Economic Transformation for Grow th
(figures 4.16 and 4.17; figure A4.1.3).59 This is significantly higher than would be expected in market economies of similar income, with potentially significant implications for Belarus’s public finances. Transport and communications and trade and catering are the two largest services sub-sectors, accounting for about half of total services value added and more than one third of employment. Business services development could be both a driver and a consequence of the modernization of manufacturing sector. Modern market services (most of business services) account for less than a quarter of total services value added. Yet, they provide almost 30 percent of services sector employment. In a modern economy, manufacturing requires complementary jobs in related business services fields such as logistics, marketing or legal advice. For example, in 2010, in the EU for every manufacturing job there was at least one job in related business services.60 However, the development of business services market in Belarus has been slow. As evidenced from survey results, most firms do use business services, but the intensity of use of business services varies greatly by type of services.61 Importantly, in Belarus, 2/3 of surveyed industrial enterprises in 2009 conducted all business services in house.62 At the same time, almost 70 percent of surveyed industrial enterprises reported an unsatisfied demand for services directly affecting the competitiveness of industrial output, including those that require high and specialized skills, including upgrading information systems, modern management systems, and personnel training. Recent competitiveness survey of Belarusian industrial enterprises shows, that 40 percent of respondents consider low quality or unavailability of business services as a major impediment for their competitiveness both at domestic and external markets.63 The development of business services market is inhibited by the limited demand of SOEs, which continue to perform service functions in-house rather than focusing on their core business. Rapid growth in business services is typically an outcome of specialization in a market economy. As companies focus increasingly on their core functions, they buy more non-core services from third parties (i.e. outsource). Demand for business services is likely to come from larger companies, which in Belarus are either state-owned or with a significant stake of the state. Managerial inertia stemming from the absence of a real competitive pressure on these enterprises and the delay in restructuring are major factors of preserving the provision of business services in-house. Even when businesses contract services outside of their organization, private providers are not at par with state organizations: SOEs tend to outsource business services to SOEs.64 The suppressed competition, in turn, affects adversely quality and availability of the services provided as well as their prices. With the overall changes in the 59 Non–market-oriented or non-market services include government administration, education, health, social, personal and communal services. 60 Of the 74 million jobs in manufacturing and related to manufacturing services, 30 percent were in other business services, 12 percent were in transport and
storage, 7 percent in media and communications, 1 percent in renting and leasing, and 1 percent in R&D. See Europe’s Sources of Growth. Presentation of J. M. Barroso, President of the European Commission to the European Council of 23 October 2011. http://ec.europa.eu/commission_2010-2014/ president/pdf/sources_of_growwth_en.pdf. 61 A business services survey of 516 industrial enterprises representing eight major industrial sub-sectors was conducted in August 2009 for Belarus
Economic Policy Note on Services (World Bank, 2010_c). The main objectives of the survey were to (i) look at the demand-side of market for business services in Belarus, i.e. to identify factors, affecting the use of different business services, and their outsourcing; (ii) access major constrains for business services development and a link between the use of business services and enterprise performance. 62 Business services survey op. cit. 63 November 2011 Competitiveness survey op.cit. 64 Business services survey op. cit.
Chapter 4. Igniting New Engines of Grow th
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