Belarus comes in from the cold

By bne IntelliNews November 28, 2014

Ben Aris in Moscow -


Belarus has launched a charm offensive to turn around its "last dictatorship in Europe" image. And thanks to the geopolitical mess in Europe, the overtures from this long-time pariah state are getting a surprisingly warm reception.

Belarus' senior politicians packed their bags this autumn for a string of road shows to reintroduce the country to the rest of the world. This is the second time the small country wedged between the Baltic states and Russia has tried to interest foreign investors in what it has to offer. In 2008 the republic hired image consultants Bell Pottinger to organise Belarus' first ever international investment conference in London and about 400 curious investors turned up.

But the timing was terrible. Lehman Brothers had collapsed three weeks earlier and the entire Western financial system was in turmoil. The last thing anyone wanted to do was take on a new and highly risky investment in a country with little in the way of liquid or investable securities.

Now the Belarusians are back to have another go. Europe's investment climate has improved since, although it is still poor, and emerging markets have lost some of their appeal following China's economic growth softening and Russia's economic and political woes. The growing consensus is that the main emerging markets have finished their big catch-up gains, so attention is now turning to the frontier markets where big returns are still on offer.

The effort to sell the Belarusian story began earlier in the year. In May, Prime Minister Mikhail Myasnikovich met with the president of the Austrian Federal Economic Chamber, Christoph Leitl, in Vienna and agreed to set up a joint investment council, as well as signing a deal with an Austrian construction company to build a new ring road around Minsk.

Then the road show moved to New York in September, where its first investment conference in the US was well attended. A representative from the US State Department turned up and gave a short speech that was full of talk of "cooperation," "partnership" and "promoting democracy," and didn’t once allude to the now infamous remark of former US secretary of state Condoleezza Rice that Belarus is “the last remaining true dictatorship in the heart of Europe.”

The US interest in improving ties with Belarus may have something to do with Washington's standoff with Russia. Belarus is Russia's best friend in the Commonwealth of Independent States (CIS) and a member of the Customs Union, soon to be transformed into the Eurasian Economic Union (EEU) –  Russian President Vladimir Putin's rival to the EU. However, it is in the US interest to drive a wedge between Minsk and Moscow to weaken the impending union if possible, and the best way to do that is through business, trade and investment.

If this is the plan, then Belarus President Alexander Lukashenko seems to be willing to play along. Both Lukashenko and his counterpart in fellow Customs Union state Kazakhstan, President Nursultan Nazarbayev, have been publicly critical of the one-sided nature of the "free trade" deal they have with Russia. On November 27, Lukashenko expressed "outrage" at new Russian inspections for Belarusian food exports to Russia designed to stop the smuggling of banned EU food products. And in October he embarrassed Moscow by saying Russian sausages used to contain toilet paper but Belarusian sausages don’t.

The pace of the PR campaign became frenetic in November when the team hit three capitals in a week. Belarus wants to step up the economic cooperation with Cyprus, Deputy Chairman of the Belarusian Chamber of Commerce and Industry (BCCI) Vladimir Ulakhovich told journalists before the opening ceremony of the Belarus-Cyprus business forum on November 11.

Moving on to Madrid on November 12-13, the Belarusian ambassador to France and Spain, Pavel Latushko, signed off on another business cooperation deal in the Spanish capital.

And by the end of the week Belarusian top officials descended on the British capital for another attempt to woo London's investment banking community and sign off on creating a Belarus-UK business council.

Currently, the UK is the largest Western European investor in Belarus and its third largest trading partner. Belarusian Economy Minister Nikolai Snopkov told the conference delegates that he hoped British investment into his country would decuple. "In Belarus there are 268 companies with the British capital. We want to see this figure increase at least 10 times, and all prerequisites are in place for this," said Snopkov. "We have preserved the potential of the former Soviet Union and augmented it. The per-capita GDP has tripled since 2000. Levels of poverty, inequality, unemployment are the lowest in the region. About 110mn tonnes of cargo go through Belarus annually. This is only the 40% capacity. This market segment alone can grow twice."

Paying off

It seems that the road show is having some effect, as there is clearly growing interest in Belarus; both Austria and UK have set up business councils to promote investment and trade. And despite its political image, Belarus actually represents an attractive destination for many European companies. In Soviet times the republic was amongst the most desirable places to live, as inputs from a wide range of products were gathered in Minsk for final assembly where the best specialists worked.

Minsk has carried this legacy through to today and remains one of the few really productive manufacturing bases in the former Soviet Union. Things like the famous Minsk fridge are used across the entire former Soviet territory, but likewise mining companies around the world buy its giant MAZ dumper trucks. Almost uniquely in the CIS, Minsk exports as much to the West as it does to the rest of the CIS. With its high quality production, skilled work force but relatively low costs, Belarus is an obvious manufacturing hub right on Western Europe's doorstep.

And the Belarusian authorities are pushing at a door that has already started to open. In January-September, foreign investment in the real sector of the economy (excluding banks) rose by 7% on year to $11.7bn, the Statistics Committee said in November, of which just over two-thirds (69%) was foreign direct investment (FDI). The largest part of the investment (35.5%) went into trade and retail, followed by transport (26.6%) and manufacturing (19%).

The increasingly dynamic Turkey has been especially active (after Russia, which currently accounts for 42% of total investment), having increased its investments into Belarus 400-fold in the last six year to a cumulative total of $1.1bn as of this year.

Germany is also stepping up trade. Currently it accounts for 3.1% of Belarus' total investment, but the number of German companies arriving has been rising quickly: there are now some 350 joint ventures with German capital that have invested a total of $350mn so far this year, according to the Alexander Fedorchuk, director general of the Minsk department of the Belarusian Chamber of Commerce and Industry, reported BelTA. This increase in investment comes despite an 11% fall in trade to €2.8bn in the first ten months of this year. And that is expected to increase after a German business delegation visited the seventh international investment forum Mogilev Oblast at the start of November, which generated $500mn in deals with foreign investors.

And Minsk is also trying to make nice with its immediate neighbours. This week the Belarusian foreign ministry announced talks with Poland and Estonia to discuss the "removal of trade barriers" in bilateral trade and deepen economic cooperation.



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