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Investing in Belarus |
WIKI ANALYSIS
Belarus is a promising investment platform for business allocation today.There are numerous reasons why Belarus is an attractive foreign investment destination. It has a highly skilled workforce, a large scale privatisation programme, attractive incentives, including six Free Economic Zones and a specialist High Technologies Park (HTP). There is full protection given to foreign investments and there are a variety of channels available to businesses to engage with the government. Belarus’ unique business opportunities and favourable conditions have attracted more than 5,000 foreign investors from 77 countries. The leading investors are from Austria, Germany, The Netherlands, Russia, Switzerland and the UK. These include global giants such as Hewlett Packard, Bosch, Heineken, Coca-Cola, Austria Telecom, Raffeisen Zentralbank and Crowne Plaza.
Why invest in Belarus?
1. Belarus has an advantageous economic and geographic location – disposition at the crossroads of two main European motorways, bordering with Russia – one of the largest product markets – with whom Belarus has a common customs area and free trade zone, along with Ukraine and 3 EU countries.
2. Belarus has a stable economy and favorable investment climate:
- Only one control power in the country (government)
- Possibility to obey the clear rules of the game (supremacy of law)
- Well-developed transport infrastructure
- New progressive legislation, facilitating the activity of foreign investors
- Low level of competition in most innovative and high-tech sectors
- Opportunity to pioneer in the largest markets of the CIS
- Large quantity of attractive property for privatization, acquisition and investment.
3. All the necessary resources for work organization can be found in Belarus:
- Natural resources and minerals, taking into consideration the border with Russia – the owner of the richest reserves of raw materials and energy resources, together with developed transport infrastructure for their delivery.
- One of the highest literacy rates in the world (99,6%), high qualification of workers (Belarus is the former assembly plant of the whole USSR), low-cost workforce.
4. Active government policy toward attracting foreign direct investments, as evidenced by the rapid advancement of Belarus in “Doing Business” rating: in 2009 Belarus rose from 82nd to 58th place (for comparison: Russia – 120th place, Ukraine – 142nd place) and entered the list of the most active reformers of entrepreneurship activity control.
Investment climate of Belarus
Business Reforms
Belarus’ programme of reforms to encourage more home-grown entrepreneurial activity and attract high calibre foreign investment has been very effective. Belarus was named as the world’s fourth best business reformer in the World Bank’s 2010 Doing Business Report. The country made significant progress and was ranked 58th overall, a meaningful leap from 85th position in 2009. This places the country above other leading economies, for example, Spain (62), Poland (72), China (89) and puts Belarus on track to fulfil its ambition of joining the top 30 by 2011. One of the government’s most significant acts was the abolition of the so-called ‘Golden Share’ which allowed the state to intervene in privatised businesses, while the six Free Economic Zones (FEZ) and High Technologies Park offer significant tax incentives for businesses to invest. It is now possible to register a new business in a single day thanks to a ‘one-stop-shop’ process. The determination to push through reforms, allied to a diverse privatisation programme, means Belarus has a great deal to offer to investors keen to become pioneers in a new and rapidly growing market on the EU’s doorstep.
Privatisation programme of Belarus
An integral part of Belarus’ investment drive is its widespread privatization programme which, in the long term, is designed to see 90% of state-owned businesses transferred to private sector ownership. The government has already prepared around 150 of its leading businesses for sale, and has earmarked another 500 for conversion into open joint stock companies by 2010. Over 130 enterprises are expected to be privatised in 2012 alone and it is forecast that the programme will inject US $80 billion in investment into the economy by 2013. The programme is run by the State Property Committee and, by the beginning of 2009, privatisation plans included selling controlling stakes in:
- Four leading Belarusian banks and two insurance companies to strategic investors or via initial public offerings on foreign capital markets
- Two of the largest state-owned breweries in Belarus to strategic investors
- Leading pharmaceutical manufacturers to strategic investors, or offering joint venture opportunities
- Joint ventures and green-field projects in the energy sector
Free economic zones of Belarus
These zones were set up to create strong private sector enterprise and investment in Belarus and offer an enviable array of incentives to members, whether they are local entrepreneurs or foreign investors.
Registered businesses wanting to register with a FEZ must make a minimum investment of 1m, but receive the following benefits:
- Tax free profits on all goods and services for five years, then a 50% discount
- 50% discount on VAT on import substitution goods manufactured within an FEZ
- No taxes on real estate owned or leased in the FEZ
- Exempt from payments to National Agriculture Support Fund
- No tax on purchasing vehicles
- No customs duty on raw materials and equipment imported from outside Belarus
- A guarantee that legislation governing firms will not change for seven years
Each FEZ has its own administrative officers to help members and, in all, joining an FEZ confers a 40% reduction in the tax burden compared non-membership. So far almost 270 foreign businesses have taken advantage of the opportunity.
The first FEZ was set up in 1996 in Brest, in the south west of Belarus, near the Polish border, and now six zones are strategically located around the country - in Minsk, Gomel, Vitebsk, Grodno, Brest and Mogilev.
Investment guarantees in Belarus
Legal conditions favourable for investors’ activities have been formed in Belarus. In the opinion of the International Financial Corporation involved in investment climate analysis in different countries, the Belarusian investment legislation is worthy of appreciation and is among the best in CIS member-states. Belarus has established a robust legal framework to protect foreign investor’s interests. Belarus’ Investment Code, updated in 2008, provides a transparent legal framework for investors in Belarus and provides guarantees for investors including:
- foreign ownership of property
- full equality of rights to foreign investors
- protection against discrimination about types of ownership
- freedom to repatriate profits outside of Belarus
The Code also gives investors’ legal right to appeal against any actions by the state which violates the investors’ rights or inflicts losses upon them.
International protection for investors Belarus is a fully fledged member of the World Intellectual Property Organisation which is the umbrella for 17 multilateral international treaties protecting firms’ intellectual property rights. This includes all inventions, patents, trademarks, research and production materials. Copyright laws cover the creative industries and similar legislation protects music and performances.
Any investors, in the course of their investment activities (in particular, aimed at investment project implementation), are entitled to the governmental support the form of centralized investment resources or guarantees granted by the Belarusian Government. Moreover, the investment agreement, may be signed with any investor when implementing the projects which are of importance for our country. Such agreement establishes additional legal guarantees of the Republic of Belarus for the period of the agreement validity.
Together with such support, any foreign investors are granted a number of governmental guarantees:the proprietary right and other proprietary interests, as well as interests legally acquired. And above all, equal non-discriminative protection of investors’ rights and lawful interests is ensured.
According to the Belarusian legislation, the investors may independently carry out any actions arising from possession, use and disposal of any objects and outcomes of their investment activities, including disposal of any received profit, in particular, reinvest the same in the territory of Belarus or freely transfer overseas (after payment of all taxes and any other mandatory payments)
The Investment Code also stipulates for the investors’ right to appeal in legal form against any actions (inaction) of the governmental bodies and their acts that violate the investors’ rights and/or inflict losses upon them.
Any additional guarantees o the foreign investments are granted within bilateral agreements between the Republic of Belarus and other countries. By today 52 agreements on double taxation avoidance, have been signed, in particular, with Russia, Hungary, Czechia, Belgium, Austria, the Netherlands, Egypt, Iran. 59 agreements on assistance in making and protection of investments, have been signed, in particular, with Italy, Denmark, Spain, USA, Canada.
Experience of foreign investors in Belarus
Belarus’ unique business opportunities and favourable conditions have attracted more than 5,000 foreign investors from 77 countries. The leading investors are from Austria, Germany, The Netherlands, Russia, Switzerland and the UK. These include global giants such as Hewlett Packard, Bosch, Heineken, Coca-Cola, Austria Telecom, Raffeisen Zentralbank and Crowne Plaza.
Heineken
Heineken has made significant investments in Belarus in the past few years to take advantage of the rapidly growing consumer market in the republic. The brewing giant purchased Belarus’s second biggest brewery, Syabar, in late 2007 and followed it up in 2008 with a majority stake in the Rechitsapivo brewery. By 2009, Heineken held 15% of the domestic and international beer market in Belarus, and had plans to target the market on imported beers. Belarus allowed Heineken to fill a gap in its coverage of Eastern Europe while gaining ‘first mover’ advantage among international beer companies in the republic. So far it has concentrated on selling local brands, but has plans to introduce more sophisticated blends. To achieve this, the company has already been investing in its supply chain, including distributing its preferred variety of seed to local farms. Henk van Gelderen, general manager of Heineken Belarus, said: “We invested in the Belarusian market because of the fast growth in beer consumption. “The acquisition of the two breweries gave us a good platform for development of local and international brands.”
Coca-Cola
Coca-Cola Hellenic was a pioneer foreign investor in Belarus, first licencing a local manufacturer in 1994 and then setting up its own production facilities in 1997. Its original US $42 million investment was the first green-field development in Belarus by a foreign investor. Today, after almost US $120m of investment, Coca-Cola Hellenic has four production lines in Belarus producing Coca-Cola, Fanta, Sprite, Schweppes, local brand Fruktime, Bonaqua water and importing energy drinks, juices and ice tea. In the Summer and over Christmas, the lines run 24 hours a day and it employs 550 people in its manufacturing headquarters and across its nationwide sales, warehouse and distribution network Because of its early entry to the market, Coca-Cola Hellenic now has approximately 25% of the rapidly-growing soft drinks market in Belarus. Over the past decade the business’s volume has grown ten-fold and Coca-Cola Hellenic in Belarus turned over €60 million in 2008. Coca-Cola Hellenic also plays an active role in helping the government improve the business climate in Belarus through its founding membership of the Foreign Investment Advisory Council. Successes include persuading the government to streamline administrative procedures and both simplify and cut the tax burden on business.
PriorBank
In 1989, in two rooms in a Minsk office, eight men and women gathered for the first staff meeting of Priorbank, a new private bank in Belarus. Today, Priorbank has net assets of approximately US $2 billion and is the biggest commercial private sector bank in Belarus and its most profitable. It has almost 100 branches and outlets across the country, employing more than 2,100 people, and, symbolically, owns the office building it started out in back in 1994. Priorbank’s success lies in the way it competed against the state-supported banks in Belarus and, crucially, in its decision to seek international funding and investment in the late 1990s. The European Bank for Reconstruction and Development was the first to take a stake in the bank, buying 27% in 1997. Five years later, Priorbank struck a strategic alliance with Austrian banking giant Raiffeisen International (RZB). By June 2009, RZB had invested US $115 million in Priorbank, and own 88% of the business, and was on course to recoup its investment in three years. Half of Priorbank’s income comes from more than 1,300 large corporate clients which take advantage of a full range of banking and advisory services. The other half of its income is generated by its loans to entrepreneurs and individuals. The alliance with RZB has given Priorbank access to more than just money – it has brought in new ideas, technology and a rolling four year roadmap of efficiency improvements. And with Belarus embarking on a mass privatisation and investment programme the demand for financial services in Belarus is set to boom for some time to come.
Main investment companies of Belarus
- EnterInvest&Civitta
- Menka
- BKC
- Uniter
- Valex
- AVInvest
References
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