Belarus Investment Agency to attract foreign investors

Graham Stack for business new europe (www.businessneweurope.eu)

The offices of the Belarus Investment Agency are small and on the outskirts of the Minsk, and a role call of 7 staff points to its embryonic status – but according to its head Oleg Zinoviev, it has a big future ahead of it.

And the first step will be its promotion to ministerial status and direct subordination to the prime minister as of January 2009.

“This status will allow us to become a fully-fledged single window for foreign investor, with powers to resolve any issues arising between foreign investors and government authorities where at national or local level,” says Zinoviev.

“Alone the fact that we will be awarded such a status and answer directly to the prime minister is testimony to the importance the government now places on attracting foreign direct investment.”

According to Zinoviev, the Belarus Investment Agency is modeled on ISPAT, the famous Investment Support and Promotion Agency of Turkey, likewise directly subordinated to the Turkish prime minister.

And if the offices are still modest, it is compensated for by a hectic itinerary through Europe and the former Soviet Union establishing contacts and putting the Belarus investment case.

Opening gambit

For many years Belarus and foreign investments entertained a mutual aversion. However, as of last year, all this has changed. In connection with Russia demanding a gradual shift to European gas prices, and also stopping duty-free oil exports to Belarus refineries, the risk of Belarus running a current account deficit suddenly emerged.

And in addition, rocketing domestic growth was outgrowing domestic, as well as new technologies and managerial capacities, to move on to the next level.

Zinoviev emphasizes the latter. “It is foreign technologies we need, and above all foreign managerial technologies. Too many of our directors still cling to the old ways.”

Zinoviev denies Belarus had ever been actively anti-FDI.

“Everyone knows we had a course aimed at primarily harnessing our internal resources, but there was never any different treatment for foreign investors than for domestic investors. And there isn’t now.”

The only really preferential treatment for foreign investors, he says, is a guarantee that existing regulations will continue to apply for five years to the investors.

FDI growing

It is undeniable that the volume of foreign investment is growing rapidly, albeit from a very low base.

FDI totaled $1.23bn in the first six months of 2008, approximately the same amount as for all 2007. FDI increased from 1.8bn dollars in 2005 to almost 4bn in 2006 and to 5.4bn in 2007, with 7bn dollars expected for this year. However, this sum is only 3.5% of fixed capital investment.

Russia accounts for 33.2% of all foreign investment, Switzerland for 20.2 %, the UK for 14.2% and Austria for 10.7%.

Zinoviev reels off happily what should make Belarus attractive for foreign investors.

Firstly, he says, Belarus combines rapid economic growth, averaging over 8% in recent years, with a high level of political stability and significantly lower corruption than in Ukraine or Russia. So investors can count on both profitability and sustainability of investment.

Secondly, Belarus geographical position at the watershed between the Black and the Baltic Seas and between Russian and Western Europe, and its cluster of road and railway connections, make it a strategic location for investors.

Thirdly, Belarus, which had one of the highest living standards in the USSR, with considerable investment in electronic and light industry made in the 1980s, has a plethora of technical universities and research institutes.

It is Zinoviev’s job to match up investment opportunities in Belarus with potental investors abroad, and to this effect a good deal of the time he is traveling.

The Belarus Investment Agency is tasked with turnkey provision of investment projects, from drawing up investment proposals and finding an investor to facilitating all bureaucratic and infrastructural measures in Belarus on behalf of the investor.

Zinoviev and his colleagues say their work was recently made a whole lot easier by the publication of the World Bank’s ‘Ease of Doing Business’ survey.

Belarus officials had been actively collaborating with World Bank staff to implement measures to boost Belarus’ lowly ranking. Those efforts paid off – with Belarus leaping from place 110 in the world ranking to place 85, leapfrogging Russia and Ukraine, the fourth highest climber of the year.

One point that World Bank officials says Belarus still has to work on is tax legislation.

“It is by far the most complicated I have ever seen, with 42 taxes meaning that huge administrative efforts are needed for compliance,” agrees Helmut Duhs, CEO of Telekom Austria-owned Velcom, Belarus’ second largest mobile operator told bne. “And it’s not just the number of taxes: taken together, Belarus has the highest tax rates in region,” he added.

However Zinoviev points out that the tax burden is being decreased from year to year, and many ‘taxes’ are in fact merely local dues. “It’s not much different from what you find anywhere else,” he argues.

The ‘Ease of Doing Business Ranking’ World Bank ranking serves Belarus as a target – with the goal being to enter the top 25 in the within the next three years. And the president’s office has set government officials targets for attracting FDI.

Opposition figures decry President Aleksandr Lukashenko’s swerve towards foreign investment as mere opportunism and unlikely to last. Zinoviev, however, points out that all the main normative acts improving the investment climate come direct from the president’s office.

“These are not government resolutions or local administrative acts,” says Zinoviev. “They are presidential decrees. So they won’t change. All the main decisions to open up for foreign investors have been presidential decisions, signed by the president. This is simply the strategic course he has chosen.”