Bel arus country economic memorandum
business environment and the lowering of entry barriers for service companies and expanding private participation in utilities, banking, telecommunications, transport and logistics. Divesting non-core assets and non-core functions from SOEs would not only make the SOEs more attractive for potential investors but also support the development of business services market. •• Enhance competitiveness. A two-pronged strategy for Belarus would be to strengthen its current comparative advantages and to develop new sources of comparative advantage based on greater technological sophistication. Country’s core competencies and factor endowments should drive the diversification process to avoid expensive mistakes. Belarus could continue to develop business areas where there is already a demonstrated ability to compete. At the same time, the country could invest in the development of related (to the areas of comparative advantages) segments of the economy. Importantly, such related segments need not be in the same sector. However, they should utilize the same endowment of factors of production (especially skills) to be internationally competitive.79 For Belarus, potential areas could include: machinery, capital and labor intensive goods80, development of business services, transport services. Specializing in product areas where factor endowments are present and capabilities could be developed would provide opportunities for Belarus to achieve global excellence. •• Improve economic incentives. The GOB efforts should be focused on changes in economic incentives and improvement of business climate for all economic agents—state and private, domestic and foreign—rather than on provision of individual privileges, benefits, and exemptions. With the dynamic changes in the country’s comparative advantages, sector-specific impediments to growth in competitiveness and productivity should be lifted (in line with good international practice), and selected/prioritized horizontal measures can be applied, benefiting current and new potential exporters. This would allow Belarus to reap the benefits of international trade and specialization, to increase competitiveness based on true comparative advantages, thus, boosting productivity and, eventually, returning to a sustainable growth path. •• Pursue further trade liberalization and advance WTO accession. Belarus has to further pursue trade liberalization to expose local producers to and not shield them from international competition. Lifting sector-specific constraints for products/sub-sectors with export potential, advancing WTO accession and adoption of EU harmonized standards across the board, including sanitary and phyto sanitary standards would help to increase in the range of products exported and discovery of new markets and, ultimately, transit to extensive margin export growth. In sum, successful economic rebalancing toward a more efficient economic structure could help Belarus restore and sustain medium- and long-term economic growth. Such a new structure would be more open to entry, operation, and growth of the private sector, including the services sector. Importantly, services could play a greater role in generation of jobs and incomes. Moreover, the new economic model would make Belarus’s exports less dependent on energy-intensive production and would open opportunity for supplying competitive products to new market segments. 79 The idea is that products can be related in terms of the core comparative advantage that goes into their production. See Hidalgo, Klinger, Barabasi and
Haussman ( 2007). 80 See for more details World Bank (2010_b).
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Chapter 4. Igniting New Engines of Grow th