Russia, Belarus, and Kazakhstan formed a Customs Union in 2010 to integrate the three economies more by removing trade barriers across borders. The member states have shared a single economic space since the beginning of 2012.
The Institute of Privatization and Management (IPM) based in Minsk, Belarus surveyed 400 small and medium-sized enterprises (SMEs) in 2012 to understand better how SMEs view the Customs Union. The survey results showed that Belarus’ membership in the Customs Union poses challenges for small and medium-sized enterprises due to the difficulty of competing with Russian and Kazakh SMEs.
Economic integration occurs when countries enter into an agreement to decrease or abolish trade tariffs on exports and imports between participating states. The advantages of such unions include an increase in trade and product selection, lower costs on certain goods for consumers, and a potential increase in employment opportunities. However, economic integration does require states to forfeit some sovereignty over trade, monetary, and fiscal policies, and can expose firms to more competitive pressures.
According to the IPM survey, approximately three quarters of Belarusian SMEs view the domestic market as more of a priority for their business. The remaining 23 percent of SMEs surveyed consider the markets of Russia and Kazakhstan as “very important” to their business, followed by the markets of the European Union, Ukraine, and the other CIS countries. The data indicate that the majority of Belarusian SMEs feel more confident competing in the domestic market, rather than in Russian and Kazakh markets, primarily because of lower production costs, cheaper labor, and less competition inside Belarus.
Competition is a crucial factor for the Belarusian SME community. While the survey results showed that 62 percent of SMEs believe Belarus’ membership in the Customs Union will have a positive effect on Belarusian enterprises, 44 percent of SMEs question their ability to compete with Russian and Kazakh enterprises. SMEs identified the following obstacles to competing in the Customs Union:
- Lack of financial resources to promote their products in Russia or Kazakhstan
- Unfavorable administrative barriers to entering the Customs Union market
- Higher production costs
Membership in the Customs Union continues to affect Belarus’ SME community and private sector growth. IPM’s annual survey seeks to determine the benefits and challenges as well as SMEs’ perceptions and opinions of economic integration. The survey also provides feedback for the united business community’s advocacy efforts on behalf of SMEs’ interests. Through the annual National Business Platform, the business community develops recommendations to modernize and liberalize the business environment, as well as create more favorable conditions for entrepreneurs to compete within the Customs Union.
Published Date: May 23, 2013