The current happenings in Belarus' foreign trade cannot simply be called luck. This is a tremendous chance history gives to a country poorly endowed with natural resources. But whether this chance will be taken remains a major question.
Exports of tangible goods in the first quarter of 2006 rose by 27.5 percent to almost $4.5 billion. Truth be told, imports grew even more, to an unprecedented 51.1 percent. Comparison of prices, and crude oil imports and petroleum products exports in volume terms helps unravel the main mystery of this astounding success in foreign trade. The volume of trade in tangible goods exceeded GDP by 20 percent in the first quarter. Belarus remains highly dependent on trade, especially in mineral commodities. Their share in total exports rose from 33.8 to 42.9 percent on the same period of the previous year, and their share in total imports, from 36.6 to 40.3 percent.
The situation is very favorable for Belarus, with hard-currency proceeds from the sale of petroleum products providing considerable resources to: (i) modernize industrial facilities, (ii) repair and replace the infrastructure, such as pipelines, transmission lines, roads and railroads, and (iii) reduce overall tax burden.
Unfortunately, progress in these areas, if any, is totally controlled by the state, rather than dictated by competing investors. Tax exemptions for equipment imported by some state-controlled manufacturers are accompanied by drainage of others' operating assets. Despite the abundance of hard-currency proceeds, imports of industrial machinery and equipment dropped by 10 percent in the first quarter of 2006. The government is making no visible effort to take advantage of the favorable trends in the oil market by cutting taxes and reviewing spending priorities.
Let us compare the way proceeds from the export of petroleum products and payments for crude oil imported from Russia changed in 2003-2006 (see Table 1). The difference between the two in Q1 2003 was just $10.9 million - and still Belarus was in the black - but in Q1 2005 the difference rose to $271 million dropping slightly to $254 million in Q1 2006.

Table 1Belarus' Oil Balance

Source: Ministry of Statistics and Analysis

It appears that Belarus, which has no crude oil of its own, has managed to strike an import deal that allows it to finance, at the cost of exports proceeds alone, purchases of Russian crude oil and earn over $250 million a quarter on top of that. Consider, too, that both the treasury and traders make money selling petroleum products on the home market.
One reason to suspect a clandestine oligopolistic deal is the fact that gasoline and diesel fuel prices in Belarus are higher even than those in the neighboring countries. A net beneficiary of high oil prices, Belarus could afford cutting these prices by 20-30 percent at the least. However, the government has neither reduced tax burden nor adjusted their exchange rate policy. They are taking their fortune for granted. Meanwhile, there is little reason to be overoptimistic. Problems that have been put off will not get solved by themselves. Let us turn to mineral commodities once again. The volume of petroleum products exported in Q1 2006 rose by 36.9 percent on Q1 2003. Proceeds tripled over the period. Crude oil imports in volume terms increased by 43.8 percent and payments for imported oil, 2.6 times. The Kremlin is apparently aware of the figures, so Russian elite groups would like to receive some sort of political or economic dividends for the generous aid.
There is something that makes one uneasy when analyzing how key exports figures have changed: a sharp decline of 22.1 percent in the exports of potash fertilizers. Compare that with a 29.5 percent surge in Q1 2005 on Q1 2004. A first-quarter drop in the exports of timber and wood products has been recorded for a second year in a row. In a country naturally rich in wood, that is a sign of poor management.
Imports of crude oil rising 1.9 times, of ferrous metals by 29.2 percent, of petroleum products 2.5 times and of natural gas by 12.6 percent all contributed to a rise in the value of total imports. Average export prices in Q1 2006 rose by 16.2 percent on Q1 2005 and average import prices, by 112.6 percent. The volume of exports rose by 9.7 percent and of imports by 34.2 percent. Apparently Belarus is having problems exporting finished products. On the whole, a fall-and-rise exports pattern for various items and countries points at a poor or nonexistent development strategy.
Finally, something that sounded unbelievable just two years ago. First-quarter exports to the European Union amounted to 50.2 percent of total exports. Seemingly disregarding harsh confrontation between the EU and Minsk, trade shows an enviable positive trend. Meanwhile, Russia's share of Belarus' foreign trade is decreasing. Exports in 2006 fell to 32 percent from 47.8 percent in 2004.
Yet Russia remains one of the country's main partners with 47.8 percent, followed by the Netherlands with 10.3 percent, Ukraine with 5.3 percent, Germany with 5 percent, Great Britain with 4.5 percent and Poland with 4.3 percent. But one should not be deluded by the West gradually outweighing Russia as the largest trading partner. Once oil prices and the terms of importing crude oil from Russia change, Belarus' achievement in trade with Europe will quickly become history. We are still unable to offer Europe any hi-tech products with a high percentage of added value. That's not because the West is locking us out, but because the Belarusian economy, well-fed on crude oil, doesn't make any of these products.