CONFERENCE CALL: Belarus improves its pitch at investment forum

By bne IntelliNews November 18, 2010

Ben Aris in Frankfurt -

Belarus held its third investment showcase, but this year the venue moved to Frankfurt, where Belarusian Prime Minister Sergei Sidorsky wooed a room of potential partners.

"Our country has adopted the western model of market economy," said Sidorsky in his opening speech, speaking very passable German - always a crowd-pleaser. "We have attractive economic growth of 6.1% [in January-October], which is a good foundation for investments."

This is the investment forum's the third venue in three years and is to an extent an indication of the frustration Minsk must be feeling as it launches a sustained campaign to convince European investors to come to the tiny republic.

The first investment summit was held in London in November 2008 in the midst of the global meltdown, yet hundreds of investors turned out (out of curiosity?) to listen to Sidorsky expound on the opportunities on offer. However, post-event the government was very disappointed with the results; perhaps it naively believed that if you spend a ton of money on an event, the foreign direct investment (FDI) would follow within months - a mistake most frontier market leaders make when they finally take their show on the road.

The next one was in 2009 and pretty much the entire world had shuttered its investment shop, so it is understandable that this one was held in Minsk and attracted only the faithful.

But this year, Minsk shunned London and came to Frankfurt-am-Main - probably a smart move. As bne highlighted in October, there has been a wave of Teutonic investment flowing east over the last few years and Germany is probably Minsk's best friend in the EU, seeing the potential of using Belarus as a low-cost production centre for the rest of Europe. The delegates were out in force, with at least 400 attending the closed session to listen to the top tier of government.

Pleasant customs

Sidorsky has clearly learned a lot in the three years that he has been hustling on the international stage. The PowerPoint presentations at the first London summit were clunky and quoted growth figures for the previous year as 106% - the Soviet way of citing percentages - when he meant 6%. Now the presentations are slick and look like any report you would get from an investment bank.

The PM has a good story to spin. Economic growth for the last five years up to the crisis was running at 9-10%, and even in the depths of the crisis it still put in 0.5% growth, joining Poland and Albania as the only European countries that didn't go into recession. Post-crisis, heavy state spending has supported an economic recovery, although the current spending is unsustainable so the need to attract some real foreign direct investment is not just a wish, but an imperative.

Sidorsky went on to outline the other major features of the economy that are now a staple of this event: Belarus has an open economy and lives from exports (40% to Russia, 40% to EU); it is a largely industrial country; it has been reforming fast and rising quickly up the World Bank's "Doing Business" ranking; and the population is highly skilled.

However, Sidorsky had several new selling points to put on the table in Frankfurt. The first was the government concern with energy efficiency; Belarus (along with Ukraine) is one of the two heaviest users of energy in Europe - double the amount per unit of production of Poland and 2.5x that of Germany. "The economy was growing in the first eight months of this year, but we must reduce our energy use and we want to. A big programme of energy efficiency has been introduced and we are working on this now," said Sidorsky.

The reason is that from January 1 next year Minsk will be forced to pay international prices for Russian oil and gas, ending nearly 20 years of de facto Russian subsidies for the Belarusian economy that ran to billions of dollars every year. Indeed, this change in stance by Russia is one of the main motivations for President Alexander Lukashenko's decision to open up the country.

The second major change is that the Customs Union between Russia, Belarus and Kazakhstan will enter its first full year of existence in 2011. "Cargo delivered to Brest [on the Belarusian, Polish border] is delivered to three countries: Belarus, Russia and Kazakhstan," said Sidorsky.

The birth of the eastern version of the EU is proving difficult and has been marred by several nasty rows over duties, like the so called "dairy war" earlier this year, when Russia banned Belarusian dairy imports for a few months. But trade is to Minsk what oil is to Russia, and the Customs Union, if it can be made to work, could be a huge boon for the country. For example, the streets of Minsk are filling up with American cars: the fall of the dollar against the euro means that the cost of second-hand US cars are 40% cheaper than their European peers, and with the cost of shipping old cars across the Atlantic around $1,300 per unit (and another $1,000 for import duties), it is still cheaper to buy American than European cars. The Belarusian car business is already spilling over into Russia; the duties on importing cars to Russia can run to 100% the value of the car, but the border between Russia and Belarus is effectively open now, so Belarusian licence plates are an increasingly common sight on the streets of Moscow. No one is sure how big the business is (because there are no border guards anymore), but some analysts believe it is already in the billions of dollars.

And Minsk is pushing this line hard. Sidorsky also profiled a new $500m logistics centre in the town of Orsha that is to be a terminus for Asian exports running over Russia and Belarusian railways on its way to Europe. Work has already started on the hub and following the president's visit to China two months ago, relations with Asia are flourishing; the Chinese are also looking at Belarus as a production platform aimed at Europe, and have already committed $1bn towards production this year.

The fact of the conference is a clear indication that Belarus wants to integrate more closely with Europe. Last year, the government boasted that it was one of the fastest reformers in the world according to the World Bank and this year is ranked at number 68 (slipping four places from 2010) out of 180 countries in its "Doing Business" survey. Likewise, the state controls 40% of the economy, but the non-state sector now comprises 42% after rapidly growing its share in recent years, according to the World Bank's International Finance Corporation arm. "The rankings [in the Doing Business survey] are an indicator of change, but what is more important is the aspiration of [the Belarusian government] to be in the top 30 [easiest places to do business] in the world - that is more important than the ranking," says Rufat Alimardanov, country manager for the IFC in Belarus.

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