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Lukashenko's trap

Pavel Latushka: Deputy Head of the United Transitional Cabinet of Belarus, Head of the National Anti-Crisis Management, Ambassador

I think everyone remembers how Lukashenko fed us fairy tales about the average salary of "five hundred bucks" for decades. There were years when Belarusians finally reached this cherished benchmark set by Lukashenko, although one may wonder why it was limited to 500. Why such a cap on dreams? But why be surprised when propagandists are seriously discussing how to convince Belarusians that a sack of potatoes is better than the Maldives.

The period from 2010 to 2020 turned out to be a lost decade for the Belarusian economy. Unfortunately, even after 2020, things didn't improve; they got worse. The average economic growth rate from 2009 to 2013 was 3.2%, from 2014 to 2019 - only 0.4%, and from 2020 to 2023 - 0.2%.

This can largely be attributed to the phenomenon known as the "middle-income trap." It is a situation in economic development where a country, after reaching a certain income level, becomes stuck and fails to progress towards becoming a fully developed country. The middle income trap occurs when a country's economic growth slows down and eventually stops after reaching a certain level.

devaluation in Belarus

Countries trapped in the middle-income stage struggle to compete with both highly developed economies that have advanced technology and innovation, and low-income economies with low wages and low-cost manufacturing.

Economists identify several reasons for falling into the middle-income trap, including low efficiency of investments, a lack of innovation, increasing prices for low-skilled labor in the face of a shortage of highly qualified workers, insufficient financial resources and modern infrastructure, and income inequality.

Unfortunately, all these reasons are characteristic of the Belarusian economy. Despite attempts to increase investments, their effectiveness remains low. Billions of dollars have been poured into so-called modernization, breakthrough investment, innovation programs, and mega-projects like the Ostrovets NPP or the Svetlogorsk pulp and paper plant. However, none of these efforts have yielded positive results in terms of economic growth in the country.

Investment efficiency is calculated by comparing the ratio of GDP growth to the volume of gross fixed capital formation with the previous period.

That is, in simple terms, when we invest one dollar, we expect to receive two dollars in return, which translates to economic growth at the national level. However, when we end up getting, at best, 50 cents or no growth at all, it demonstrates the ineffectiveness of the invested funds.

For a significant period of time, the share of fixed capital accumulation in GDP has been increasing on average, while the rate of GDP growth has remained almost stagnant or even decreased, indicating a decline in investment efficiency.

Regarding innovation, over the past 13 years, there has been a rise in the proportion of low-value-added goods, such as agricultural or food products, and a decrease in the share of technically complex goods, such as machinery, equipment, and vehicles, in Belarusian exports to Russia. Similar trends can be observed in other trade directions as well.

Even Belstat data reveals that the proportion of new goods in Belarusian exports remains relatively small. In the structure of shipped innovative products from 2010 to 2020, it did not exceed 2%, and in 2021, it accounted for only 0.6%. In the Global Innovation Index for 2023, Belarus ranked a distant 80th place, whereas in 2015, it held the 53rd position.

Regarding the shortage of highly qualified personnel, we can observe this issue without resorting to statistics or various indices. We witness a significant outflow of such personnel abroad after 2020. Moreover, the illegitimate authorities themselves expel them due to political unreliability, further dooming the economy to new difficulties. According to official data, as of December 1, 2023, the number of unfilled vacancies in Belarus exceeded 137,000, and since the beginning of the previous year, the country's economy has lost over 58,000 workers.

another of Lukashenko's promises

The problems are evident, but what can help Belarus break free from the middle-income trap? Are there any examples in global practice of overcoming it?

Indeed, our closest neighbors, such as Poland, Lithuania, Latvia, Estonia, and several other Central European countries, have successfully escaped the middle-income trap. Russia, despite its abundance of natural resources, was also approaching this goal, but the annexation of Crimea, the occupation of Donbass, and the current full-scale aggression against Ukraine have undermined this prospect for Russia.

So, what has helped Poland or Lithuania escape the middle-income trap, and why is it not possible under Lukashenko's dictatorship?

Firstly, structural economic reforms play a crucial role in promoting the development of high-productivity industries, thereby increasing labor productivity. These reforms attract foreign investment into the country, providing effective financial resources that create new production infrastructure.

But Lukashenko has consistently prevented any reforms and will continue to do so as long as everything is controlled by the invisible hand of the market, rather than his own grasp. Free market relations pose a threat to Lukashenko's current position as they would redistribute the national wealth of Belarus among all citizens as it should be, rather than solely benefiting the dictator's inner circle.

Secondly, stimulating innovation is crucial for improving the efficiency of investments, labor, and financial resources, as well as creating more highly qualified job opportunities. However, the usurper resists innovation because it can only be fostered by free individuals who are economically independent from the regime. This poses the greatest danger to his unlimited power.

Thirdly, and most importantly, the democratization of the country is the essential prerequisite for establishing a free and creative environment that fosters innovation. This involves strengthening institutions that ensure competition, uphold the rule of law, and protect property rights.

Unfortunately, in modern-day Belarus, none of the aforementioned factors are being realized. On the contrary, the illegitimate regime, which unlawfully holds power in the country against the majority's will, has reversed all of these processes. Instead of democracy and progress, the regime is leading the nation towards totalitarianism, consigning millions of Belarusians to poverty and an ongoing struggle for survival.

Thus, Lukashenko, like a villain from children's fairy tales, not only stole our votes, but he is also robbing us of our future and the future of our children. He is stealing our hope for a better life. The dictatorship condemns Belarusians to an endless pursuit of the elusive five hundred dollars, depriving them of any hope of breaking free from this vicious cycle. Only by rejecting dictatorship can Belarus have a chance at development, rather than descending into a state of degradation where Belarusians are forced to dream of a sack of potatoes instead of the Maldives.


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