It is common knowledge that Belarus' economy is strongly dependant on trade with Russia. Although Russia's share shrunk in the first six months from 48.1 to 47.7 percent, the dependency is unlikely to reduce in the foreseeable future. The government has failed in its declared bid to diversify external markets.
Trade data for 2006 are indicative of Belarus' growing dependency on Russia's energy resources. The ratio of mineral imports on the total imports from Russia rose to 59.1 percent on the first six months from 54.3 percent in the same period last year. In 2003 and 2004 the proportion was around 42 percent.
Belarus imported $3.68 worth of mineral products and exported $3.9 million worth of mineral products. The government continues to profit from high prices of crude oil on the world market using capacities of its two refineries. Several Russian oil giants - Rosneft, Lukoil and Russneft in the first place - also reap benefits from the lucrative moneymaking schemes.
A record deficit of $3.18 billion with Russia is a warning signal. The Belarusian currency may start losing its value, if the same trend occurs in trade in other goods and the government continues to pursue a loose fiscal policy. Unfortunately, the Belarusian government does not play with Russia according to free-market rules, but relies on bureaucratic schemes. It ignores the fact that Russia has created free market conditions for small and medium-sized businesses, and continues to support exporters and protect the internal market. Trade preferences undermine competitiveness of exporters. A difference in the system of incentives, and flawed tax and administrative systems in Belarus as compared to Russia pose a risk for the economy.
In the first half of the year, Belarus had a surplus of $145 million in trade in machines and mechanisms, and of $497 million in equipment trade with Russia. However, equipment imports grew much faster than exports, by 35.7 and 17.7 percent, respectively. Sales of refrigerators rose from 288,500 units in the first six months of 2005 to 305,000 units in the same period of 2006. However, revenues from the sale of refrigerators dropped from $105.3 million to $104 million. The country sold 10,786 tractors to Russia for a total $212 million in 2006, a rise from 8,045 tractors ($141 million) year on year. The price of tractors increased by 11.7 percent.
Trucks also sold well. Belarus sold 4,566 units (3,985 units in the same period last year) for $240.6 million ($200.8 million). A rise of 4.6 percent in price helped boost revenues, but truck manufacturers will not be able to increase their share of the market without large-scale modernization. A deficit in trade in non-precious metals widened from $227 million in January-June 2003 to $455 million in the same period of 2006.
Belarus lost its positions in trade in finished food products. The trade balance moved from a surplus in 2004 and 2005 to a deficit of $11 million in the first six months of 2006. Russian imports soared by 19.6 percent while Belarusian exports plunged by 13 percent. It should be noted that Belarus applies 78 protective measures against Russian competitors. Trends in food trade prove that Russia's market incentives work much better than Belarus' large-scale support for food exporters and agricultural producers.