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Belarus: Trade Performance and Competitiveness

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Belarus: Trade Performance and Competitiveness
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    Report No. 54371-BY Belarus Trade Performance and Competitiveness Belarus Economic Policy Notes: Note No.2 June 25, 2010 Poverty Reduction and Economic Management Unit Europe and Central Asia Region Document of the World Bank      P  u   b   l   i  c   D   i  s  c   l  o  s  u  r  e   A  u   t   h  o  r   i  z  e   d   P  u   b   l   i  c   D   i  s  c   l  o  s  u  r  e   A  u   t   h  o  r   i  z  e   d   P  u   b   l   i  c   D   i  s  c   l  o  s  u  r  e   A  u   t   h  o  r   i  z  e   d   P  u   b   l   i  c   D   i  s  c   l  o  s  u  r  e   A  u   t   h  o  r   i  z  e   d  ii CURRENCY AND EQUIVALENT UNITS  (as of June 25, 2010) Currency Unit = Belarusian Rubel (BYR) US$ 1.00 = BYR 3,017 GOVERNMENT FISCAL YEAR January 1  –   December 31 ABBREVIATIONS BEC Broad Economic Categories NMS New Member States Belstat National Statistical Committee of the Republic of Belarus   OECD Organization for Economic Cooperation and Development CEEC Central and Eastern European Countries PPP Purchasing Power Parity CIS Commonwealth of Independent States PRODY Product Income/Productivity level COMTRADE UN Commodity Trade Database R&D Research and Development ECA Europe and Central Asia Region RIME Research Institute of the Belarusian Ministry of Economy  ESI Export Specialization Index RCA Revealed Comparative Advantages EU European Union ROW Rest of the World EXPY Export Income SITC Standard International Trade Classification FDI Foreign Direct Investments SME Small and Medium Enterprises GDP Gross Domestic Product SOE State-Owned Enterprises GLI Grubel-Lloyd Index TOT Term of Trade HS Harmonized System ULC Unit Labor Costs IIT Intra-Industry Trade VAT Value Added Tax KEI Knowledge Economy Index WDI World Development Indicators KI Knowledge Index WITS World Integrated Trade Solution Vice President Philippe H. Le Houerou Country Director Martin Raiser Sector Director Luca Barbone Sector Manager Benu Bidani Task Leader Marina Bakanova  iii ACKNOWLEDGEMENTS This Policy Note was prepared by a team comprising Marina Bakanova (Task Team Leader, ECSP3), Lev Freinkman (AFTP3), and Maryna Sidarenka (ECSP3). The team would like to thank the Government Interagency Working Group led by the Deputy Minister of Economy Ms. Tatiana Starchenko for guidance, cooperation, and support at all stages of the preparation of this Note. We gratefully acknowledge the valuable cooperation and generous assistance provided by officials from the Ministry of Economy, the Ministry of Finance, the Ministry of Industry, the National Bank of Belarus, and other agencies that helped to prepare this report. The team is particularly grateful to the First Deputy Chairman of the National Statistics Committee (Belstat) Ms. Irina Kostevich and other staff of the Belstat for timely and high quality statistical support. The team benefited greatly from discussions with representatives of the donor community in Belarus, as well as local think tanks and independent experts. This Note reflects findings of various missions during 2008-2009 as well as the feedback received during the workshops in June and October 2008 and a high-level seminar in March 2010. The team also benefited from the visits of the following enterprises: Atlant (main product  –   refrigerators), Zdravushka (dairy products), Belarus tractor plant, Belkommunmash (trams and trolleybuses), and Belaz (heavy trucks). The background papers for the study were prepared by Bailey Klinger (Center for International Development, Harvard University), Alexander Gotovsky (Belarusian Academy of Science), Larysa Khmurovich and Irina Kovalevskaya (Research Institute of the Ministry of Economy), Alexei Meleshchenya (Research Meat and Dairy Institute), and Irina Torskaya (Belarusian National Technical University). Peer Reviewers were Celestin Mongaand Albert Zeufack. The Note was prepared under the guidance and advice of Luca Barbone, Benu Bidani and Asad Alam. Martin Raiser advised the team and provided detailed comments on the draft Note. Valuable inputs and suggestions were also received from Zeljko Bogetic, Pablo Saavedra, Chris Jarvis, Shuang Ding, Dmitry Kovtun as well as other Bank and IMF colleagues. Liudmila Mazai and Larysa Hrebianchuk provided excellent support during the entire preparation process.  iv Table of Contents Main Messages............................................................................................................................................. vi   Trade performance and competitiveness ....................................................................................................... 2   I.   Trade performance, export diversification, and intra-industry trade .................................................. 2   II.   Export specialization, export sophistication, and structural transformation ...................................... 11   III.   Competitiveness of industrial enterprises: key trends for 2004-08 .................................................... 18   IV.Conclusions and policy implications ................................................................................................. 26   References ............................................................................................................................................... 30   Annex A1: Tables and Figures ................................................................................................................ 31   Annex A2: Explanation of Methodology ................................................................................................ 34   Annex A3: Tables and Figures ................................................................................................................ 39   Tables Table 1.1: Selected indicators of trade performance: Belarus and neighboring countries ............................ 3   TКЛle 2.1: BelКrus‘ top ten mКnufКМturing seМtors with Лest МomЛinКtion of proximi ty, PRODY and strategic value ............................................................................................................................................. 17   Table A1.1: Geographical Structure of Merchandise Exports (Percentage in total exports) ...................... 31   Table A1.2: Geographical Structure of Merchandise Imports (Percentage in total imports) ...................... 31   Table A1.3: Commodity Structure of Merchandise Exports (Percent in total exports) .............................. 32   Table A1.4: Commodity Structure of Merchandise Imports (Percent in total exports) .............................. 32   Table A1.5: Grubel-Lloyd Indices: Belarus and comparators* .................................................................. 33   TКЛle A2.1: BelКrus‘ s Top Contributors to EXPY, 2008 ........................................................................... 36   TКЛle A2.2: BelКrus‘s ‗Low - hКnging fruit‘, 2008.  ..................................................................................... 36   Table A2.3: Top ten manufacturing sectors with best combination of proximity, PRODY and strategic value. ........................................................................................................................................................... 38   Table A3.1: Shares of exports of some manufacturing goods in total production (by volume) ................. 39   Table A3.2: Sale structure of industrial enterprises by market in 2008 (as % of the total number of respondents)  ................................................................................................................................................ 40   Table A3.3: Competitive advantages of the industry by markets (positive responses as % of total number of respondents who operate at this specific market) ................................................................................... 40   Table A3.4: Competitive advantages of industrial products by markets ................................................... 40   Table A3.5: Determinants of enterprise competitiveness compared with competitors from the respective countries ...................................................................................................................................................... 41   Figures Figure 1.1. Real GDP and Real Export Growth ............................................................................................ 3   Figure 1.2. Contribution to GDP growth ...................................................................................................... 3   Figure 1.3.1: Commodity structure of exports to CIS, % total ..................................................................... 4   Figure 1.3.2: Commodity structure of exports to non-CIS, % total .............................................................. 4   Figure 1.4.1: Commodity structure of imports from CIS, % total ................................................................ 5   Figure 1.4.2: Commodity structure of imports from non-CIS, % total ......................................................... 5   Figure 1.5.1: Exports by BEC in 2008, Belarus and Neighboring Countries, % total .................................. 5   Figure 1.5.2: Imports by BEC in 2008, Belarus and Neighboring Countries, % total .................................. 5   Figure 1.6.1: Factors of export growth ......................................................................................................... 6   Figure 1.6.2: Factors of import growth ......................................................................................................... 6   Figure 1.7.1: Unit value and TOT indices, all goods, 2000=1 ...................................................................... 6   Figure 1.7.2: Unit value and TOT indices, oil and oil products, 2000=1 ..................................................... 6   Figure 1.8.1: Monthly dynamics of export and import, y/y, in % ................................................................ 7    v Figure 1.8.2: Export proceeds, $US millions ................................................................................................ 7   Figure 1.9.1: Share of 5, 10 and 20 largest exporters in export to CIS, % .................................................... 8   Figure 1.9.2: Share of 5, 10 and 20 largest exporters in export to non-CIS, % ............................................ 8   Figure 1.10.1:Belarus: Product concentration* at different markets ............................................................ 8   Figure 1.10.2: Changes in product export concentration*: Belarus and neighboring countries ................... 8   Figure 1.11: Vulnerability due to Changes in Terms of Trade ..................................................................... 9   Figure 1.12.1: G-L Index in trade with EU-25............................................................................................ 10   Figure 1.12.2: G-L Index in trade with CIS ................................................................................................ 10   Figure 1.13: Export-FDI Interlink: A Global View, 2001-07 ..................................................................... 10   Figure 1.14: KEI and its components: Belarus and comparators ................................................................ 11   Figure 2.1.1: RCA composition in export to CIS ....................................................................................... 12   Figure 2.1.2: RCA composition in export to Russia ................................................................................... 12   Figure 2.1.3: RCA composition in export to non-CIS ................................................................................ 12   Figure 2.1.4: RCA composition in export to EU-25 ................................................................................... 12   Figure 2.2.1: Belarus Exports by Leamer Category, % of Total ................................................................. 13   Figure 2.2.2: Belarus Exports by Leamer Category, RCA Index ............................................................... 13   Figure 2.3.1: EXPY, GDPpc   and their ratio for Belarus, 2001-08 ............................................................. 14   Figure 2.3.2: EXPY over time: Belarus and comparators. .......................................................................... 14   Figure 2.4.1: Sophistication of export basket by major markets ................................................................. 15   Figure 2.4.2: Sophistication of export basket (without oil products and chemicals) by major markets ..... 15   Figure 2.5.1: SophistiМКtion Кnd DistКnМe of BelКrus‘s ProduМt SpКМe in 2001  ......................................... 15   Figure 2.5.2: SophistiМКtion Кnd DistКnМe of BelКrus‘s ProduМt SpКМe in 2008  ......................................... 15   Figure 2.6: Evolution of structural transformation: Belarus and comparators ............................................ 16   Figure 3.1.1: Evolution in the share of Belarusian exports to Russia in the global exports by value to Russia, %, 2000-08 ..................................................................................................................................... 19   Figure 3.1.2: Evolution in the share of Belarusian exports to Russia in the global exports to Russia, specific machinery goods (in units), %, 2000-08 ........................................................................................ 19   Figure 3.2.1: Share of various trade partners in the global machinery exports to Russia, 2001, 2005 and 2008, % ....................................................................................................................................................... 20   Figure 3.2.2: Share of various trade partners in the global processed food exports to Russia, 2001, 2005 and 2008, % ................................................................................................................................................ 20   Figure 3.3: Dynamics of sales by market (balance of responses as % of total number of responses)  ...... 23   Figure 3.4: Main obstacles for export expansion (% of respondents that selected the respective option)  . 25   Figure 3.5.1: Profitability of sales by market (median response)  ............................................................... 26   Figure 3.5.2: Profit margins in main industrial sub-sectors by main markets in 2008, % .......................... 26   Figure A1.1: Export by technological groups, 2001 (% total) .................................................................... 33   Figure A1.2: Export by technological groups, 2008 (% total) .................................................................... 33   Figure A2.1: UnoММupied ProduМts 1.5σ КЛove AverКge Density, BelКrus 2008 Weighted Лy World TrКde  .................................................................................................................................................................... 37   Fi gure A2.2: UnoММupied ProduМts 1.5σ КЛove AverКge Density, BelКrus 2008 Weighted Лy StrКtegiМ Value ........................................................................................................................................................... 37   Figure A2.3: Unoccupied Prod uМts 1σ КЛove AverКge Density, BelКrus 2008 Weighted Лy World TrКde  37   Figure A2.4: UnoММupied ProduМts 1σ КЛove AverКge Density, Belarus 2008 Weighted by Strategic Value .................................................................................................................................................................... 37  
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