Watching Puccini’s famous opera Madame Butterfly in Minsk is a somewhat surreal experience. Geisha-dressed actors of the National Academic Opera and Ballet Theatre put on quite a show. Then there is the fact that even on a cold weekday night, the glitzy opera building filled with golden incrustations and impressive chandeliers is packed with people. 

The main part of Puccini's opera that resonates, however, is the fact that it takes place at the beginning of the 20th century in Japan, at the time when the country was opening up for overseas visitors, and the story focuses on a love-hate relationship between a foreigner and a local.

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Foreign investors can experience an equal measure of plot twists when coming to Belarus, but at the same time it is not just a country for the adventurous, as is the common perception. “There are about 300 German companies operating in the country. They are free to conduct their business here and make profit, otherwise why would they be here?” asks Dr Klaus Baier, chairman of the board of the German-Belarusian Economic Club.

Mr Baier also notes that conditions in Belarus differ from what investors are used to in other countries, and that needs to be taken into account. “Law can change overnight, with one presidential decree, [and] that adds to the uncertainty,” he says, while stressing that he does not recall a single situation when a sudden change of law meant that a company found itself unable to operate.

Essential homework

The key to succeeding when investing in Belarus is proper and well-thought-out preparation, including not only securing sources of investment and studying legislation, but also defining risk factors and having strategies prepared in the event that when something, for whatever reason, does not go according to plan. "It still surprises me how many investors come here without doing their homework. They arrive in the country because one of their colleagues told them about the business opportunity and they find it isn't enough. It does not work like this here," says Mr Baier.

Information on market conditions and certain regulations can be obtained from well-respected audit firms such as KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers, each of which have services focused on Belarus. Additionally, advice and assistance can be obtained from the international law firms that have their offices in Minsk, such as Sorainen. On top of that, information can be found from such entities as Mr Baier’s German-Belarusian Economic Club or the Belarus EU Business Council, a Brussels-based non-profit organisation facilitating contacts between Belarusian businesses and their foreign counterparts.

Legal considerations

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There are three main ways for foreign investors to establish themselves in Belarus: by establishing a legal entity, by having a representative office, or through an agent. Of these options, using an agent is probably the most restrictive; this is because agents are often prohibited from being granted licences, which are needed in a huge number of activities (anything to do with cars or telecoms, for instance). And while some foreign businesses have set up legal entities, most have taken the representative office route.

The main legislative document that regulates business activity in Belarus is the Investment Code. However, according to the Vassily Tarasevich, corporate finance manager of KPMG Belarus, the new draft of the document, which contains auxiliary preferences and guarantees, should be approved by the end of 2011. Meanwhile, a bill on public private partnerships (PPPs) is still being drafted, and it is unknown when it will come into play. Although PPPs may be a new concept for Belarusian legislators, international property protection and arbitration is not. Since 1992 Belarus has been a member of the Multilateral Investment Guarantee Agency and International Centre for the Settlement of Investment Disputes.

Idea, not size, matters

As there is a high level of international focus on Belarus's political situation, this tends to take away attention from its business environment, and consequently information on starting a company in the country is scarce. Since access to the unbiased intelligence is limited and costly, it is more likely to be the big, seasoned investors that enter the country, rather than small and medium-sized enterprises looking for their first international venture.

"With bigger budgets, real or perceived political backing and greater experience of operating in frontier markets, multinationals are certainly better equipped to manage the risks of operating in countries such as Belarus," says Andre Durant, senior managing director at FTI Consulting, a business advisory firm. But at the same time he adds that "smaller companies may fall below the radar screen and therefore be able to operate with lower levels of interference".

So while the likes of Coca-Cola, Pepsico and Henkel are present in Belarus, there are also smaller foreign businesses thriving in the country. One example is Bedelco, a Belgian off-road tyre company. Bedelco is the official dealer in Europe and Africa for Belshina, a Belarusian tyre manufacturer, and it is tapping into one of the country’s key strengths, the manufacturing of large agricultural machinery.

Bernard Delhez, general manager of Bedelco, says that while they should take all the usual cautionary measures, as is expected when making any foreign investment, businesspeople are not at risk in Belarus, both in terms of their enterprises or their personal protection. “Belarus is safe. There are more policemen in Brussels than in Minsk," says Mr Delhez, adding that he believes the country is far less corrupt than some other Commonwealth of Independent States countries.

The story of Madame Butterfly, revolving around cultural differences and misunderstandings, ends tragically. Foreign businesses coming to Belarus may find a completely different ending, as long as they have done their homework.

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