Belarus, boasting a population of 9mn, a well-educated and skilled workforce, and a strategic location, is waiting for international investors. That was the message from Belarusian officials who attended a business forum in the Turkish capital of Istanbul on November 12-13: “Come and explore this country and the opportunities it offers,” one said.
A small but relatively open economy, the external shocks of 2014 and early 2015 caused by recessions in its main trading partners, hit the Belarusian economy hard. Russia accounts for about 50% of the country’s exports, thus the troubles in the Russian economy directly impact Belarus. For example, the depreciation of the Russian ruble in 2014 led to an immediate knock-on effect that decreased the competitiveness of Belarusian goods. The country’s GDP growth slid disastrously from a robust 7.7% in 2010 to a mere 1% in 2013.
The Belarusian authorities fought back. A crawling pegged exchange rate regime was introduced that allowed the Belarusian ruble to decline by 1.0-1.5% per month against the dollar. Wage restraints were also introduced to restore the competitiveness of the country’s products. And GDP growth picked up to 1.6% last year. The International Monetary Fund (IMF), however, expects the Belarusian economy to contract by 3.6% this year and another 2.2% in 2016, but then grow by 0.5% in 2017.
The other major challenge that Belarus faces is inflation. Annual consumer price inflation hit 53.2% in 2011 due mainly to the sharp devaluation of the currency. But inflation has been easing; it dropped to 18.3% last year. Inflation stood at 0.8% m/m in October, bringing the inflation rate to 10% y/y in January-September. The Belarusian government forecasts 12% inflation in 2016.
Good place to invest
Macroeconomic problems aside, the country is opening up and increasingly finding itself on investors’ radars. Belarus has embarked on a new export market diversification strategy and hopes to supply a third of its exports to new markets and regions in the medium term, Prime Minister Andrei Kobyakov told the audience at the “Belarus-Turkey Investment Forum” in Istanbul.
Exports account for nearly 70% of GDP, leaving Belarus vulnerable to external shocks, but the authorities are working together with the international institutions to make the country’s economy more resilient, said Kobyakov. “Belarus produces a wide range of goods: from integrated circuits to dump trucks. It is the largest exporter of potash fertilizers, accounting for more than 18% of world exports, and one of the leaders of the world's exports of IT services. Turkey can be a key place, a new springboard for us to reach out to new markets,” the prime minister said.
Natalya Nikandrova, director of the national agency of investment and privatisation, told the audience in a panel discussion that among the opportunities the country’s offers to foreign investors are its skilled and educated workforce, social stability, an advantageous geographical location, direct access to the Eurasian Economic Union (Belarus, Russia, Armenia and Kazakhstan), developed transportation and logistics, and free-trade zones.
Nikandrova identified the IT, wood procession, logistics, retail and machinery industries as the most promising areas for foreign investors.
Foreign direct investment inflows into Belarus reached their peak of around $4bn in 2011, but declined to $2.1bn in 2013 and to $1.8bn in 2014, Nikandrova said in a presentation. In the first half of this year, FDI amounted to around $1bn.
More FDI should come as privatisation picks up. Sergei Kalechits, deputy chairman of the board of the National Bank of Belarus, said the central bank plans to divest its 99.75% stake in Moscow-Minsk Bank that it acquired in 2014 from Russia’s VTB Group. Kalechits did not provide other details on the planned stake sale.
Maxim Taranov, director at BreMiNo Group, a logistics company, told bne IntelliNews that today there are great opportunities in Belarus both for local companies and foreign investors. The main challenge, he said, is the country’s dependence on raw material imports, but pointed to the benefits of the country’s six “free economic zones” (FEZ).
The business climate in Belarus is very stable and investments are protected and encouraged, Kiryl Khait, head of the Mogilev FEZ’s department of investments and foreign economic affairs, told bne IntelliNews. “We offer tax benefits, including full exemption from real estate tax, and exemption from profit tax for up to five years. Investors in the Mogilev FEZ are also granted customs duties exemptions and taxes on machineries and raw materials,” he said, adding that while the economy had some problems because of the sanctions imposed on Russia, it is now much stronger.