Belarusian economy began 2012 without any macroeconomic misbalance: inflation is under control, foreign currency rates are stabilised and imports are holding steady. The Belarusian Government can now shift from tactical tasks to the strategic issue of investments and privatisation: a topic common since early 2012Last year, Belarus failed to attract its target volume of foreign investments — for several reasons. The global financial market had changed. Similarly, targets for privatising state enterprises failed to be met. Of course, if the situation continues, there could be serious consequences for the economy.
Prime Minister Mikhail Myasnikovich noted at a February meeting at the House of Government, “The most important direction of our work is the attraction of direct foreign investments: vital to the development of the domestic economy. Money is required to modernise and introduce much needed innovations. Our banks have low liquidity (curtailing access to loans) while companies lack enough funds of their own.”
This year, the Government plans to attract $3.7bn of direct foreign investments, in addition to $2.5bn from the sale of state property. Minsk views the attraction of foreign funds as a strategic goal — as confirmed by its recently presented strategy for attracting foreign investments for coming years. The high-tech sector is an investment priority. Meanwhile, a firm action plan is required to improve the investment climate countrywide. Efforts should result in a higher Doing Business global rating.
Clearly, a variety of mechanisms are needed to bring in a significant amount of foreign capital: a single successful law won’t suffice. The National Agency for Investment and Privatisation is to play an important role in the process. Set up in 2011 as a state company, its young and ambitious team is working hard to meet its strategic tasks.
The Agency’s Director, Dmitry Klevzhits, tells us how Belarus can be made more attractive to investors.
What inspired the birth of the Agency?
It became evident that the Belarusian economy needed additional impetus in the form of foreign investments, to allow new technologies and modernisation. You need a systematic approach to attracting investments — including via privatisation. We want to bring in the latest global experience.
Last April, the National Agency for Investment and Privatisation became a state body, following Presidential Decree #173. It was previously subordinate to the Government but is now governed by the Economic Ministry. Of course, similar organisations are found worldwide; the International WAIPA unites dozens of such agencies. We can use the latest global experience, learning from others’ mistakes. With help from the World Bank, we’re trying to take on the best global experience, privatising state property as transparently as possible.
Why is it profitable to invest in Belarus at the moment? How do you tempt potential investors when you travel abroad?
I give a special presentation showing our investment opportunities. There’s a long list of advantages: the low costs of doing business (as we boast a relatively cheap labour force, resources and rent); quick registration and licensing of commercial activity; well-developed infrastructure (we are the closest CIS country to the EU); and our perfect logistics. Moreover, we boast well qualified staff, a strong scientific school and a high level of European education.
In recent times, Belarus’ joining of the Customs Union and the Single Economic Space of Russia and Kazakhstan has aroused attention. We now have a serious competitive advantage, able to offer investors a market of 170m people (rather than just 10m). Within these unions, there are no limits to trade and we enjoy unified conditions.
How will Belarus further improve its investment climate?
Of course, much work lies ahead. The Government has prepared a package of stimuli for investment and innovative activity. In 2012, profit tax is being reduced from 24 to 18 percent: the lowest in the Customs Union and among the lowest in Eastern Europe. The Tax Code is also to undergo simplification. A draft law on investments has been developed and submitted to the President for approval, uniting the best international and domestic practice. These activities demonstrate that the attraction of direct foreign investments is an important state task.
When do you expect to see results?
It’s impossible to create a favourable investment climate overnight. It takes several years to realise major investment projects, as the market has to be studied. At present, the climate is influenced by steps taken by Belarus 2-3 years ago. We’ve analysed interest from foreign investors and learnt that, in the second half of 2011, $9bn of direct foreign investments could have been attracted if the right conditions had been met; confidence must be inspired.
I am concerned that some sectors lack investments; most are flowing into the food industry and those spheres related to primary processing of resources. We need to defend our interests, so the National Agency for Investment and Privatisation is overseeing this task. Not long ago, Minsk was visited by a multi-billionaire from the UK (at our invitation); he’s considering how he might invest in Belarus’ alternative energy sphere, alongside some others. PM Mikhail Myasnikovich met this important guest.
Does the Agency lobby for investment into certain branches?
The quality of investments is our priority. We are focusing on investors with innovative and financial experience, as we want our companies to produce high added value goods. The pharmaceutical and bio-technology spheres are important, as they boast the highest added value and well qualified staff. You need to offer the latest technologies and top salaries to attract the best personnel. Much capital is available in the world, so Belarus needs to liaise with major global companies to ensure it gains its share.
The development of new materials and alternative energy is another priority: solar and wind power generators require the production of stronger and more flexible materials. The National Academy of Sciences has achieved much in this sphere and, attracting foreign experts, is building a well-developed branch.
Our third avenue is information-communication technologies. Recently, EPAM Systems — the largest software producer — placed our stocks on the New York Stock Exchange. It was an historic moment for our country. Although it is an American company (with shares and management concentrated in the USA), 40-50 percent of its technical personnel work in Belarus. Employees earn a higher salary than most Belarusians: over $1,000 a month. In the long run, investments raise living standards.
Let’s imagine that a foreign businessman read this article and was interested in Belarus. What would your Agency propose to him?
Our Agency is a ‘one-stop-shop’ mechanism for investors. We can follow a project through every stage, to ultimate realisation. If an investor is unsure of where to inject money, we have a database of available investment projects, so it’s easy to make recommendations. To help us do this, we’ve established close partnerships with regional governing bodies.
Privatisation is in the spotlight, with some even predicting major sales of state property. Which Belarusian enterprises are being offered?
Our potential foreign investors are keen to join our market via privatisation. The Belarusian state sector owns most companies, so the major consulting, investment and global banks view us as an opportunity to strengthen their position abroad. We must stress that, as stated at the highest level, we won’t be selling all state enterprises. Only well-considered, transparent and predicted privatisation is planned.
What do you mean?
IPO (Initial Public Offering) is a profitable and clear method of privatisation but it does take time: usually three years. We cannot wait this long, so the National Agency for Investment and Privatisation is conducting ‘pilot privatisation’, with help from the World Bank. This uses the best principles of efficient privatisation to attract strategic investors who can develop our enterprises to a new level.
How is the State Property Committee — Belarus’ major organisation -dealing with this privatisation?
Our ‘pilot privatisation’ (via the World Bank) is new for Belarus. At present, eight stock companies are being prepared for sale: Belgazstroy, Minsk Margarine Plant, Avtomagistral, Construction and Mounting Trust #8, Baranovichi Reinforced Concrete Products Plant, Medplast, Konfa and Belsantekhmontazh-2.
What method is being used?
We’ll apply advanced international practice to attract financial consultants into the privatisation process; they can ensure full preparation of a company for privatisation, as well as analysing the market, registering legal documents and organising the sale of shares. We’ve invited leading global banks and financial consulting companies to apply for the tender and have received 30 applications so far, which testifies to the huge interest shown by major players. In April, the winners will be announced, with agreements concluded.
When will these eight open joint stock companies be offered for sale?
The World Bank’s procedure — which we’re using — is rather complicated, as it demands transparency. The WB opened financing for our project on December 1st, 2011 but (as we need support from all Belarusian state bodies) we may see their privatisation by late 2012.
What will foreign consulting companies bring to the table?
We’ll choose the most experienced financial advisors, who have the largest databases of investors. This will give us new experience in learning from an international financial consultant and co-operation with leading foreign firms should enhance investors’ trust in the Belarusian programme of privatisation. This will positively influence our investment image and credit ratings, making us more attractive.
A positive investment image means a great deal; how will you create this?
Successful examples are vital: newly established enterprises and existing privatised plants. We have much yet to do but are working hard, currently preparing a Belarusian Investment Forum. I love the idea of holding mini business forums, as huge interest is shown in Belarus. We can easily gather a hundred or more foreign participants. We’ve already conducted similar meetings with potential investors in Holland and the UK.
The London event, which took place in late January, coincided with the release of a special supplement to fDi Magazine: ‘Belarus Beckons. Europe’s Final fDI Frontier Opens Up’. It was an extremely positive signal to investors; the specialised fDi Magazine (part of The Financial Times Publishing Group) has raised Belarus’ investment profile. The magazine was distributed at the International Economic Forum — held at the same time in Davos. No doubt, no better advertising for the Belarusian economy can be imagined!
What impressed the British journalists?
The 16-page supplement to the recent fDi Magazine is fully dedicated to Belarus’ investment opportunities. In previous issues, British journalists have researched the situation in Poland, Morocco, Georgia and India. They recently discovered Belarus’ yet-to-be-realised potential, which needs presentation.
Coming to Belarus for the first time, the journalists had several meetings with the Economic Ministry and the National Agency for Investment and Privatisation. We explained our plan of action and they were impressed at our long-term goals regarding the attraction of investment into high-tech spheres. They endeavoured to make a deeper study of Belarus’ opportunities and, I believe, formed an objective view.
Such publications are positive, demonstrating Belarus as a new and promising venue for direct foreign investments.
The supplement and its London presentation were organised against a background of talks on sanctions against Belarus. Does this hamper your efforts to attract investments?
Business is business. After looking through this magazine, a foreign businessman can draw the conclusion that Belarus is open to foreign capital, creating good conditions for investments. They can see that timing is important, so that they make the most of opportunities before others do. The Financial Times Group is probably the most authoritative edition in the business world. Everybody knows of its editorial policy and foreign businessmen have no grounds to mistrust its conclusions.
I want to confirm again: Belarus is open to foreign investments. We have always been a friendly country and are now becoming more active in the business sphere. Of course, we need to more intensively liaise with global finances. However, we do represent an increasing interest for international capital. Huge prospects are opening up.
By Igor Slavinsky
