecd.org12http://www.databank.worldbank.org
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 55 / 59
Case study of development of IT industry in Belarus
Current state of ICT sector in Belarus
Competitiveness of the ICT sector13
Ranking EIU of the IT sector competitiveness
Country Rank, 2009 R&D (rank) Human capital
(rank)
Enrolment in tertiary
science programmes
(% of total)
USA 1 5 1 15
Finland 2 2 10 28
Sweden 3 9 16 24
Ireland 11 11 6 24
Israel 13 4 19 13
Russia 38 23 11 27
China 39 26 4 —
Belarus 40 54 29 26
India 44 27 14 26
Ukraine 50 24 39 24
13Economist Intelligence Unit
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 56 / 59
Case study of development of IT industry in Belarus
National Program for the accelerated development of
services in ICT for 2011-2015
Main goals:
Creation of conditions for the development of information society,
based on human capital development and introduction of e-learning
Increase the representation of government, business, civil society
organizations in Internet, development of national Internet content
Provision of electronic services to international trade participants
Attracting orders on the development of IT products, promoting IT
services exports
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 57 / 59
Case study of development of IT industry in Belarus
Key targets for National Program
Employment of about 16 thousand of HTP’s IT professionals by the
end of 2012
Providing easy accessible wideband Internet
Anti-monopoly regulation of telecommunication services market
(currently Beltelecom monopolizes outbound Internet channels)
Legal conditions for the provision of government online services
(obligatory)
Reallocation of the world investment funds in ICT (with the help of a
tax credit of up to five years)
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 58 / 59
Case study of development of IT industry in Belarus
Juliet ABAKUMOVA, [email protected]
Alexander GEDRANOVICH, [email protected]
Natallia PETRUKOVICH, [email protected]
Anastasiya LUZGINA, [email protected]
Katsiaryna MINIUKOVICH, [email protected]
Aliaksandr SHASHKO, [email protected]
Belarus (MIM, BSU, PSU, BEROC) ReSET’2012 59 / 59