Belarus president Aleksander Lukashenko loathes being called the last dictator in Europe, but his recent crackdowns during and after elections in the country seem to have only reinforced that image. After the disputed election results in December 2010, protests were held in the inaptly named Independence Square (it used to be called Lenin Square and it still houses a huge statue of the former Soviet leader). Hundreds of people were arrested, including leaders of the various opposition parties. Some were only incarcerated for a night, while others are still held in prison, yet to face trial.

Because of this, and a general frustration over the years with Mr Lukashenko’s heavy-handed policies towards Belarusians, the US and EU reintroduced and tightened up sanctions in January, including travel bans on Mr Lukashenko and many of his associates. Yet in the middle of all this understandable bad press, the country is trying to initiate a privatisation scheme, including finally setting up an investment promotion agency. The move has been a long time in coming, with up to 80% of companies in Belarus still state-owned.

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Public protest

Attempts to draw in investors have hit some hurdles. In March, artists including Kevin Spacey, Jude Law and Tom Stoppard held a highly publicised protest against human rights violations in Belarus. The protest took place outside the headquarters of UK public relations company Grayling, which had been promoting investment in the country.

But as Belarus's minister of economy, Nikolai Snopkov, told fDi Magazine during an interview in March, politics and economics can be separated. “The way Belarus is perceived in the international political arena naturally affects the attraction of foreign investors,” said the minister. “[But] we hope that the measures taken by the government in order to liberalise the investment climate will continue to increase the inflow of FDI.”

Local wealth

Read about Belarus in the printed press and most stories paint a picture of drabness, poverty and isolation – giving a feeling that the Iron Curtain never quite fell in the country. But drive along the incredibly clean streets of Minsk and you will find McDonald’s and TGI Fridays – its trademark red and white sign written out in Cyrillic. Nightclub-goers dressed in the latest fashions from Hugo Boss and Ermenegildo Zegna, which both have boutiques in Minsk, sway in the city's jam-packed discos.

“Investors who first come to the country soon find that the reality is much better than the perception,” says Stephen Orlesky, the Canadian CEO of the Belarusian Bank for Small Business. “While in Ukraine, where I worked for seven years, it is the opposite." Mr Orlesky says comparing business practices between Ukraine and Belarus is "like [comparing] Italy to Sweden. Italy is chaotic, Sweden is orderly”.

State control

This order, of course, is in large part due to state control. However, that also, according to Mr Orlesky, makes some things less bureaucratic. He says it took less than a year for his bank to get up and running, and court decisions are efficient and get carried out. The European Bank for Reconstruction and Development (EBRD) has had a presence in the country for several years and, while progress has been hampered recently due to the poor handling of democratic principles, it believes privatisation is a crucial step.

“The EU and US sanctions are, so far, mostly symbolic,” says Paul-Henri Forestier, the EBRD’s director for Caucasus, Moldova and Belarus. “The country has many strengths that could draw investors. It has a well-educated population, it has a highly skilled workforce in areas such as engineering and technology, there is low unemployment and the average income is high.”

According to statistics from Belarus's Ministry of Economy, from 2006 to 2010 the average annual GDP growth rate in the country was 7.3%, outperforming neighbouring countries such as Poland, Lithuania and Latvia. Despite the country’s political sanctions and struggles so far this year, data from greenfield investment monitor fDi Markets show the country has seen almost $749m of FDI (last year $1.72bn was invested, one of Belarus's best years in terms of FDI). However all of this was recently overshadowed by the government formally requesting help from the IMF, due to depleted finances.

Technology growth

Technology provider Microsoft has recently announced plans to build a development centre in Belarus, which will invest resources in training specialists to develop new solutions and teach the latest technologies, such as cloud computing. However, the company declined to talk to fDi Magazine about the investment. Other recent investors have included the Czech Republic’s Eco Clean Energy company, which is constructing a waste process facility in Minsk, and Russia’s Mobile TeleSystems, which has plans to expand its 3G coverage to all of Belarus’s 21 municipal centres.

Not surprisingly, Russia is the largest investor in Belarus. Indeed, the two countries, together with Kazakhstan, launched a customs union in January 2010 as a first step towards forming a broader EU-style economic alliance of former Soviet states. Germany, the US, Austria and Ukraine are also major investors in Belarus. The top sectors for investment – and the recent focus of privatisation – are communications, financial services, food and tobacco manufacturing and business services. “Belarus needs investors,” says Mr Forestier. “But things are not going to change overnight.”

Economic volatility

What could cause overnight change, however, is a devaluation of its currency -- which, as widely expected, was exactly what happened in May, with the value of the rouble being decreased by a third. Some export agencies are already concerned and are warning exporters to Belarus that they might not get paid. In a memo leaked to Charter 97, a Belarus human rights group, Austrian export credit agency OeKB recommended to Raiffeisen Bank, which owns subsidiary Priorbank in Belarus, that deliveries to the country be stopped.

Investors might be drawn to the relative ease of setting up in Belarus. In the World Bank’s 'Doing Business' report, the country placed seventh in the world last year for starting a business and 12th for enforcing contracts. But investors should also be aware that there is a higher decree than the law in the country – President Lukashenko. Only after big business gets a blessing from the leader can they breathe easily that their projects probably won’t be hindered along the way.