Three reasons why Belarus is on investors’ radar

Three reasons why Belarus is on investors’ radar

After years of economic crisis and anaemic growth, Belarus is becoming an attractive destination to foreign investors.

Belarus has been receiving an increased attention from investors of late. Having weathered several heavy economic crises is in the mid-1990s, an ongoing process of implementing structural economic reforms has seen it slowly shirk its reputation as a Soviet-era authoritarian regime with centralised economic planning. While many reforms in the field of economic liberalisation still need to be implemented, the country is actively seeking to improve its international standing and attract foreign investment.

Belarus is gradually opening to international business operations. It is investing in key economic sectors and trying to position itself as a diplomatic partner within a region destabilised by the Ukrainian conflict and the NATO-Russia tensions.

A gradual opening and an interesting business environment

A key aspect generally preventing investment in Belarus remains the perceived obstacles posed by the country’s bureaucracy and its form of government. While the national Belarusian economy remains heavily dependent on public investment, the country has proven capable of showing key signs of improvement in strategic economic sectors.

According to the latest World Trade Organisation (WTO) Doing Business report, Belarus fares positively in several key categories. It is the 12th easiest country to start a business, 44th when it comes to the ease of doing business, and 29th in regard to the enforcement of contracts.

These indicators put it on par with other eastern and central European states such as Poland. Also, Belarus has gradually fared better in the annual Transparency International Corruption Perception Index (CPI) and in 2015 it was in 107th place out of 168 countries. While corruption still permeates the local socio-economic fabric, it is less of a structural issue than in neighbouring Ukraine which received 130th place in the 2015 report.

Heavily reliant on Russian economic stability, Belarus suffered from major economic downturns following the 2008 international economic crisis and the 2015 Russian recession. However, there are growing signs that the national economy is recovering and that Belarus may experience a period of moderate growth.

The country’s GDP has fallen in 2016, the national economy is likely to bounce back and analysts predict a 1.5 growth in 2017.  The redenomination of the Belarusian Ruble was carried out in July 2016 in a bid to counter growing inflation and long-term projections show that the domestic economy may grow by up to 2.2% by 2020.

With an eye turned at implementing internal reforms aimed at facilitating domestic business growth and foreign investments, the government is also actively pursuing a policy directed at gradually opening the country.

This is evident in a plan to open Belarus to VISA-free travel for more than 80 countries. The policy is directed at all tourist travel of less than five days with the objective of boosting leisure travels to Belarus and enhancing foreigners’ access to the country.

Driving economic sectors and long-term investments

A major achievement for Belarus has been its capacity to invest and foster development in specific sectors that are sparking new economic growth.

The main example for this is the IT sector. With highly educated young people and a favourable legislation, Minsk has become the centre of the domestic IT revolution. Between 2015 and 2014, IT-related export grew by 18% and the sector is now employing more than 45,000 people. The Minsk High-Tech Park has been shortlisted in September 2016 as Europe’s outsourcing destination of the year.

Indicators suggest that the growth in the IT sector is bound to continue in the coming years. This will result in further development of Belarusian global companies and the growth of a new middle class formed by local high skilled employees.

Along with fostering the growth of sectors such as IT, the public and private actors have also been investing in alternative energy. In August 2016, the Belarusian mobile carrier Velcom inaugurated the country’s biggest solar power plant. The plant is located in the southern Gomel region along the Ukrainian border. The project was specifically relevant as it uses land negatively affected by the Chernobyl disaster. It also provides a major electricity output that can provide enough energy to light Minsk during nighttime.

For a country benefiting from large and sparsely populated natural spaces, such projects are an essential step toward a more profitable and sustainable development.

Political stability and improved regional relations

With the Ukrainian conflict unlikely to abate in the medium term, Belarus’ socio-political stability is a key aspect of the regional and international interest in the country. Belarus offers a stable and safe environment in which international business can operate without being exposed to regional tensions.

The 2015 Presidential elections were a key element of stability. In October, President Lukashenko secured his fifth presidential mandate with more than 83% of the total vote. The polls were met with relative approval by the international community and did not lead to any episode of unrest or repression in the country.

This came in contrast to the 2006 and 2010 opposition protests and further solidified the image of Belarus as a politically stable country and increased President Lukashenko’s domestic and international legitimacy.

The October elections followed good-will gestures that took place in August 2015 when the government freed several political prisoners. It is in this climate that the European Union gradually lifted the sanctions against Belarus.  The sanctions targeting more than 170 officials and multiple state-run companies were lifted in March 2016. The EU is also offering Belarus trade preferences and support for Belarus’ WTO bid as well as EU-led investments. These measures are all part of a wider rapprochement between Minsk and Brussels.

These developments took place as President Lukashenko has been pushing to position Belarus as a neutral state serving as a bridge between Russia and the EU. This image was brought forward during the Minsk II talks in regard to the Ukrainian conflict. President Lukashenko also repeatedly avoided taking a side in the Ukrainian crisis and has stated that the country will maintain its geopolitical neutrality. This further strengthens the stable outlook for Belarus.

Categories: Economics, Europe

About Author

Riccardo Dugulin

Riccardo Dugulin is an analyst at Drum Cussac, a global business risk consultancy. He specializes in supporting international organizations and large corporations operating in emerging markets by providing them with critical risk management intelligence. His regions of expertise are the Near East, the Gulf, North Africa and Continental Europe. He previously worked as project manager for a French medical assistance company. He gained field experience in the Middle East having worked for leading think tanks in Dubai and Beirut. Riccardo holds a Master in International Affairs from the Sciences Po – Paris and a Bachelor in Middle Eastern Studies from the same university. Follow him on Twitter @RiccardoDugulin.