Successfully investing in Belarus

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last updated on 27 May 2020 | reading time approx. 6 minutes

  

 

How do you assess the current economic situation in Belarus?

For Belarus, 2019 was a year of progressive adjustment to international and especially European standards. Belarusian economy has developed to a degree that gives hope for the future. There have been important reforms initiated, which will make Belarus internationally more competitive as a location and sales market. Therefore, the outlook for 2020 is very positive and optimistic.

 

Not only the economic but also the political opening towards the West are being further pursued. The visa facilitation agreement and the readmission agreement between the EU and Belarus should enter into force in June 2020. The visa facilitation agreement will make it easier for Belarusian citizens to obtain short-term visas for EU entry. Once the agreement enters into force, visa fees will be reduced up to 35 Euros. Service fees will be reduced as well as the period for considering visa applications by consulates will be shortened.

 

As from July 2018 the citizens of approx. 80 countries (including all EU countries) have been entitled to stay in Belarus for up to 30 days on a visa-free basis. Already in 2016, the Council of the European Union acknowledged the country's reform efforts and decided not to prolong the sanctions against three legal entities and 170 Belarussian citizens, that had expired on 29 February 2016. These and further measures are important steps in the already very advanced process towards the normalization of the relationship between Belarus and the EU – a long overdue development noticed with relief especially by German business people.

 

Starting from 1 July 2020 the deadline for the mandatory registration of foreign citizens with Belarusian migration authorities at the location of their actual staying will be extended from 5 to 10 days. In addition, foreigners can also perform their registration independently in electronic form on the website of the Unified Portal of Electronic Services (www.portal.gov.by) which is effected a free-of-charge basis and without personal interaction with migration authorities.

 

In 2019, the currency regulation in Belarus was liberalized through revocation of the duty to obtain permissions of the National Bank for certain currency transactions. Such transactions comprised the ones on acquiring shares and stocks in foreign companies; acquiring securities from foreign companies; extension of loans to foreign companies; obtaining loans or credits from foreign companies, etc. Instead of the need to obtain the permission of the National Bank for performance of such transactions, it is suffice now to register the respective transaction with a commercial bank. Moreover, natural persons residing in Belarus are allowed to set up accounts in foreign banks without the National Bank's permission.

 

Thus, Belarus is further building its reputation as one of the region's most attractive business destination for foreign investors. In the “Doing Business Report 2020” – an annual report issued by the World Bank – Belarus now ranks 49th out of 190 countries. In the last 5 years, the country has thus improved its rating by 14 positions. As for 2019, the GDP increased by 1.2 per cent as compared to the previous year. The forecast of the GDP growth in 2020 is 2.8 per cent. The official inflation rate in 2019 was 4.7 per cent – the second lowest indicator in the independent period of the country and, thus, another indication that the reforms initiated in the past years are taking their effect.

 

How would you describe the investment climate in Belarus? Which sectors offer the largest potential?

Due to its geographical location, Belarus is an ideal hub for trade between the EU and the CIS countries. Moreover, the membership in the Eurasian Economic Union (EAEU) makes the country very attractive to all those companies, which are looking for an advantageous location as a springboard into the markets of the common customs area of the EAEU such as Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan. In addition (being the member of the EAEU), Belarus offers a domestic market of about 190 million consumers.

 

The state funding measures continue to be mainly focused on large companies and state-owned enterprises, whose share in the economy of Belarus is about 70 per cent. The SMEs sector (small and medium-sized enterprises), however, is sadly politically overlooked, yet, therefore, still offers significant potential for growth.

In recent years, information and communications technology has developed to become the leading sector of the Belarussian economy. That development was substantially bolstered by the establishment of the Belarus High Technologies Park in 2005, which created favorable conditions for the development of software as well as information and communications technologies in the Republic of Belarus and significantly strengthened their international competitiveness. In addition, on March 28, 2018 the Presidential Decree No. 8 “On the development of the digital economy” came into force, which aims to additionally stimulate innovation and digitalisation of the Belarusian economy.

 

Special economic zones, the Belarus High Technologies Park, specific reliefs for enterprises in small cities, the Industry park and the Orschansky region: all these incentive regimes attract investors by offering comprehensive tax reliefs. Moreover, foreign companies can benefit from investment incentives such as funding and tax advantages if they invest in regions outside urban agglomerations. Additionally, companies which conclude investment agreements with the Republic of Belarus over the implementation of investment projects can enjoy state guarantees, advantages and privileged treatment in administrative procedures. This comprises the provision of land plots for the implementation of a project or the exemption from import duties and import VAT connected with the import of manufacturing equipment.

 

Basic modernization and expansion works related to industrial and other production facilities (glass, wood and metal processing, food production, chemical industry and oil industry) provide for opportunities to Western plant manufacturers and technology suppliers. Numerous German companies deliver and install an equipment or build it in collaboration with Belarussian partners as part of a joint venture.

 

What challenges do German companies face during their business ventures into Belarus?

The differences in the business and contract signing culture and the approach of authorities, which is sometimes difficult to predict or turns to be very formalistic pose challenges every now and then; but they can be avoided or dealt with in most cases if investors have experienced advisers on their side.

 

There have been important steps in ensuring legal and investment security taken in the last years, thus bringing the country closer to the West European standards. For example, as early as January 2016, Belarusian authorities created the possibility to establish incorporated companies by the sole shareholder and to conclude shareholders' agreements between individual shareholders – an important prerequisite for structuring the legal relationships between joint venture partners in a legally clear way.

 

Belarus aims to join the World Trade Organization in 2020. What would be the consequences?

Belarus has negotiated its accession to the World Trade Organization (WTO) since 1993, while Belarusian government has repeatedly questioned the reasonability of such accession. The main hindrance and point of concern lies not in the reduction of the level of protection of the domestic market, but in the fact that the liberalization of the economy demanded by the WTO will make it tricky for the local authorities to exercise their control.

 

Once Kazakhstan joined the WTO, Belarus remained the only EAEU country not being a member of the WTO. This situation forces Belarus to meet almost all WTO requirements without receiving due preferential advantages in the world trade. The EU has agreed to support Belarus in the negotiations with the WTO. However, Belarus is considering the risks associated with its economy and trying to negotiate more favorable conditions of its membership.

 

It is expected that the WTO membership will enable the country to keep up its existing positions and gain new niches in the international trade community, ensure stable and predictable trading conditions as well as provide foreign investors, producers and consumers with a “quality certificate” of a Belarusian economy.

Belarusian authorities expect the exports and the country's investment image to increase, and the country's trade interests to be protected by the WTO mechanisms, while making the imported goods cheaper for the local population.

 

Nonetheless, fulfillment of the entire package of economic liberalization requirements within the framework of the WTO accession can have an adverse impact on the competitiveness of the Belarusian economy given its export-led structure (over 50 per cent).

 

Therefore, the positive effects of eventual membership of Belarus in the WTO entirely depend on the conditions of the accession, which may be ensured in the course of negotiations, as well as the duration of the transition phase, the instruments aimed at mitigation of the negative effects through reforms of the state regulatory system as well as the development of competitive advantages.

 

In your opinion, how will Belarus develop?

Belarus looks back on years full of legal changes and reforms and, based on this, can be quite optimistic about the future. This has resulted in profound changes in the Belarussian legal system and it is to be hoped that the country will stay on this course.

 

Russia remains the most important trading partner of Belarus. This also creates a certain degree of dependence. Therefore, it is to be feared that the current economic weakness of Russia as the country's major trading partner will have a negative impact also on Belarus. Nevertheless, due to the sanctions still existing and counter-sanctions applied between the EU and Russia, Belarus is more and more often regarded by European companies as the “Golden Gate” to Russia.

 

An enormous need for investments in many industries should create continuously high demand for the respective products and technologies from the West. In overall, we expect that in certain areas Belarus will remain a very attractive and exciting business and investment location for German investors and other entrepreneurs but also a location that is challenging and fraught with certain – yet mostly controllable – risks and uncertainties.

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