Ukrainian market becomes more valuable for Belarus amid Western sanctions

<p> Brief: </p> <ul> <li>Ukraine, like European Union countries, the United States, the United Kingdom, Canada and their other allies, has not recognised the official results of the presidential election held in Belarus on 9 August 2020. Official contacts between Kyiv and Minsk have been put on hold.</li> <li>Ukraine has joined the personal sanctions of the West, but not the economic sanctions.</li> <li>On 27 August, President Alexander Lukashenko said Belarus was engaged in a dialogue about not breaking off economic relations with Ukraine and was thinking about developing cooperation.</li> <li>Ukraine is Belarus’ second largest trade partner in terms of trade turnover and export.</li> <li> Belarus’ export credit programs, which have been implemented since 2015, are in demand in Ukraine.</li> <li>Ukraine has a distribution network of more than one hundred Belarusian exporters. BelAZ, MTZ, MAZ, and Atlant have an extensive network of dealerships in Ukrainian regions. Belarus has 314 enterprises with Ukrainian investments, including 115 joint ventures and 199 foreign enterprises.</li> <li>Ukraine has 13 assembly facilities for Belarusian machinery.</li> <li>Ukraine remains a priority market for the export of Belarusian oil products due to its high margins and advantageous logistics. </li> <li>Belarus supplies potash fertilizers to Ukraine at a premium price and has increased exports of compound fertilizers.</li> <li>Belarus still counts on an opportunity to export electricity to Ukraine.</li> <li>Despite the negative rhetoric against Kyiv, the Belarusian authorities cannot wage a trade war with Ukraine because of Minsk’s heavy dependence on the Ukrainian market.</li> </ul> <p> Due to the political crisis in Belarus, official contacts between Kyiv and Minsk have been put on hold. Ukraine, as well as European Union countries, the US, the UK, Canada and their other allies, did not recognise the official results of the presidential election held in Belarus on 9 August 2020, which declared Alexander Lukashenko the winner for the sixth time with 80.1% of the vote. Following the authorities’ violent crackdown peaceful protests with thousands taking to the streets, Western countries imposed sanctions on Belarusian officials and individual companies and institutions. Ukraine has joined the personal sanctions imposed by the West, but not the economic sanctions. </p> <p> Lukashenko had earlier said that Belarusian-Ukrainian political relations were at their lowest point - on a par with Western countries, he accused Ukraine of meddling in internal affairs and of coordinating protests from its territory. </p> <p> On 27 August, Lukashenko changed the tone of his rhetoric - he said that the Belarusian side was engaged in a dialogue about not cutting off economic relations with Ukraine and was thinking about developing cooperation. </p> <p> Commentary </p> <p> The desire of the Belarusian authorities to preserve and develop ties with Ukraine may be an indication that Minsk is well aware of the particular importance of the Ukrainian market amid the sanctions pressure from the West and will try to avoid any harsh measures that may result in the closure of the Ukrainian market to Belarusian products. </p> <p> In January-May 2021, Ukraine ranked second among Belarus’ trading partners in terms of turnover and exports, and fourth in terms of imports. Belarus is Ukraine’s sixth trade partner (January-April 2021) after China, Poland, Germany, Russia, and Turkey. </p> <p> In January-May 2021, trade turnover between Belarus and Ukraine increased by 36.7% year on year to $2.3 billion. Belarusian exports to Ukraine totalled $1.7 billion (up 60.9%), and Ukrainian imports to Belarus - $0.6 billion (down 6.3%). </p> <p> Belarus major exports to Ukraine in 2021 are petroleum products, mixed mineral fertilizers, petroleum coke and bitumen, hard coal, petroleum gases and other gaseous hydrocarbons, tractors and tractor units, trucks, nitrogen fertilizers, electricity, and fibreboard. </p> <p> Belarus imported agricultural and food products (soybeans, soybean meal, plant cake, corn), parts of rolling stock, hot-rolled flat-rolled unalloyed steel, copper wire, agricultural machinery, angles, unalloyed steel profiles from Ukraine in 2021. </p> <p> Belarusian export lending programmes have been in demand in Ukraine since 2015. Thanks to cooperation with Ukrainian commercial banks and leasing companies, Ukrainian agricultural, municipal, and industrial companies can buy Belarusian machinery and other products on preferential terms. In 2021, five banks and four leasing companies cooperated with Belarus on such terms. </p> <p> Ukraine has a distribution network of over a hundred Belarusian exporters. BelAZ, MTZ, MAZ, and Atlant have an extensive network of dealerships in Ukrainian regions. Belarus has 314 enterprises with Ukrainian investments, including 115 joint ventures and 199 foreign enterprises. </p> <p> Ukraine now has 13 assembly facilities for Belarusian-made machinery, including MTZ tractors, Gomselmash grain harvesters, elevator equipment, MAZ and Belkommunmash trolleybuses, street maintenance and road engineering equipment, fire engines on MAZ chassis, Alutech gates and Energomer electric meters. </p> <p> A number of major infrastructure projects in road construction and repair of the Ukrainian road network are implemented in Ukraine with the participation of enterprises of Belavtodor Group (Belarus). </p> <p> The state-owned production association Belorusneft, which plans to create a cluster in Ukraine with a wide range of competencies - from services to oil and gas sales - also has big plans for cooperation. LLC Service Oil, a subsidiary of Belorusneft, has been operating in Ukraine since 2012. Its operations include oil and gas well construction and workover, hydraulic fracturing, 3D seismic works, etc. </p> <p> It should also be noted that Ukraine remains a priority market for oil products export from Belarus due to its high margins and advantageous logistics. Despite the pandemic and force majeure with Russian oil supplies, Belarusian oil product exports to Ukraine in 2020 fell by an estimated only 3% year on year to 3.2 million tonnes, according to Belneftekhim. </p> <p> From 25 June 2021, the EU imposed sanctions on major sectors of the Belarusian economy. These include a ban on the purchase, import or movement through the EU of oil products and potash products from Belarus (these decisions apply to contracts signed before 25 June 2021). </p> <p> The director of the Consulting Group A-95, Sergey Kuyun, noted in this regard that European sanctions actually restricted the Belarusian oil products to the domestic market of Belarus, the CIS and Ukraine. “The first two (markets) are overfilled with fuel, Ukraine remains,” said the expert. </p> <p> “Should we be surprised that the Belarusian leader said he has no plans to impose sanctions against Ukraine? Of course, otherwise they will have to stop one of the two Belarusian refineries for sure,” considers Kuyun. </p> <p> According to him, for the last 10 years Ukraine has been buying about 3.5 million tons of oil products annually from Mozyr Refinery. According to his estimates, during this time Ukraine has given the refinery $1.75 billion in additional revenue due to a higher purchase price. </p> <p> In January-July 2021, Belarus’ share in the Ukrainian gasoline market was 50%, diesel fuel - 35%, and bitumen - more than 50%. Diesel fuel supplies increased by 40% (to 1.4m t) in 2021, replacing Russian supplies in particular. </p> <p> It should be noted that now enterprises of the state concern Belneftekhim export to Ukraine about 30% of their total export products. These are not only oil products, but also tyres, polyethylene, chemical yarns and fibres, non-woven materials, cord fabrics, fiberglass and fiberglass products, varnish and paint solutions, alkyd resins, and fertilizers. </p> <p> BNH-Ukraine LLC (Kyiv) supplies Belarusian petrochemical products to Ukraine; it is an enterprise in the commodity distribution network of Belneftekhim State Concern. BNH-Ukraine CEO Oleg Velichko previously said that the company planned to increase the supply of Belarusian petrochemicals to Ukraine in 2021 by 19% year on year up to 500,000 tons. </p> <p> At the same time, Vice President of the Union of Chemical Industry Workers of Ukraine Igor Golchenko said that sanctions against Belarus have already had a big impact on the Ukrainian market, as Grodno Azot and Belneftekhim were put on the US sanctions list, and now US companies and companies with US funding refuse to work with them. In addition, dollar payments with European companies are also blocked. </p> <p> “The EU market for Belarusians is also narrowing. On the territory of the EEU, everything is occupied by Russian producers and one should not expect big changes here. Therefore, Ukraine is the most convenient and accessible market for Belarusian goods. Everything that Belarusian companies cannot sell to Western markets goes to Ukraine now. We have been seeing an increase in fertilizer imports from Belarus since May. Belarusian producers in May and June brought twice as much UAN and NPK fertilizers as in April. Moreover, the price of these fertilizers was considerably lower than in Europe,” Golchenko said. </p> <p> According to him, over the last five years Ukraine has been receiving Belarusian potash at a price 15-20% higher than for the rest of the countries. Potassium chloride is a raw material for the production of compound NPK-fertilizers by Ukrainian producers. Thus, in 2021, Belarus started to compete fiercely in Ukraine’s compound fertilizer market, offering a lower price. </p> <p> Belarus has also not given up hope of resuming electricity export to the Ukrainian market. The Belarusian authorities hoped that it was the Ukrainian market that would become the most important one for Belarusian electricity exports after the launch of the BelNPP and the blocking of Belarusian electricity supplies via Lithuania to the European market. </p> <p> After Ukraine liberalised its electricity market in July 2019, electricity supplies from Belarus to Ukraine rose to 852.8 million kWh in six months. </p> <p> Ukraine’s forecast balance for 2021 did not provide for electricity imports from Belarus; nevertheless, after restrictions were lifted on 1 January, Belarus markedly increased its supplies of electricity to Ukraine. Meanwhile, Ukraine was the only export market for Belarusian electricity in 2021. </p> <p> However, following a decision of the National Commission, which carries out state regulation in the energy and utilities sector, Ukraine decided to suspend electricity imports from Belarus from 26 May 26 until 1 October 2021. </p> <p> The Belarusian side expects Ukraine to resume electricity imports on 1 October, and Belenergo will take advantage of this. All the more so because a ban on electricity supplies from Belarus to Ukraine was in effect earlier - from April to December 2020. When it ended, commercial power flows resumed, and during the cold winter Ukraine repeatedly requested supplies of electricity from Belarus. </p> <p> Political disagreements between Minsk and Kyiv have led to an aggravation of trade relations this year. </p> <p> In late April 2021, the Interdepartmental Commission on International Trade of Ukraine imposed a special duty of 35% of the customs value on imports of passenger and cargo buses, special vehicles and trolleybuses from Belarus (the duty started to apply on May 3). </p> <p> In response, at the end of May, Belarus introduced a six-month individual licensing regime for import of a number of Ukrainian goods: confectionary, chocolate, juices, beer, chipboard and fibreboard, wallpaper, toilet paper and packaging, bricks, ceramic tiles, glass ampoules, agricultural machinery for sowing, washing machines, and furniture. </p> <p> However, due to the large role of the Ukrainian market, the Belarusian authorities cannot wage a full-fledged trade war with Ukraine. </p> <p> In foreign trade, Belarus is more dependent on Ukraine than Ukraine is on Belarus. According to statistics, Belarus’ share in Ukrainian exports is about 2.8%, and in imports about 4.9%. By comparison, the share of the Russian Federation is twice as high - 5.6% and 9.2%, respectively. </p> <p> At the same time, Belarus, unlike Russia, has a trade surplus in trade with Ukraine - i.e. it sells more to Ukraine than it buys from Ukraine. It appears that this circumstance will restrain Minsk from making hasty steps with regard to its key trading partner, which is Ukraine for Belarus today. </p>

2021-09-06

Primepress