Belarus frequently confounds investors’ expectations. While relics of the Soviet era can be seen in the Stalinist architecture and statues of the capital, Minsk, the country is embracing the future by building relationships with its EU neighbours to the west, its Commonwealth of Independent States (CIS) allies to the east and friends such as China further afield.

Belarusians often say few outsiders know where Belarus is or have heard of it. For the uninitiated, it is a land-locked country in eastern Europe bordered by Poland, Lithuania, Latvia, Russia and Ukraine. Crossed by two trans-European transportation corridors (west-east and north-south), every year more than 100 million tonnes of European cargo travel through Belarusian territory, 90% of it between Russia and the EU.

Driving into Minsk from the airport and along the wide Soviet-style boulevards, visitors are often struck by how little traffic there is for a capital city. But it is not just these roads that are clean and congestion free; according to Belarus’s investment authorities, the country’s transport corridors run at 25% to 40% of maximum capacity.

At the crossroads

Belarus hopes to leverage its location at the crossroads of east and west to become a location of choice for firms looking to expand their footprint in eastern Europe. It is also seen as a key part of the Chinese Belt and Road Initiative, both as a transport gateway linking China with the EU and CIS countries, as well as an investment destination for firms in the manufacturing and hi-tech sectors.

According to the World Bank 2019 Ease of Doing Business index, Belarus ranks 37th, just 13 places behind economic powerhouse Germany and ahead of China (46th), Italy (51st) and Hungary (53rd). Investors report that investment in infrastructure, the establishment of free economic zones, support for business and a stable economy have helped create a favourable climate.

“The Belarus of today is quite different to that of five years ago,” says Alexander Pivovarsky, head of Belarus at the EBRD. “There’s a growing private sector and, every year, on average about 1% of GDP shifts from the public sector to the private sector. There are low corruption levels for the region, and you virtually never hear our clients talking about corruption as a reason that they cannot operate.”

Stable currency

EBRD statistics reveal that there has been macro-economic stabilisation in Belarus with inflation at a historic low: the Consumer Price Index level is down from 18% in 2014 to 5% in 2018. The exchange rate has been stable since the switch to a flexible exchange rate in 2015, and the Belarusian ruble rate has changed little against the US dollar between 2016 and 2019.

Structural transformations have led to private sector growth, and there has also been a shift to a service-based economy, particularly through ICT. There is also a lower reliance on exports. Additionally, regulatory reforms – such as financial liberalisation, pro-entrepreneurship policies and reviews of utility tariffs – are also having an impact.

“Government foreign economy policy is recognised as open and of a multi-vector nature,” says Nikolai Snopkov, deputy head of the Belarus Presidential Administration. “Exports are one of the key priorities in the development of the economy, making up more than a half of country’s GDP.”

Investors from neighbouring countries and further afield tend to be impressed by the high-quality workforce, the low cost of labour and the improving environment for sectors such as IT, pharmaceuticals, woodwork, agriculture and food, transport and logistics, mechanical engineering, banking and finance, chemicals and petrochemicals, tourism and textiles.

They can turn to the National Agency of Investment and Privatization (NAIP) for assistance when contemplating a move into the country. Its services include providing information about investment opportunities, preferential treatment and benefits, and industries and legislation. The agency also selects and presents land and premises options; searches for and negotiates with potential partners; organises visits and helps with obtaining visas; represents investors in negotiations with government agencies; and offers post-investment support.

A tech hotbed

When asked to name tech powerhouses few would come up with Belarus, but according to the NAIP the country performs well against its competitors, ranking 32nd in the 2017 ICT Development Index by the UN's International Telecommunication Union (the US came 16th, Lithuania 41st, Russia 45th and India 134th). Furthermore, the agency says 61 of the world’s 200 largest Fortune companies, such as Apple, Intel, IBM, Exxon Mobile and Facebook, use the services of Belarusian companies.

The NAIP adds that the pharmaceutical sector is being driven by the large capacity of the five Eurasian Economic Union (EAEU) countries (Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia), highly skilled personnel and tax incentives for investors. Additionally, Belarus has harmonised its medicinal products laws with those of the EU.

Belarus’s vast forests and woodlands have traditionally made woodwork one of the most important sectors in its economy. More recently, the sector has capitalised on new opportunities in the manufacture of semi-finished products as a supplier of raw materials for hi-tech foreign production, such as product lines for Swedish furniture giant IKEA.

The agricultural sector attracts both foreign and national investors and benefits from the large EAEU market. According to the NAIP, it is characterised by strong price regulation for agricultural raw materials, which increases the profitability of the food industry. The country is a major trader in dairy products.

Sectoral strengths

Belarus's mechanical engineering sector is a priority for foreign investment. Belarusian companies are interested in establishing joint products to preserve export positions, gain new experience, introduce innovations and expand product lines.

Foreign investors have been attracted to the automotive industry through the creation of joint ventures, the privatisation of certain state organisations and the creation of international alliances in auto components production, agricultural machinery manufacturing and truck assembly. There are also opportunities to export to foreign markets such as the CIS.

The banking sector in Belarus is developing rapidly, with the assets and capital of domestic banks increasing at a rate significantly higher than the growth in GDP and investment in fixed assets. Interest in the sector has been growing, attracting capital from Germany, Russia, Austria, Ukraine, the UK, the Netherlands, Switzerland, Luxembourg, Kazakhstan, Latvia, Ireland, the US and the Czech Republic.

The NAIP reports that the country's prospects are good both in terms of increasing resources and introducing new banking products. It adds: “Considering the forthcoming privatisation of state-owned banks, one can expect an increase in the flow of FDI into the banking system of Belarus, which will increase the competitiveness and capitalisation of Belarusian banks.”

The chemical and petrochemical industry accounts for 12% of Belarus GDP and is an important source of foreign exchange, generating almost 20% of the country’s exports. It is heavily dominated by state-owned producers, but the government is seeking foreign partners and investors to improve productivity and profitability.

Also important to the Belarusian economy, the textile industry includes the manufacture of knitwear, hosiery and other products. About 170 companies are involved in the sewing industry, producing many different kinds of garments. The largest clothing factories have a portfolio of brands that are exported to CIS countries as well as to the UK, Denmark, Poland, the US, the Netherlands and the Czech Republic.

Tourism is also starting to expand and visitor numbers are growing as Belarus builds a reputation as an intriguing destination in Europe, thanks to its reputation of being a friendly country with a lively café and arts scene. The opening of a second runway at Minsk Airport earlier in 2019 will help to increase passenger traffic, and moves to lift visa restrictions for many international travellers will also make it easier for people to visit the country for short trips.

“Changes to visa regulations have two benefits: they make it easier for tourists to visit and clients and potential clients can now come to our premises and see what we are doing so they can be confident in their decision to work with us,” says one investor.

International ties

An estimated 60 countries have already invested in Belarus, and at the beginning of 2019 there were about 7000 companies with foreign investments in the country. Mr Snopkov at the Belarus Presidential Administration reports that for the past few years Russia and the EU have invested the most. Due to traditional language and geographical ties, Russia has been the main FDI donor, although Belarus is continuing an FDI diversification policy, he says. “Due to the high level of strategic co-operation with China, we see a steady growth of FDI inflows from China and have a substantial potential to increase it much more,” adds Mr Snopkov. 

Investors say they have chosen Belarus because of its strategic location. It provides direct access to the EAEU countries of Russia, Kazakhstan, Armenia and Kyrgyzstan, which have a common customs territory and single customs tariff; free movement of goods, services, capital and workforce; equal business conditions, including the costs of principal energy resources; and common technical, sanitation, veterinary and phytosanitary regulations. It is on the doorstep of the EU, and although Belarusian-based businesses selling into EU markets face more hurdles when trading with the bloc than if they were located in a member state, they report that Belarus remains a competitive location for them.

Doing business in Belarus is not without its challenges, however. Investors report that although certain requirements do not block their work, they do make it more expensive to operate in the country. For example, there are requirements for additional people to deal with administration, and there are still currency control issues, which firms say are getting better but have dragged on. Furthermore, time and resources can often be wasted on acquiring additional permits, statistical reporting and bureaucratic accounting procedures.

Privatisation and PPP

With assistance from the World Bank, the NAIP is rolling out a pilot project to support privatisation. Its goal is to create an institutional framework for an individually targeted and transparent approach to privatisation that meets international standards while serving the interests of the Belarusian state. The agency aims to attract strategic investors that can ensure the further development of the company whose shares are offered for sale.

Public-private partnerships (PPPs) are another possible route for investors into Belarus. The PPP Centre was established in 2014 and since 2016 has been part of the NAIP. The list of projects considered for PPP includes the reconstruction of the M-10 highway from the border of Russia to the cities of Gomel and Kobrin; the building of kindergartens in the Minsk region; and the construction of a bypass in Gomel.

The talent treadmill

Belarus is proud of its high-quality workforce. Although there are concerns among some business leaders that there has been a brain drain, the general feeling is that there is still plenty of talent generated by the country’s considerable universities system, enabling firms to scale up when they make a new investment.

“The national education system is developing, which is proven by the growth of the share of highly qualified personnel in the total number of workforce from 25.4% in 2010 up to 33% in 2018,” says Mr Snopkov.

Most investment in the country uses local workers. International workers report that there is not much of an expat scene, although this is not necessarily a bad thing since they find it easy to integrate with locals, access local services and also enjoy free time outside of work. Some firms report that although it is quite easy to bring foreign workers in, it can be difficult to attract international workers to move to Belarus, mainly because they know so little about the country.

Philipp Brunner, CEO of rail company Stadler Minsk, says when his company was locating to Minsk, people had safety concerns and questions about living standards. Having moved to the capital himself, he has since embarked on a Belarus promotional tour inside the Stadler company to spread the word about his positive experiences and why the country is a good place to be based.

Young people in Minsk also say they enjoy the capital’s lifestyle, a key factor helping to encourage local talent to stay. “I’ve worked in Moscow, but it’s much better here,” says one local, who adds: “It’s super-clean, safe, and we’re proud of our city. It’s easy to get about locally by bike, tram, metro and car, and it’s also easy to travel further afield to other parts of the country as well as over the border to neighbouring countries such as Lithuania, Ukraine and Russia. There’s a good music scene with plenty of local and international artists performing here. It’s also young and vibrant with hipster bars and pop-up venues for evening and weekend entertainment.”

Getting Belarus's infrastructure right

Many businesses in Belarus cite the country’s good infrastructure as a contributing factor to its attractiveness to investors.

Sitting between two major economic centres – Russia and the EU – Belarus is dependent on its infrastructure to make the most of its geographical location. “Belarus is an important artery in the Eurasian region,” says Nikolai Snopkov, deputy head of Belarus Presidential Administration. “More than 100 million tonnes of European freight comes through the territory annually. Our country fully ensures efficiency and safety of this transit. New opportunities will follow within the [Belt and Road Initiative].”

The EBRD has been involved in a number of infrastructure projects in the country, including making a €42.45m sovereign loan to the Ministry of Transport for the reconstruction of a 15-kilometre section of Minsk’s outer ring road. The EBRD says the project is important for Belarus because it will improve road links within the country, including to key industrial areas as well as providing better access to recreational areas in the Minsk region.

Travellers on Belarusian railways and the country's urban, regional, inter-regional and international rail network report that it is clean, safe and reliable, and air travel is taking off, with an increasing number of international travellers. The main public airport, Minsk International Airport, has seen passenger numbers into Belarus grow, most recently encouraged by changes to the county’s visa rules. According to Airports Council International, in 2018, passenger numbers grew by almost 10% on 2017, and aircraft operations expanded by 6.5%.

The 2019 unveiling of a 3.7-kilometre-long, 60-metre-wide second runway in Minsk International Airport is also opening up opportunities for bigger aircraft. The national carrier, Belavia Belarusian Airlines, has been expanding its fleet and broadening its route network, adding Munich International Airport to its list of destinations in July 2019. “The growth of the airport and airport-related services shows how popular Minsk is becoming,” says one frequent traveller between London and Minsk. “It’s becoming harder to find a seat on a last-minute direct flight between the two cities in July now.”

Some young people in Minsk say that travelling directly from the capital by air can still be very expensive; instead they travel cheaply and quickly via the rail and bus network to Vilnius in Lithuania to pick up a low-cost flight to onward destinations.

The EBRD says that historically the transport infrastructure in Belarus has been funded by the state and run by the public sector. This, it says, is likely to change, explaining that: “Increased private participation will result in financial savings for the government and bring advanced engineering and organisational know-how to the road sector.” It is already assisting the government of Belarus, working with it to implement a legislative framework for public-private partnerships in the road sector to facilitate the implementation of the National Infrastructure Plan.

Belarus is well served by telecoms and internet connections. According to the 2017 Measuring Information Society Report from the International Telecommunication Union, it expects the successful implementation of the government’s state programme on "the development of the digital economy and information society" to enable the country to improve and maintain its position in the 2017 ICT Development Index rankings via a further rollout of long-term evolution networks, and development of fibre-optic networks, satellite communications, digital television and cloud technologies.