Bloomberg BusinessWeek‘s Leonid Ragozin reports on the consequences of the Russian economic crisis for neighbouring and allied Belarus.
As the Russian ruble plunged 45 percent against the dollar last month, Andrey Kabanov made two forays from Belarus into Moscow. The entertainment entrepreneur is now the owner of two secondhand BMWs bought for about two-thirds the market price in his native Minsk. Not that he needed the cars for everyday use. “A friend is now driving one of them, and the other is just sitting in the garage,” Kabanov says. “But it is an asset that I can always sell at a profit.” Thousands of Belarusians such as Kabanov flocked into Russian cities before the New Year, taking advantage of the cheap ruble and the absence of border control between two countries united in a trade association known as the Eurasian Union.
For Belarusians, at least at first, their neighbor’s economic crisis and worsening relations with the West brought a variety of benefits. When Moscow retaliated for EU sanctions by banning imports of cheese, apples, and salmon, some Belarusian businesses took to repackaging European products so they appear to have been made in Belarus. Two entrepreneurs involved in the repackaging business explained how the scheme works: EU-produced fruit and vegetables are swapped for their Belarusian-produced equivalents of inferior quality. The latter would be sold in the guise of EU produce in Belarus, while EU-made products would proceed to the much more lucrative Russian market. (Neither person involved in the repackaging would agree to be identified.)
Another scheme involved sending trucks full of EU produce from Belarus to Kazakhstan, also a member of the Eurasian Union. The cargo would never reach its destination, vanishing somewhere along the long route that cuts through Russia. Alterations to products exported from Europe also allowed a change in their nationality. Norwegian salmon salted in Belarus would become Belarusian, for instance, even if the entire process amounted to sprinkling a heap of fish with a handful of salt.
Many people are now opting out of the repackaging business, in part as a reflection of increasing legal risks and the waning appeal of the Russian market. The cross-border shopping bonanza has also ended now that the Belarusian ruble has fallen 30 percent against Western currencies this month, reflecting the country’s overwhelming economic dependence on Russia.
When it comes to order, security, and relatively low corruption, Belarus looks something like a post-Soviet Singapore. But its economic policies are decidedly backward, smacking of the late USSR. “While the devaluation in Russia was conducted in a transparent way without imposing any restrictions on the circulation of hard currency, the Belarusian government opted for the most confusing and convoluted way possible,” says economist Yaroslav Romanchuk. The explanation is simple: President Alexander Lukashenko had publicly pledged there would be no devaluation and no price hike, Romanchuk says, so when that outcome became inevitable, the devaluation was conducted in a way that allowed officials to avoid ever using the dreaded word.