Belarus is building on its reputation for manufacturing innovation among both home-grown entrepreneurs and international firms.

Manufacturing represents a significant part of the country's economy, as befits its heritage as the former engineering powerhouse of the Soviet Union. Today, manufacturing and innovation firms are setting up in greenfield and brownfield sites throughout the country.


Built on wood

“The manufacturing sector remains important to the economy,” says Alexander Pivovarsky, head of Belarus at the EBRD. “In 2018, it accounted for 22% of GDP and 20% of employment.” 

Recent major FDI projects in Belarus's manufacturing sector include Lithuanian firm Vakaru Medienos Grupe (VMG) Industry’s investment in a wood processing factory in the Mogilev Free Economic Zone; Stadler’s investment in a railway rolling stock factory in Minsk; and Kronospan’s investment in wood-processing facilities thoughout the country.

“Kronospan Smorgon and Kronospan Mogilev are owned by Kronospan Group, one of the world’s leading manufacturers of wood-based panels,” says Mr Pivovarsky. “The EBRD provided €140m in loans to Kronospan Smorgon between 2011 and 2014, and €100m to Kronospan Mogilev in 2013 for the construction and subsequent expansion of a particle board/MDF plant in Smorgon and an oriented strand board plant in Mogilev. These projects are among the largest greenfield FDI projects ever implemented in Belarus.”

The rail deal

Stadler Minsk, a wholly owned subsidiary of Stadler Rail Group, is based in the Minsk Free Economic Zone. It received a €26m senior loan with a 10-year tenor from the EBRD for the construction of a greenfield rolling stock plant in Fanipol in the Minsk region.

“We received our first order from Belarussian Railways in 2009, and by 2012 we could see the potential for delivering additional volume to the firm, but this required local input,” says Philipp Brunner, CEO of Stadler Minsk. “At the time, we analysed different opportunities in the former Soviet world, especially the Eurasian Customs Union [EACU], and because of our good relationship with our client and the great conditions of the free economic zone, we decided to take the next step and invest in the country.”

The deal began life as an investment in certain parts of a local state-owned company. “The state invested assets as an in-kind contribution in our company and took ownership of 40% of the firm. Since then, we’ve bought back the shares and we are now 100% the owner of Stadler Minsk,” says Mr Brunner. Today, the company serves the world from its Minsk premises and has an order book with clients from as far afield as Latin America, the Commonwealth of Independent States (CIS) and Norway.

Stadler Minsk is in direct competition with the company’s factories in Poland, the Czech Republic and Hungary. “For a long time during our ramp-up phase we couldn’t keep up with the competition,” says Mr Brunner. “But we now have a better cost structure, we are more competitive and we offer the same quality as elsewhere in the Stadler world. And these competitive advantages overcome the additional admin and logistics costs associated with being in Belarus.

“Back in 2012-13, our plan was to access the EACU from [Belarus], but we lost a lot of volume from those countries in 2015-16 because orders were either delayed or disappeared completely. We used the period to consolidate, but very soon we found we were getting lots of orders from Europe. In fact, today about 70% of our production goes to Europe and other Western countries.”

With so much of the firm’s business directed into the EU market, is Belarus still a good location for Stadler? Mr Brunner says it is. “Although the cost of labour in Poland is not a lot higher than here, we have all the benefits of the free economic zone. We also have access to the EACU, which enables us to enter into agreements with other countries. Due to tax reasons, it’s beneficial to make a profit in Belarus.”

Another Belarusian FDI success story is VMG Industry, a wholly owned subsidiary of Vakaru Medienos Grupe (Lithuania), and one of the largest wood-processing companies in the Baltic region. It received a €26.5m long-term loan in 2011 and a €50m long-term loan in 2018 from the EBRD to build and then expand a greenfield integrated wood-processing complex in the Mogilev Free Economic Zone. “This project was the first greenfield FDI of its scale in the Belarusian wood-processing sector, highlighting the potential of Belarus as an attractive investment destination,” says the EBRD’s Mr Pivovarsky. 

Adani's home comforts

Adani demonstrates how a domestic company can thrive both at home and overseas. “We were formed in 1991 when the Soviet Union collapsed, and there was an opportunity to do something new,” says Elena Lineva, executive director at Adani. 

The company, which was established by nuclear physics professor and inventor Vladimir Linev, specialises in hi-tech products such as X-ray systems and benchtop analytical instruments for the security, healthcare and scientific industries.

“We started out with 26 employees, and our first big project was an automated radionuclide food monitor to detect radiation in food and water supplies for food safety controls in Belarus, Ukraine and Russia after the Chernobyl disaster,” says Ms Lineva. “By 1996, we had launched scanning equipment for medical and security applications, and we now have clients all over the world for this technology.” 

The company maintains its headquarters in Belarus but also has facilities in China, Russia, the US and the UK. “We now have 650 employees globally and have plans to continue expanding, including opening ourselves up to investors in international markets through an initial public offering,” says Ms Lineva. 

Adani continues to see advantages in maintaining its Belarus headquarters. “We have several premises throughout the country,” says Ms Lineva. “At the moment we are in the process of getting approval to build another facility in the Minsk Free Economic Zone. It makes sense to continue most of our functions from here because we have very good opportunities in terms of tax savings on profits, plus we don’t pay customs duties when we receive components from abroad for Adani products for export, and labour costs are lower here than in the US. 

“Because of these lower costs and because we have a full cycle from R&D to manufacture, Adani can be more competitive. For example, we recently won a tender where we were significantly cheaper than our competitors, and could therefore save our client €2.5m.”

Alutech's outward view

Alutech Group has been operating in the CIS market for more than 20 years and is the dominant provider of door and shutter systems to clients in the Belarus, Ukraine and Russian markets. Over the years, it has also gained a foothold in Europe and further afield. 

Today, the group has more than 3000 employees and has nine subsidiaries and business units in locations such as Russia, Ukraine and the Czech Republic. In 2018, Hörmann acquired a 75% stake in the company.  Alutech’s strong position in its Eastern and European markets were key factors that contributed to Hörmann’s decision to invest.

“[Belarus] continues to be a good location for our company,” says Stanislav Kuzmitsky, deputy director of marketing at Alutech. “Workers are highly motivated, the government has a good focus on business, and you can make a return on capital. Being a European firm, we have European values, making it easier for our clients to enter into dialogue with us than if they were partnering with an Asian company.”

Alutech export manager Yury Grishin reports that breaking into the western European market was not easy. “Initially we faced challenges in our European markets because people had an expectation that because we are from Belarus we would have lower standards. But because our clients visited our production facilities – and because we used benchmarking tools to compare ourselves with our competitors – we were able to prove that we were as good, or better, than our competitors, so we have proved this is a good place to be based.”

Manufacturing talent

Business leaders in Belarus have mixed views about the availability of talent for their firms. For Ms Lineva at Adani, recruiting qualified specialists is difficult. “A lot of young people left the country when they had the opportunity. Also, fewer people want to become engineers today – most young people want to go into IT,” she says. “However, we have a very loyal team of staff, and many people who come to work with us are still here many years later.” 

Mr Kuzmitsky at Alutech agrees, saying: “It’s getting harder to find good younger people who are interested in innovations other than their smartphone. But we’re creating good links with local universities to offer internships for some of the brightest students. 

Meanwhile, Mr Brunner at Stadler says working morale is very high. “Our labour force at Stadler Minsk is one of the best that we have worldwide. We have lots of competences, ranging from low-skilled assembly workers to highly skilled engineers, and in all these areas we have a solid, competent and disciplined workforce," he adds.

“There’s a good labour market and employer-friendly labour laws. In 2018-19, we hired 500 people in six months. This is a growth spurt that [should be] impossible in the Stadler world, but we’ve found competent people who are educated to the right level and we have managed to integrate them into our workforce within a short timeframe.”