Investment processes in the economies of Iran and Belarus 1

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Investment processes in the economies of Iran and Belarus 1 Mohsen Kamali Mohammadreza postgraduate student, BSU (Minsk, Belarus) Polonik Stepan, Professor, BSU Introduction Economic upturn of the

1 Investment processes in the economies of Iran and Belarus 1 Mohsen Kamali Mohammadreza postgraduate student, BSU (Minsk, Belarus) Polonik Stepan, Professor, BSU Introduction Economic upturn of the recent years ( ) in the economies of Iran and Belarus and the prospects for economic growth in these countries are connected to a considerable degree with the intensification of producers investment activity. It is obvious: with such high wear rate of basic assets that characterizes modern base of Iranian and Belarusian industry maintenance of high growth rates of GDP (about 8-10% per annum) without advance increase of investment is impossible. In addition, solution of the task of ensuring the competitiveness of national producers (the task was posed in the studied countries) is connected with the need to update the productive apparatus and significant growth in labour productivity, which is unrealistic without substantial investment expenses. Per se, the question is whether our countries will stay providers of raw materials, non-competitive products (at underestimated prices) to the world market and importers of high-tech products or will create their own status of developed industrial countries. Main part Investment spending is one of the main factors that determine economy growth in the long term. In today s conditions in order to provide sustained economic growth after a financial crisis countries of the world aim at assuring high rate of savings and a considerable proportion of Investment/GDP (see figure 1) [11]. Fig. 1 GDP growth rates and Investment/GDP (2010) Investment of capital is the most dynamic component of GDP and composite demand. During economic downturn or immediately before it Investment/GDP and its rate of growth usually drops. Revitalizing and upturn in economy are accompanied by first of all fixed capital investment growth (often outpacing growth). The changes of the major GDP s component, final consumption, occur much slower. As contrast to investment spending this component to a considerable degree stabilizes fluctuations of GDP [5]. 1 An investment activity in Belarus and Iran over the last ten years was analyzed in this article. The author evaluated the state of the building industry of Belarus. The main objectives of investment activities were determined for

Investment processes in the economies of Iran and Belarus www.jsstm-ump.org Fig. 2 The evolution of the components of the used GDP in the Republic of Belarus (in % to the previous year).

2 Investment processes in the economies of Iran and Belarus Fig. 2 The evolution of the components of the used GDP in the Republic of Belarus (in % to the previous year). At the same time in the view of long-term evolution of investment spending the share of final consumption of GDP that forms demand limitations of growth and thereafter economy s need in investments is important. In recent years in the Belarusian economy the share of final consumption of GDP (as well as the share of gross fixed capital formation) was lower than in developed countries and in the countries, characterized by high rates of growth, while according to export share in GDP Belarus was rated among the worst countries with economies in transition.with the help of macroeconomic identities the difference between savings and investment was determined; it is equal to amount of balance of the balance-ofpayments current account or capital account and financial account (taken with the inverse sign). The main macroeconomic identity, or the identity of national accounts, therefore implies: Y=C+I+G+NX, (Y-C-G) I=NX, or S-I=NX. From the balance of payments: NX KA. Then: S I KA, where (with some approximation): Y GDP; C and G final consumption of households and a state; I gross investment; NX net exports, or current account balance; КА amount of balance of the balance-of-payments capital account and financial account. In other words excess of savings in the economy of a country by way of capital outflow becomes a source of resources for the rest of the world (negative balance of capital account as well as net errors and omissions etc.) and corresponds with the balance-of-payments current account surplus [7]. Fig. 3 The structure of GDP use, in 2011 (in current prices) In spite of positive achievements in the development of economy in Iran and Belarus in recent years (such as GDP growth, stabilization of industrial production, decrease of inflation processes, toughening of

3 monetary and credit policy, ensuring of the stable rate of exchange of national currency) negative tendencies also occur.low investment, which is insufficient even for providing reproduction of the republics basic production assets whose deterioration has reached a critical level, is objective reality [10]. In Belarus the problem of investment is connected with high wear of basic production assets: in industry 80, 2% and in whole in economy 75%.During the period from 96 to 2010 productive potential in industry in Belarus declined by 27%. These studies give reason to state that considerable proportion of fixed capital constantly drops out of production process on the score of extreme deterioration, wear, subinvestment of some branches, mismatch between rates of input of new capacity and disposal of operating capacities. It is characteristic that GDP growth outgoes investments growth against the background of continuing deterioration of basic production assets and low profitability. It is not only impossible to create competitive products and win business with the help of physically and morally depreciated basic production assets in a majority of economic entities, but it is even possible to lose former markets for sale [9].That s why the reproduction of fixed assets, identifying sources of investment for that and scope for their renewal is the first priority of economic development and economic stabilization in Iran and Belarus.However, in Belarus since 96 trends of capital investment process have changed. The rather fast GDP growth has a positive impact on investment evolution. Decumulation of basic assets in pre-crisis years and growth in production that has only just set required substantial renewal of the productive apparatus. Against the background of growth of demand, and in recent years of imports reduction, reserved competitive capacity utilization and its active involving in production have increased and demand for investment goods has expanded due to growth in income of export-oriented fields during the periods of favourable conditions on the world market [8] Ratio: 2011 to 96 Gross Domestic 2,8 5,8 4, ,4 9,4 10 8,6 10,2 0,2 7,7 5,5 2,8 Product Expenditures on 3,7 7,4 13,7 8,1 5,4 6,8 10,7 9 9,7 12,5 0 7,9 1,0 3,2 final consumption of: Households 5,7 8 17,9 11 7,4 9, ,7 17,2 0,1 9,5 2,3 4,5 State institutions -1,3 6 3,3 0,4 0,3-0,3 0,5-0,2-0,5 0,3-0,1 3,1-3,6 1,3 Gross savings -0,9-1,6-9,0-3,1 1,6 4,6-1,3 1-1,1-2,3 0,2-0,2-4,5 For refernce: Contribution to 9,4 10 8,6 10,2 0,2 7,7 GDP evolution,% Expenditures on 8,7 3,2 5,4 6,2 0,5 4,3 final consumption Gross savings 4,2 4,5 2,8 6,1 1,0 3,2 Net eexports of 0,2 0,1 2,7-1,8 0,2 1,2 goods and services Statistical differences -3,7 2,2-2,3-0,3-1,5-1,0 Table 1. Evolution of physical volumes of the use of GDP components in the Republic of Belarus in (in % to previous year) Nevertheless, evolution of the components of the use of GDP prove that investment demand in 2003, 2004, 2006, and 2009 was a major factor contributing to the expansion of domestic consumer demand, which has also given a positive impetus to the GDP evolution [2].During the years the GDP of Belarus has grown in real terms 2,8 times. GDP growth to a considerable degree was due to intensive growth of domestic consumer demand by 3,2 times and investment demand by 5,6 times, which has caused

4 Investment processes in the economies of Iran and Belarus significant change to structure of end use of GDP, namely, growth of gross capital formation from 23,5% in 96 to 38,3%in 2011 and reduction of final consumption unit weight from 80,6% to 62, 8%. But the share of joint consumer expenditures remains significant component in GDP of Belarus. These expenditures account for about 67% GDP. During the years in the structure of final consumption households expenditures amounted to about 70%, government expenditures ¼ and profit organizations expenditures insignificant part, just about 3%.In 2011 the level of government expenditures on final per capita consumption per capita in Belarus amounted to US$ 00 according to PPP (purchasing power parity) (in prices of 2005), in Iran US$ 1600, while in Poland and Lithuania US$ 3000, in Germany US$ 6600, in Sweden US$ 8900, in the Netherlands US$ The analysis shows that in countries with high per capita income the share of government consumption in GDP is considerably higher than in Belarus and Iran.Sustainable GDP growth, together with gross capital formation, depends on final households consumption. GDP per capita in 2011 in Belarus came to US$7600, in Iran correspondingly US$ 4800, this is much lower than the level of consumer expenses of Russia s population, in European Union countries and also in the USA and Japan.However during the past 11 years both in Belarus, as well as in Iran essential changes in the structure of consumer expenditures took place. In this period expenses for purchases of household items, for health care services, for rest and culture have increased noticeably. It argues that investments in the branches producing durable goods, in health and recreation development, in reconditioning of cultural monuments.therefore in Belarus and Iran construction complex is one of the most dynamically developing sectors of economy. This is confirmed by share of construction in the structure of gross domestic product. Evolution of the structure of gross domestic product in is presented in Table 2 [1]. Table 2 Evolution of the structure of gross domestic product of the Republic of Belarus according to the type of economic activity during (in %) Gross domestic product, including the branches of: Industry 31,1 28,1 27, ,2 31,7 Agriculture, hunting, forestry 8,4 8,5 8 7,4 8,3 9,2 8,6 Building 6,7 8 8,5 9,3 9,1 9,6 6,8 Other types of economic activity 53,8 55,4 56,4 55,3 54, ,9 It is evident from the Table 2 that the share of the building sector in the structure of GDP has positive trend up to In 2011 its insignificant reduction to 6,8% in the structure GDP was registered, however herewith considerable growth of the scope of building and assembly jobs and repair and construction work (Table 3).

5 Table 3 Contractor s business in regions and in the city of Minsk during , RUB millions. The Republic of Belarus (in actually established prices) 7459, , , , ,9 The Republic of Belarus (in 23987, , , , , , ,9 comparable prices) Effort growth rate - 1,2 1,1 1,3 1 1,1 0,9 Regions: Brest 818,3 1091,3 1401,9 2276,7 2825,8 3809,8 5070,1 Brest 2631,5 3245,5 3584,9 5075,8 5502, ,1 Vitebsk 767,4 1023,6 1314,8 71,8 2091,7 2543,6 3278,6 Vitebsk 2467,8 3044,2 3362, ,8 4359,7 3278,6 Gomel 1056,9 1409,6 1810,7 2533,9 2930,8 3806,4 5378,6 Gomel 3398,7 42,1 4630,3 5649,2 5706,8 6524,2 5378,6 Grodno 806,6 1075, ,1 2376,4 2877,1 4489,8 Grodno 2593,8 39, ,1 4627,1 4931,3 4489,8 Minsk, city 2359, , ,5 7533, ,7 Minsk, city 7587,6 9359, , , , ,7 Minsk 975,1 1300,6 1670,5 2609,2 2745,8 3480,8 5701,5 Minsk 3135, ,7 5817,7 5346,4 5966,1 5701,5 Mogilev 675, ,4 1601, ,2 3256,6 Mogilev 2172,6 2679,6 2959,7 3571,1 3543,7 4047,1 3256,6 The data are arranged in the form of comparison with the application of the industrial producers' price index, expressed as percent of previous year ( ,1; ,3; ,3; ,7; ,5; ,6; ,4).According to the data of Table 3 contractor s business growth rate in the Republic of Belarus, calculated in comparable prices, had positive trend till 2008 (growth rate in 2008 as compared with 2007 was 130%). Then there was a certain decrease of growth rate to 90% in The regions of the republic are characterized by the same dynamics of contractor s business [4]. The analysis of housing commissioning dynamics in Belarus is presented in Table 4. Table 4 Housing commissioning in Belarus in Residential building commissioning, 3785,5 4087,5 4665,1 5102,2 5710,3 6629,9 5487,0 thousand m2 of total area, including In rural areas 1236,4 1379,3 1491,5 1456,8 1423,4 1589,6 1289,2 The number of apartments built, thousand. 43,3 45,6 53,1 60,0 69,6 84,7 68,3

6 Investment processes in the economies of Iran and Belarus It is obvious from Table 4 that residential building commissioning growth rate in the Republic of Belarus in 2010 with respect to 2009 was 116,1%, which has a positive impact on providing people with housing. However, in 2011 because of the financial crisis the growth rate decelerated to 82,7% [3]. In spite of the positive changes in the development of building sector before 2010 that were indicated above, many construction companies have financial uncertainty; another frequent occurrence is unprofitableness of construction companies. The dynamics of number of unprofitable companies, as well as their loss are presented in Table 5 [2]. Table 5 Construction companies finance activity during Net profit, milliard 375, ,1 864,1 1178,9 1399,9 1473,7 roubles. Net profit, milliard roubles. 406,5 573, ,4 1339,2 2399,4 1473,7 Number of unprofitable companies, total As a percentage of the total number 2,1 6,8 60,3 3,7 18,1 16,3,2 Amount of loss of unprofitable companies (in 2, ,9 27,9 116, ,5 actually established prices), milliard roubles Amount of loss of unprofitable companies (in comparable prices), milliard roubles 3,1 27,9 42,3 31,9 132,7 234,8 508,5 The data are arranged in the form of comparison with the application of the industrial producers' price index, expressed as percent of previous year ( ,1; ,3; ,3; ,7; ,5; ,6; ,4).The analysis of the number of unprofitable construction companies during , presented in Table 5, shows that the maximum number of unprofitable companies during the period, equal to 1590 companies, was registered in Amount of loss of unprofitable companies, calculated in comparable prices, had steady upward trend from 3,1 milliard roubles in 2005 to 508,5 milliard roubles in Costs of building production remain high. Materials cost remaining at the level of 60% throughout the entire period has the largest share, labour costs for main employees range from 23% to 24% throughout the studied period. Based on the above we can conclude that under conditions of socially oriented market economy construction takes on special significance. The study shows that construction companies serve as the country s investment resources accumulators. Practically all their activity is investment activity. A significant role for an establishment-investor is played by development prospects and the attractiveness of the industry, which provides to the investor certain competitive advantage, including profit level and construction work profitability. The structure of investments in fixed capital according to types of economic activities is presented in Table 6 [4]. Table 6 The structure of investments in fixed capital according to types of economic activities Investment in fixed capital total, of which Industry 31,7 27, ,3 29,5 41 Building 3 3,4 3,7 4,3 3,7 4,1 2,2 Others 51,8 53,8 51,3 50, ,4 56,8 The data of Table 6 prove that construction sector constitutes small percentage in the structure of investments at the level of 4%, at the same time its share in 2011 decreased to 2,2%. Investment activity of companies is determined, first of all, by stability of their financial condition, by efficiency of using manufacturing, technological, material and manpower recourses available, as well as by availability of own funding sources, which are in most cases construction companies profit [7]. Urgency of an investments issue for Belarus and Iran from year to year is increasing, since without investing in reproduction process to the extent required it is impossible to create new technologies, new efficient

7 jobs, to achieve stable long-run economic growth, to significantly improve living standards, to modernize technical basis. The major tasks of the investment activity for are as follows: Improving the investment environment at all levels; Restoring investment potential and further developing own investment opportunities of Belarus and Iran s organizations; Intensifying investment orientation of banking system; Increasing the attraction of foreign capital. Conclusions The situation in the economies of Belarus and Iran is difficult, as tasks of supporting rapid economic growth cannot be corroborated by corresponding investment behaviour. Therefore a long-run stable growth of investments in fixed capital, which is outpacing GDP dynamics, is required to modernize fixed capital. Clear economic policy of active stimulating investment process, the coordination of the work of government and business are essential in achieving the goals. Bibliography cited 1. Belarus in Figures: statistic reference book (editorial board: V.I. Zinovskiy, et al.). Minsk: The National Statistics Committee of The Republic of Belarus, pp. 2. Banking Sector Statistics Bulletin. Yearbook. ( ): Statistical Digest/The National Bank of The Republic of Belarus. Minsk, pp. 3. Residential building commissioning [Electronic resource]. Access mode. - Access date: Investments and building in the Republic of Belarus: statistical digest / editorial board: I.S. Cangro, et al. Minsk: The National Statistics Committee of The Republic of Belarus, pp. 5. Keynes, J. M. The General Theory of Employment, Interest and Money / J.M. Keynes; under the editorship of L.P. Kurakov. Moskow: Gelios ARV, pp. 6. Komkov, V.N. Quantitative and qualitative aspects of economic growth / V.N.Komkov // Bank Herald pp The course on macroeconomic and financial policy / International Monetary Fund Institute. Minsk: Belarus, pp. 8. Polonik S.S. The analysis of the Republic of Belarus national economic accounting key activities dynamics / S.S. Polonik // The Belarusian economy: analysis, prediction, regulation pp Polonik S.S. The influence of macroeconomic conditions on gross domestic product growth / S.S. Polonik // Economic Bulletin of The Scientific Research Economic Institution of the Ministry of Economy of the Republic of Belarus pp Russia and the European Union countries, 2011: statistical digest / Federal State Statistics Service (Rosstat); editorial board A.I. Kevesh [et al.]. Moscow: Rosstat, pp. 11. World Economic Outlook, April Washington. IMF, 2011, p

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